It was a notably quiet start to the week in global markets, with few fresh geopolitical shocks or trade barriers to unsettle investors and much of the world distracted by the ongoing football schedule. While U.S.-Iran peace talks have produced no reported breakthroughs, maritime activity in the Strait of Hormuz is at least partially restored - a development closely watched by oil and shipping markets.
According to the UK Maritime Trade Operations office, 160 vessels transited the waterway between Monday and Saturday last week, 98 of which were tankers. That number remains well below the pre-conflict daily average of 138 transits - a reminder the route has not yet returned to previous throughput levels.
Over the weekend OPEC+ agreed to raise production quotas by 188,000 barrels per day effective from August, taking the cumulative increase since April to almost 800,000 barrels per day. Oil prices reacted by easing, yet Brent futures trade near $72.50 all the way through December, implying markets are currently treating that level as a short-term floor for prices.
Asian equity markets opened modestly lower, a pattern market participants attributed to profit-taking ahead of what promises to be an intense corporate reporting period. The pullback was not unexpected after outsized year-to-date gains: South Korea's main index is up almost 90% this year, Taiwan's benchmark has climbed about 62% and Japan's market has risen roughly 37%.
All eyes will be on Samsung Electronics, which is due to report results on Tuesday. Analysts surveyed by LSEG SmartEstimate expect an 18-fold jump in profits, with consensus pointing to an operating profit of 86 trillion won for the April-to-June quarter. As the world's largest memory chipmaker by sales, Samsung's figures are likely to set the tone for semiconductor sector sentiment into the earnings barrage.
In the United States, Delta Air Lines and PepsiCo are scheduled to report ahead of a heavier slate that will include the major banks next week. Street consensus currently projects year-on-year earnings per share growth of about 25% for the reporting season, with roughly half that expansion attributable to gains in semiconductors and energy sectors.
Futures for the S&P 500 and Nasdaq returned from the break slightly firmer, while European futures showed little change after solid gains last week. Treasury yields ticked a touch lower as market participants grew more confident the Federal Reserve could pause rate hikes at the upcoming meeting later this month, a view reinforced by a recent softer-than-expected payrolls print.
Investors will be parsing the minutes of the Fed's last policy meeting, due Wednesday, for policy guidance. Those minutes are expected to sound relatively hawkish on their face, reflecting that nine Fed officials had plotted at least one further hike for the year - a position that predated the recent tumble in oil prices. Market-implied odds currently assign a 22% probability to no change at the July 29 meeting, and a roughly 60% probability to a rate increase on September 16.
Market-watchers will also note a series of scheduled central bank appearances this week: Federal Reserve Governor Christopher Waller is set to speak in Rome later in the session, while influential policymakers including New York Fed Governor John Williams will make public appearances on Thursday. Those events precede testimony next week by Fed Chair Kevin Warsh to the House Financial Services Committee. Against this backdrop the ISM Services survey for June is expected to show a modest easing to 54.0, which would still be consistent with healthy activity in the services sector.
Key scheduled developments that could move markets on Monday include public remarks from Fed Governor Christopher Waller, ECB board members Isabel Schnabel and Philip Lane, ECB President Christine Lagarde and Riksbank Deputy Governor Anna Seim. Data releases of note slated for the session include EU retail sales and producer prices for May, German industrial output for May and the U.S. ISM services survey for June.
Market context
- Geopolitics - partial reopening of the Strait of Hormuz; no progress in U.S.-Iran talks reported.
- Energy - OPEC+ output increase of 188,000 bpd from August; Brent futures trading near $72.50 to December.
- Equities - Asian indices pull back after sharp YTD gains; Samsung expected to report a substantial jump in operating profit.
- Monetary policy - Treasury yields slightly lower; Fed minutes and key central bank appearances this week to provide policy clues.