The Wall Street Journal - 31.07.2019

B12| Wednesday, July 31, 2019 *** THE WALL STREET JOURNAL.**

3.9% move after it reports its

earnings before the market

opens on Thursday, above the

average 3.5% move recorded

over the past eight earnings re-

leases, according to data pro-

vider Trade Alert.

The forecast is based on a

trade called a straddle, which

doesn’t measure whether the

stock will go up or down, only

the size of the swing in either

direction.

“The risk in GM earn-

ings...are certainly to the

downside,” said Shawn Cruz,

manager of trader strategy at

TD Ameritrade.

U.S. government bond
prices fell Tuesday after a
measure of consumer senti-
ment rebounded in July to its
highest level this year.
The yield on the benchmark
10-year Treasury note rose for
the third time
in four trading
sessions, set-
tling at 2.063%
from 2.056% Monday.
Yields, which climb when
bond prices fall, rose after the
Conference Board, a private
research group, said Tuesday
its index of consumer confi-
dence rose to 135.7 in July, up
from 124.3 in June. That was
higher than the reading of
124.8 that economists sur-
veyed by The Wall Street Jour-
nal had expected.
The data suggests that
Americans remain confident
about the U.S. economy de-
spite persistent trade tensions
and slowing global growth.
Tuesday’s yield climb also
came after two former Federal
Reserve officials suggested
that the central bank only
needs to cut interest rates one
time to sustain U.S. economic
growth amid a global slow-
down.
Former New York Fed Presi-

dent William Dudley wrote in
a Bloomberg opinion article
that “the case for lowering
rates is less compelling now
than it was” given improved
economic data. Former Federal
Reserve Chairwoman Janet
Yellen said Sunday she en-
dorses a quarter-percentage-
point cut in the central bank’s
benchmark interest rate this
week because of worries over
global growth and low infla-
tion, but that she didn’t see
the need to do more.
The Fed is expected to cut
interest rates at its meeting
Wednesday for the first time
since the financial crisis. Offi-
cials have said they would like
to ensure the economy contin-
ues to expand and are consid-
ering taking measures to pre-
vent lower inflation
expectations to take root in
the U.S. as they have in Eu-
rope and Japan.
The 10-year German gov-
ernment note yield fell to neg-
ative 0.446% Tuesday after the
European Commission on
Tuesday said its Economic
Sentiment Indicator—a mea-
sure of sentiment among con-
sumers and businesses—fell to
102.7 from 103.3 in June, its
lowest level since March 2016.
The WSJ Dollar Index,
which measures the U.S. cur-
rency against a basket of 16
others, gained less than 0.1%
Tuesday, settling at 90.91.
Investors will be watching
for Fed Chairman Jerome
Powell to suggest whether of-
ficials see a need for further
cuts. The Fed could signal a
readiness to cut rates further
because the European Central
Bank—which has held rates
below zero since 2014, and is
expected to lower them fur-
ther in September—has little
capacity for repeated cuts,
said Jim Vogel, head of inter-
est-rate strategy at FTN Fi-
nancial.
While inflation has re-
mained persistently below the
Fed’s target of 2%, as mea-
sured by the price index for
personal-consumption expen-
ditures, the U.S. economy has
continued to grow at a steady
pace. That index rose 1.4% in
June from the year before, ac-
cording to the Commerce De-
partment. Excluding more vol-
atile food and energy prices, it
increased 1.6%.
Federal-funds futures, used
by investors to bet on central
bank policy, Tuesday showed
about 70% odds that the Fed
will lower rates by at least an-
other quarter-point in Septem-
ber and a 50% chance of an-
other reduction by December.
“Not only is the Fed likely
to cut rates, but the Fed is
likely to cut several times,”
said Thomas Graff, a bond
manager at Brown Advisory.

BYDANIELKRUGER

Treasurys

Drop After

Consumer

Rebound

CREDIT
MARKETS

2.063

Percentage yield on the
10-year U.S. Treasury note

U.S. vehicle sales fell in the latest quarter. A GM assembly plant.

JEFF KOWALSKY/AGENCE FRANCE-PRESSE/GETTY IMAGES

their bearish bets on the VIX

in recent weeks, according to

Commodity Futures Trading

Commission data as of July 23.

A bearish bet on the VIX is

akin to a bullish wager on

stocks.

One exception has been

some earnings-day moves. In

an unusual instance, earnings-

day moves for some S&P 500

stocks have been even bigger

than options traders have

been forecasting, according to

Goldman Sachs Group Inc. an-

alysts. Options traders gener-

ally bet on bigger moves than

stocks register after earnings

releases.

In the current earnings-re-

porting season, the opposite

has been the case, according

to Goldman analysts’ calcula-

tions of postearnings moves as

of July 23.

