Negative corporate guidance | 21 July 2023

#SP500:

The consensus estimates show Q2 earnings for the S&P 500 dropping roughly 7% when compared to a year ago, down from the nearly 2% decline in the prior quarter and significantly lower than the 5-year earnings growth average of 12%. The energy sector is projected to detract the most from growth, with consensus estimates showing a 48% decline in profits, as the significant drop in oil prices over the last year weigh meaningfully on profits. Conversely, the consumer discretionary and communications sectors are the only two sectors projected to record double-digit earnings growth. As of today, 113 constituents of the S&P 500 have issued earnings per share guidance for the second quarter, with 67 companies issuing negative guidance and 46 companies issuing positive guidance.

Trading recommendation: sell 4520 and take profit 4385.

XAUUSD:

Federal Reserve to raise rates during this month’s Federal Open Market Committee meeting on July 25-26, further evidence of ebbing inflation pressure increases the chances that this month marks the last hike of this Fed rate hiking cycle. Inflation in 2023 has been significantly impacted by the housing sector. It is anticipated that housing costs, which account for a sizable portion of the CPI, will decline. The reason for this is that there has been an increase in development, particularly of multi-family homes, which should help lessen the pressure on rents. Although we are aware that lower rents will take some time to flow through to the official inflation measurements, the decline is favorable for inflation rates in the months to come. Investors and policymakers alike should prepare for a decrease in housing-related inflation in coming months.

Trading recommendation: sell 1969 and take profit 1911.

#WTI:

Global oil demand to climb by 2.2 mb/d in 2023 to reach 102.1 mb/d, a new record. Lower production from Saudi Arabia and core OPEC+ members since production cuts were first implemented last November has so far been offset by higher output from other producers. In June, global oil supply was a mere 70 kb/d below October levels just before the first round of OPEC+ cuts kicked in. Iran, exempt from cuts due to sanctions, ramped up production by 530 kb/d over the same period, reaching a five-year high. At the same time, output recovered in Kazakhstan and Nigeria. Outside of the alliance, supply from the United States rose by 610 kb/d as natural gas liquids output surged to all-time highs while biofuels increased seasonally. But global supply could tumble by more than 1 mb/d this month as Riyadh implements steeper cuts. The Kingdom’s crude output is set to plunge to a two-year low of around 9 mb/d in July and August, leaving it trailing behind Russia as the bloc’s top crude producer.

Trading recommendation: buy 73.50 and take profit 76.74.