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Q2 Earnings Reports In Focus

Today represents the final day of non-earnings data before the deluge of Q2 earnings reports begins with Wall Street bank majors like JPMorgan JPM and Citigroup C. We look forward to a second and final day of testimony on Capitol Hill from Fed Chair Janet Yellen today, which follows new reports from the Producer Price Index (PPI) and Initial Jobless Claims.

Let’s start with claims: 247K in the past week is 3000 fewer claims than the upwardly revised previous week, which moved up from 248K to 250K since its first read. Call it a melt of 1000 jobless claims, in other words a drop in the bucket. We’ve been at or near the top of that 225-250K range for the past few weeks now. It’s still representative of a strong U.S. labor market, especially in light of layoffs in the auto industry, which either got absorbed by job additions elsewhere or have yet to show up in the data.

June PPI rose a placid 0.1%, which is the headline number as well as ex-food & energy. Trade month over month was up 0.2%, and final demand year over year was 1.9%. In the larger scope, these figures mark a slight cooling off from previous trajectories, though it’s hard to make much of numbers this slight overall.

The markets clearly favored Janet Yellen’s perceived return to a dovish position on raising interest rates, even though she definitely inferred several times yesterday that the Fed’s course of tightening remains intact overall. What market bulls read was that there would be no rate hike in September and maybe not one in December, and this set the mood for a new round of stock-buying.

In fact, Yellen said “monetary policy is not a pre-set course” — common rhetoric from a Fed Chair, of course, but still something worth considering here: should we see inflation and employment metrics heating up above current trends, another quarter-point bump in September (two BLS payroll reports and several inflation reads from now, by the way) might not be verboten. So the market felt a rally was in order following no further turning of the interest rate screws, at least currently.

Cue Q2 earnings reports. It will be these which determine whether markets can rally to even higher highs in the days and weeks to come.

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