For example, Google parent

Alphabet Inc. jumped 9.6%—

its biggest daily move since

2015, adding $79 billion to its

market value—after it re-

ported second-quarter earn-

ings on July 25. That was

more than the 4.7% jump op-

Continued from page B1

Shares of Ford Motor Co.

and General Motors Co. have

diverged this month, with

Ford’s stock price slipping and

General Motors’ rising.

Their fates could come to-

gether, however, when GM re-

ports earnings this week, ana-

lysts said.

Ford has fallen about 6.7% in

July, while GM is up 4.9%. They

each have notched gains in

2019 of more than 20%.

Ford last week reported flat

second-quarter operating in-

come and a disappointing earn-

ings outlook. U.S. vehicle sales

fell in the latest quarter and,

analysts said, GM isn’t immune

to these types of headwinds.

“In light of [Ford’s] drop af-

ter its number last week, I

don’t think GM is so different

from [Ford] that its earnings

would be much better,” said

Tom Preston, quantitative

strategist at options education

platform Tastytrade.

The forward price/earnings

ratio, a traditional valuation

measure, has ticked up for Ford

and GM since the end of 2018.

Options traders appear to be

bracing for a big move in GM

stock. They are projecting a

BYGUNJANBANERJI

Options Traders Brace for GM

To Make Big Move After Report

Copper prices slid again

Tuesday after President Trump

increased pressure on China in

a series of tweets, a potential

setback for investors hoping

that the world’s two largest

economies can

quickly reach a

trade agree-

ment.

The most-active copper fu-

tures, for September delivery,

fell 1.4% to $2.6785 a pound on

the Comex division of the New

York Mercantile Exchange,

their largest one-day drop

since early June. Prices of the

industrial metal used heavily

in construction and manufac-

turing are about 10% below

their April peaks, hurt by fears

that trade tensions and slow-

ing economic growth will

crimp demand.

Analysts are keeping a close

eye on copper and other in-

dustrial metals amid trade un-

certainty because China is the

largest source of demand, ac-

counting for roughly half of

global copper consumption.

That is a main reason many

view base metals prices as an

economic indicator.

Hopes for a trade agree-

ment and optimism about Chi-

nese stimulus measures have

boosted prices sporadically in

recent months, while setbacks

in talks have caused anxiety

about a sharp demand slow-

down.

Those worries intensified

again after Mr. Trump warned

that the terms of a trade

agreement with China would

be tougher if he is re-elected

next year.

He also accused Beijing of

not holding up its end of pre-

vious agreements.

“My team is negotiating

with them now, but they al-

ways change the deal in the

end to their benefit,” Mr.

Trump tweeted.

Markets slid in May after

talks between the two sides

fell apart, though the talks

have since restarted and ex-

pectations for lower interest

rates have boosted stocks and

other risky investments. Chi-

nese and U.S. negotiators re-

sumed trade talks Tuesday,

with U.S. Trade Representative

Robert Lighthizer and Trea-

sury Secretary Steven Mnuchin

dining with Chinese represen-

tatives led by Chinese Vice

Premier Liu He in Shanghai.

Some analysts hope easing

monetary policy globally will

spur economic growth, but

many remain concerned that

manufacturing activity and

business investment will re-

main sluggish until the U.S.-

China tariff fight is resolved.

In another sign of investor

caution, most-active gold fu-

tures rose 0.6% to $1,441.80 a

troy ounce, extending their re-

cent rally to six-year highs.

Lower interest rates make the

metal more attractive to yield-

seeking investors, while in-

creased geopolitical uncer-

tainty also tends to boost the

haven asset.

BYAMRITHRAMKUMAR

Industrial Metal Copper Hammered

COMMODITIES

Demand for copper has been sensitive to Chinese growth, making trade talks important for prices. A metals refinery in Peru.

DADO GALDIERI/BLOOMBERG NEWS

arise where additional tariffs are

forthcoming as President Trump

tries to ratchet up the pressure

on China,” said Michael Stritch,

chief investment officer of BMO

Wealth Management.

In a sign that Americans are

shrugging off trade tensions,

the Conference Board, a private

research group, said its index of

consumer confidence re-

bounded in July to its highest

level this year.

Commerce Department data

showed that Americans’ spend-

ing remained healthy in June.

Personal-consumption expendi-

tures increased 0.3%, while per-

MARKETS

sonal income rose 0.4%, in line

with expectations of econo-

mists surveyed by The Wall

Street Journal.

The Federal Reserve is ex-

pected to announce an interest-

rate cut on Wednesday, a pros-

pect that has lifted stocks.

Investors will be watching com-

ments from Fed Chairman Je-

rome Powell on Wednesday af-

ternoon for signs of how much

further the central bank could

go in slashing rates.

Some large U.S. companies

reported second-quarter re-

sults. Procter & Gamble rose

3.8% to $120.41 after the con-

sumer-goods company posted

its highest quarterly sales

growth in more than a decade.

Merck gained 0.9% to $83.27

after the drugmaker beat ana-

lysts’ expectations for sales and

earnings.

