July 19 - Stocks continue pushing higher at mid-day, as the major indexes reach fresh 15-month highs and the VIX remains low near the 13.5 level. The dollar continues to show strength today after its recent break lower, still hovering near the 100.2 level at the time of writing. Treasuries have rebounded slightly from the morning lows, with 10-year yields now trading near 3.78% while 2-year yields trade near 4.75%. Strength continues in the commodity sector as well, with the nearby WTI contract holding near the $76.30 level while the grain and oilseeds continue their surge higher following the escalations in Ukraine.
A tremendous amount of earnings are on deck today, with reports coming from a wide range of sectors. The tech sector has driven much of the strength in stocks in Q2, and after the close the market will get a look at earnings from Tesla, Netflix, and IBM. With Wall Street experiencing the most positivity it has seen in a year-plus, today's earnings could play a critical role in setting the tone on whether or not this rally is able to continue its recent push higher or take a step back. Recent better-than-expected earnings from big banks have provided significant support after concerns of the sector's health weighed on sentiment earlier in the year, but the market will now get a look at whether or not their counterparts can bring similar positivity as a slew of other financial institutions are also due to report today. This includes many of the regional banks that came under fire this spring, along with major player U.S. Bancorp. While the banking sector jitters have largely been put behind us this summer, confirmation of steps in the right direction would go a long way, while negative surprises could certainly look to pour water on the fire.
The market gets a better look at the global economy's health outside of the U.S. and China today, with multiple European inflationary readings released this morning. The U.K. got their first positive news in what feels like quite a while, with their June CPI dropping to a 7.9% year-on-year rise, still considerably higher than many of the world's top economies as well as their 2.0% target rate. Regardless, this did come in below expectations of an 8.2% reading and marked a sharp drop from the 8.7% seen in May while falling well below the peak 11.1% inflation seen back in October. Much of this decline was due to falling energy costs, but perhaps more importantly, the U.K.'s core inflation eased from its 31-year high set in May of 7.1% down to 6.9%. The world's 6th-largest economy has had one of the biggest struggles combatting inflation but today's data could be the first step in the right direction. However, if we do see the commodity sector (especially energy) continue to rally, the Bank of England may have to continue its hawkishness for longer than expected if pressures do creep back in.
Elsewhere in Europe, the story wasn't quite as positive. Eurozone CPI readings this morning showed headline inflation match expectations by falling to 5.5% in June, down from the 6.1% in May and reaching the lowest level since January 2022. As with the U.K., however, a large part of this decline was due to falling energy costs. Core inflation readings were less optimistic, rising to 5.5% in June after falling to 5.3% in May and remaining near the 5.7% peak set in March. One of the main drivers of the sticky core inflation in June was the service sector, a similar story to what we've seen here in the U.S.
We've seen how connected the global economy is, with recent struggles in China's economic recovery weighing on sentiment across the globe. The European readings outlined above include four of the world's ten largest economies and thus carry weight on the overall outlook. Even with recent optimism as the U.S. inflationary picture improves, it's important to keep in mind that the battle is far from over today and that the things happening elsewhere in the world will eventually have an impact here in the U.S., especially now with risks in the commodity sector growing again and potentially bringing back nagging inflationary pressures.
