Daily Agenda: The Federal Reserve Tilts Hawkish

Shell earnings plummet; Moody’s warns of Atlantic City default; euro-zone sentiment rises; Obama boosts Clinton.

The monetary policy statement issued yesterday by the Federal Open Market Committee took a hawkish tone with an upbeat assessment of underlying U.S. fundamentals and less concern over external risk factors. Although Fed chair Janet Yellen and her colleagues stopped short of hinting at a rate increase in September, the statement appeared to indicate that a hike was a significant possibility provided that no negative surprises developed in the coming months in terms of domestic inflation or labor markets. The next time markets will receive more information will likely be the Jackson Hole summit next month at which Yellen will be a featured speaker. Market reactions suggested that investors are less focused on the date of the next hike than on the pace of future raises. With every indication that the Federal Reserve will remain cautious and keep the pace slow, the dollar declined against most primary currencies and stock futures rose.

Shell earnings fall sharply. On Thursday, Dutch-Anglo oil giant Royal Dutch Shell announced financial results for the second quarter that included the lowest earnings in more than a decade as low oil prices and pressure on refinery margins took their toll. Adjusted earnings fell by 72 percent versus the same quarter last year with total profits of $1 billion, less than half of consensus analyst estimates. The poor performance comes at a critical time for Shell as it continues to digest BG Group. The news, following earlier negative reports by BP and Statoil, raises concerns for the entire energy segment in Europe.

Credit Suisse and BNP beat estimates. Two major European banks bested consensus analyst forecasts with earnings releases on Thursday. Zurich-based Credit Suisse Group announced a profit for the period despite an 84 percent year-over-year decline in net income, while also revealing improved capital ratios. Analysts had expected the bank to report a quarterly loss. The Swiss bank, under the leadership of CEO Tidjane Thiam, has reduced exposure to more volatile capital-markets segments in favor of refocusing on wealth management. Meanwhile, France’s largest bank by assets, Paris-based BNP Paribas, also reported results that exceeded consensus forecasts. Net income for the second quarter rose by 0.2 percent versus the same period in 2015, as a surge in bond trading helped offset shortfalls in other segments. Critically, bad loan provisions for BNP’s commercial lending division were lower than many analysts had expected.

Moody’s raises concern over possible Atlantic City default. Moody’s Investors Service analysts issued a report yesterday underscoring the possibility of a default by Atlantic City, New Jersey on a debt payment of more than $3 billion due on August 1. According to the ratings agency, the troubled city will need to come to an agreement with New Jersey over a massive bridge loan to prevent the shortfall. Atlantic City Mayor Don Guardian has predicted that a deal will be reached in time to prevent a default.

Economic sentiment improves despite Brexit. July data released by the European Commission on Thursday revealed a broad improvement in sentiment in the common-currency zone despite concerns over a U.K. departure. The headline Economic Sentiment Indicator index registered at 104.6 versus 104.4 in June; consensus analyst forecasts predicted a decline. Business climate, industrial confidence and services sentiment sub-indices also exceeded forecasts. By contrast, indicators for the wider EU, including noneuro-zone countries such as the U.K., declined.

Obama makes case for Clinton. From the stage at the Wells Fargo Center in Philadelphia, President Barack Obama urged delegates of the Democratic National Convention and the television audience to support party nominee and former Secretary of State Hillary Clinton for president. During the speech, the president made veiled references to GOP nominee Donald Trump as a “self-declared savior” and “home-grown demagogue,” noting that “we don’t look to be ruled.” As Obama wound up his speech, Clinton surprised the convention by appearing on stage to embrace the outgoing president.