Capital One Financial fell

5.9% to $91.21 after the bank

reported a data breach. Class A

shares of Under Armour tum-

bled 12% to $24.08 after the

sportswear retailer said it ex-

pected North American sales to

decline this year.

U.S. government bond prices

fell. The yield on the bench-

mark 10-year Treasury note

rose to 2.063% from 2.056%

Monday. Yields move in the op-

posite direction of prices.

Overseas, the Stoxx Europe

600 dropped 1.5% amid flag-

ging consumer confidence and

fears of a messy Brexit.

The British pound fell 0.5%

against the dollar, after having

declined by more than 1% Mon-

day to its lowest close since

March 2017. Investors were re-

acting to the hard tone from

the U.K.’s new Boris Johnson-

led government on quitting the

European Union without a deal.

“The market right now is

evolving toward no-deal Brexit

as a base case,” said Geoffrey Yu,

head of the U.K. investment of-

fice at UBS Wealth Management.

At midday Wednesday in To-

kyo, Japan’s Nikkei was down

1%. Also early in the day, Hong

Kong’s Hang Seng Index was

down 1.3% and the Shanghai

Composite was down 0.8%.

U.S. crude oil jumped 2.1% to

$58.05 a barrel. Gold climbed

0.7% to $1429.70.

U.S. stocks slipped after

President Trump warned of dif-

ficulties in trade talks with

China.

The S&P 500 fell 7.79 points,

or 0.3%, to 3013.18. The Dow

Jones Industrial Average de-

clined 23.33 points, or less than

0.1%, to 27198.02, while the

Nasdaq Composite dropped

19.71 points, or 0.2%, to 8273.61.

Mr. Trump tweeted that

there were no signs of China

making a new

effort to buy

U.S. agricul-

tural products.

“That is the problem with

China, they just don’t come

through,” he added.

Chinese and U.S. negotiators

are resuming trade talks this

week in Shanghai. Uncertainty

over trade has clouded the U.S.

economic outlook, weighing on

sectors like manufacturing even

as unemployment is low and

consumer spending remains

strong.

“We could see a situation

BYALEXANDEROSIPOVICH

ANDANNAISAAC

Stocks Fall on China Trade Jitters

Indexperformance

Source: FactSet

0

–0.8

–0.6

–0.4

–0.2

%

9:30

Tuesday

10 11 noon 1234

DowJonesIndustrialAverage

S&P500

NasdaqComposite

TUESDAY’S

MARKETS

Capital One Financial

Corp.’s shares suffered their

worst day in more than six

months after the company re-

vealed a sprawling data

breach.

The bank’s shares fell 5.9%,

their largest percentage de-

cline since Jan. 23, according

to Dow Jones Market Data.

At their low on Tuesday,

Capital One shares were down

about 7.9%, which would have

been their worst day since

2015.

The fifth-largest U.S. credit-

card issuer said Monday that a

hacker accessed the personal

information of approximately

106 million card customers

and applicants, one of the

largest-ever data breaches of a

big bank.

Recent history shows that it

can be hard for companies to

recover from these incidents.

Equifax Inc. said in Septem-

ber 2017 that hackers gained

access to some of its systems.

Its share price still hasn’t

recovered to its two-year high

of $146.26, hit in August 2017

before the breach was re-

vealed, FactSet data show.

Equifax stock fell 1.1% on

Tuesday to $141.21 in recent

trading.

The financial sector in the

S&P 500 also took a hit on

Tuesday, falling 0.6%.

Banks tend to fare better

when interest rates are rising,

and investors are girding for

the Federal Reserve to cut

rates for the first time in

about a decade when it meets

this week.

BYGUNJANBANERJI

Capital One

Shares Sink

After Breach

Is Disclosed

tions traders had projected

ahead of the release.

One potential benefit of the

lower volatility is that it could

be less expensive to make

bets.

“Options are unusually

cheap ahead of earnings this

quarter,” wrote Goldman Sachs

Group analysts on July 24.

JJ Kinahan, chief market

strategist at TD Ameritrade,

said some individual investors

have been selling stock expo-

sure and buying bullish call

options instead, the kinds of

contracts that would profit if

individual shares continue to

ascend. Calls give the right to

buy shares at a specific price

at a later time.

Still, some investors are

betting on turbulence to re-

turn.

With stocks near records

and volatility in markets dwin-

dling, there is a risk that the

Federal Reserve’s message this

week, or the rest of earnings

season, will spur a pullback

for equities.

For example, trading in op-

tions that would pay out if the

VIX jumps picked up last

week, Trade Alert data show.

Some options were pegged to

the gauge hitting 25, which

would amount to the gauge

roughly doubling from Friday’s

close.

The thinking is, “if things

get a little out of control, we

want some hedge in place,”

Mr. Kinahan said.

Investors

Bet Market

Stays Calm