(Monday Market Open) Equity index futures are pointing lower to start a newsworthy trading week with the kickoff of Q2 earnings season and tomorrow’s widely anticipated June Consumer Price Index (CPI) numbers.

Potential Market Movers

Last week’s stronger-than-expected jobs report doused some investor hopes that the Federal Reserve might slow their interest rate hike plans. A clearer picture could emerge this week as CPI and Producer Price Index (PPI) are likely to be more influential to the Fed’s inflation fight.

The Fed’s rate hikes to combat inflation have helped create a stronger U.S. dollar. And this morning, the dollar was rising again and threatening to move past 2002 levels. The euro and the greenback are now basically at parity on the spot market and the U.S. Dollar Index ($DXY) was up 0.70% this ahead of this morning’s bell.

Data from Morgan Stanley (MS) and Refinitiv indicates that on a year-over-year basis, every percentage point gain in the dollar results in about a half point hit to earnings on the S&P 500 (SPX). With the dollar rising about 16% over the last 12 months, S&P 500 earnings is facing an 8% wallop.

The rising dollar will likely be a recurrent theme throughout this month’s earnings conference calls at multinational companies.

That’s not all that’s going on in China. Authorities put down a potential run on rural banks in the central Henan province that have frozen millions of dollars in deposits. Depositors complained that the banks were misusing a COVID-19 customer behavior app in making that decision.

Additionally, Chinese real estate developer Ronshine missed a bond payment over the weekend and competitor Shimao missed one last week. Chinese real estate companies have struggled with bond payments for more than a year after industry giant Evergrande failed to keep its commitments. According to Bloomberg, Evergrande is still at risk of defaulting on bonds because their recent appeal for a delay was rejected by investors.

Chinese markets are feeling the pain with the Hang Seng down 2.77% and the Shanghai composite falling 1.27%.

In the energy markets, WTI Crude futures were trading 2.48% lower this morning. However, there is some tension over Russia’s Nord Stream 1 pipeline being down for repairs because there is fear that Russian President Vladimir Putin could choose to keep the pipeline offline as a way to strike back against European sanctions on Russia for its invasion of Ukraine. 

Finally, Elon Musk made news last Friday with his announcement that he’s backing out of his offer to buy Twitter (TWTR) for $44 billion. Musk expressed concern that Twitter hasn’t been upfront about the number of spam and bot accounts on the social media platform. The withdrawal could cost Musk at least $1 billion and Twitter executives are threatening to sue him for breach of contract.. 

Reviewing the Market Minutes

Stocks ended a respectable week on an up note with the Dow Jones Industrials ($DJI), Nasdaq ($COMP), and the S&P 500 ($SPX) rising respectively 0.14%, 0.11%, and 0.12%. Investors were still cautious after a stronger-than-expected Employment Situation report took away some of the hope that the Fed might want to take a less-aggressive approach to raising rates.

The report did reveal that the economy added 372,000 jobs last month, well above the estimate of 268,000. Average hourly wages came in as expected but were lower than the previous month, keeping the unemployment rate at 3.6%.

The 10-year Treasury yield (TNX) continued its climb, rising more than nine basis points and moving back above 3.1%. Growth stocks appeared to shrug off the three-day rally in the 10-year. The S&P 500 Pure Growth Index rose 0.37% while the S&P 500 Pure Value Index fell 0.27% on the day.

WTI crude oil futures continued to claw back some of its losses from the last month by settling higher, up 2.3% to $105.06 per barrel. WTI crude has rallied 7.5% in the last few days after falling about 20% from its June peak.

Finally, the U.S. Dollar Index ($DXY) tried to move higher once again but sold off despite the rising 10-year yield. The dollar remains near its 52-week high set two days ago. The dollar also came within a few pips of trading at parity to the euro. 

Three Things to Watch

Stabilizing: Like other defensive sectors, health care has done a better job of weathering the bear market. While it hasn’t been able to completely buck the trend like the energy sector, it has helped many of its investors to preserve the value of some of their assets.

Of course, determining a valuation is takes more than just looking at forward P/Es and there’s no guarantee that a low P/E will translate into higher returns. But it does provide a starting point for investors conducting top-down analysis.

Con-flation: On Friday, Mastercard SpendingPulse, which measures in-store and online retail sales for all types of payments, found that U.S. consumer retail spending rose 9.5% year-over-year (YOY) when excluding auto sales. Sales grew 6.1% YOY when excluding autos and gas. However, the numbers aren’t adjusted for inflation which means much of the growth could be due to rising prices.

The report showed that shoppers are also going out to brick-and-mortar stores with in-store spending rising 11.7% from the year-ago period, while e-commerce rose just 1.1% over the same timeframe.

This week’s CPI and retail sales reports will provide more insights into the strength of the consumer and the growth of inflation.

Notable Calendar Items

July 12: Earnings from PepsiCo (NASDAQ:PEP)

July 13: June Consumer Price Index (CPI) and earnings from Progressive (NYSE:PGR), Fastenal (NASDAQ:FAST), and Delta Air Lines (NYSE:DAL)

July 18: Earnings from Bank of America (NYSE:BAC), IBM (NYSE:IBM), and Goldman Sachs (NYSE:GS)

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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