Stocks eased from record highs into the close Tuesday, as investors weighed better-than-expected results from banks, and a jump in bond yields, a day ahead of Federal Reserve chairman Jerome Powell’s two-day testimony.
Bond yields were given a lifeline following U.S. bond auction pointing to waning demand for bonds that pushed prices lower and yields higher. The initial move lower in rates had arrived on the back of a monthly consumer inflation report that showed the pace of price pressures remains at multi-decade highs.
The outlook on growth, meanwhile has been soured somewhat by a spike in Covid-19 cases as the delta variant first identified in India continues to spread, threatening the summer of travel.
Here are three things that could affect markets tomorrow:
1. Powell Takes Stand
Federal Reserve chairman Jerome Powell is set to take the stand on Capitol Hill to testify before Congress in his two-day mandated semiannual testimony on the state of monetary policy.
The Fed chief isn’t expected to offer any insight into monetary policy, but investors will be watching remarks on the labor market and inflation. Powell has previously suggested that he expects the temporary factors weighing on labor supply to fade. Any deviation in tone that suggest the Fed’s conviction to cast a wider net to allow a broader sector of the labor market to recover, could suggest that inflation may be starting to worry the Fed.
“The [ongoing] message from the Fed was: We want to to participate in the recovery. If the Powell backs off that, then that’s telegraphing the central bank is much more concerned about inflation.That’s what I’m looking for tomorrow [in Powell’s testimony],”
2. Banks Continue Earnings Parade; Delta Air Lines Also in Focus
Bank of America is expected to report EPS of $0.77 on revenue of $21.87 billion. Wells is forecast to generate EPS of $0.95 on revenue of $17.82 billion. Citigroup, meanwhile, is expected to generate earnings of $1.99 on revenue of $17.82 billion.
The quarterly results from the trio of banks followed better-than-expected results from JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) on Wednesday. But doubts over loan demand and a backdrop of weaker yields continued to weigh on the sector.
Delta Air Lines (NYSE:DAL) will report earnings before markets open. Beyond earnings, investors are eager for commentary on the outlook for travel demand, and prospects for the return of business travel at a time when Covid-19 infections have started to surge again.
3. Crude Oil Inventories
Oil prices remained bid going into the weekly energy inventory data due Wednesday following positive data on Tuesday showing a sharp draw in crude and gasoline stocks.
U.S. crude inventories fell by 4.1 million barrels for the week ended July 8, the API reported. That compared with a draw of 8.0 million barrels the prior week.
Oil prices settled higher on Tuesday as investors shrugged off the threat that the resurgence in Covid-19 cases pose to the demand outlook.
The official government inventory report due Wednesday is expected to show weekly U.S. crude supplies declined by about 4.4. million barrels last week.