Stock Index Futures Plunge on Pressure from Rising Bond Yields, China Data Disappoints

Oleksandr Pylypenko - Barchart - Tue Aug 15, 2023

September S&P 500 futures (ESU23) are down -0.61%, and September Nasdaq 100 E-Mini futures (NQU23) are down -0.48% this morning as market participants digested the latest U.K. employment data, which fueled concerns about inflationary pressures and consequently pushed U.S. Treasury yields higher, while disappointing economic data from China also weighed on sentiment ahead of crucial U.S. retail sales data.

In Monday’s trading session, Wall Street’s major averages closed higher. NVIDIA Corporation (NVDA) climbed over +7% and was the top percentage gainer on the tech-heavy Nasdaq 100 after Morgan Stanley said the recent decline in the stock is a “good entry point” ahead of its Q2 results next week. Also, United States Steel Corporation (X) surged more than +36% after the company rejected a $7.25 billion cash and stock takeover offer from Cleveland-Cliffs and said it would initiate a formal review of its strategic options. In addition, Monday.Com Ltd (MNDY) rose over +8% after reporting upbeat Q2 results and raising its full-year revenue guidance. On the bearish side, Tesla Inc (TSLA) dropped more than -1% after the automaker said it had cut prices in China for Model Y Long Range and Performance versions. Regional bank stocks also retreated, with KeyCorp (KEY) plunging over -4% and Comerica Inc (CMA) falling more than -3%.

“It’s the first day in a while that tech has really significantly outperformed. I think that’s indicative of the fact that you have this blockbuster Nvidia report coming up, and that could support the tech market pretty substantially,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.

Meanwhile, U.S. rate futures have priced in an 88.5% probability of no hike and an 11.5% chance of a 25 basis point rate increase at September’s monetary policy meeting.

On the earnings front, major companies like Home Depot (HD), Suncor Energy (SU), Alcon (ALC), and Agilent Technologies (A) are slated to release their quarterly results today.

Today, all eyes are focused on U.S. Retail Sales data in a couple of hours. Economists, on average, forecast that July Retail Sales will stand at +0.4% m/m, compared to the previous value of +0.2% m/m.

Also, investors will likely focus on U.S. Core Retail Sales data, which came in at +0.2% m/m in June. Economists foresee the new figure to be -0.3% m/m.

U.S. Export and Import Price Indexes for July will also be in focus today. Economists anticipate Export Price Index to be at +0.2% m/m and Import Price Index to stand at +0.2% m/m.

U.S. NY Empire State Manufacturing Index will be reported today as well. Economists foresee this figure to stand at -1.00 in August, compared to the previous number of +1.10.

In the bond markets, United States 10-Year rates are at 4.228%, up +1.02%.

The Euro Stoxx 50 futures are down -0.78% this morning as apprehensions about inflation have led to speculation that interest rates will remain elevated for an extended period. Bond yields surged across Europe, with U.K. gilts experiencing a notable spike after a record-high wage growth spurred worries about inflationary pressures. Real estate and insurance stocks underperformed on Tuesday, while retail stocks gained ground. In corporate news, Marks and Spencer Group Plc (MKS.LN) soared over +6% after the retailer lifted its profit forecast.

U.K.’s Average Earnings Index +Bonus, U.K.’s Claimant Count Change, U.K.’s Employment Change 3M/3M, U.K.’s Unemployment Rate, Germany’s ZEW Economic Sentiment, and Eurozone’s ZEW Economic Sentiment data were released today.

U.K. June Average Earnings Index +Bonus has been reported at 8.2%, stronger than expectations of 7.3%.

U.K. July Claimant Count Change stood at +29.0K, weaker than expectations of -7.3K.

U.K. June Employment Change 3M/3M came in at -66K, weaker than expectations of +75K.

U.K. June Unemployment Rate was at 4.2%, weaker than expectations of 4.0%.

The German August ZEW Economic Sentiment stood at -12.3, stronger than expectations of -14.7.

Eurozone August ZEW Economic Sentiment arrived at -5.5, stronger than expectations of -12.0.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.07%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.56%.

China’s Shanghai Composite today closed lower even after the central bank unexpectedly cut a key interest rate to bolster growth, following the latest data indicating a further slowdown in the country’s economic activity. Data released by the National Bureau of Statistics showed on Tuesday that China’s industrial production and retail sales growth decelerated and fell short of expectations in July. The People’s Bank of China lowered the rate on 401 billion yuan worth of one-year medium-term lending facility loans to some financial institutions by 15 basis points to 2.50%. Also, the central bank conducted a 204 billion yuan injection through seven-day reverse repos while cutting borrowing costs by 10 basis points to 1.80%. Meanwhile, the yuan declined to the weakest level since November, and China’s government bonds experienced a rally following the central bank’s decision to lower interest rates.

“The weak dataset continues to paint a bearish picture of China after the Politburo meeting. Most investors are in wait-and-see mode, only willing to allocate tactically to China on expectations of stimulus,” said UBS analysts in a note.

The Chinese July Industrial Production stood at +3.7% y/y, weaker than expectations of +4.4% y/y.

The Chinese July Retail Sales came in at +2.5% y/y, weaker than expectations of +4.5% y/y.

The Chinese July Fixed Asset Investment arrived at +3.4% y/y, weaker than expectations of +3.8% y/y.

The Chinese July Unemployment Rate was at 5.3%, in line with expectations.

At the same time, Japan’s Nikkei 225 Stock Index closed higher today, tracking Wall Street’s firm overnight finish, and market sentiment was additionally lifted by stronger-than-expected economic growth data. According to government data released on Tuesday, Japan’s economy expanded for a third consecutive quarter in April-June, as robust exports countered the impact of a decelerating post-COVID recovery in consumption. In corporate news, Japan Post Holdings climbed over +4% after the conglomerate of banks and insurance businesses revealed plans to repurchase up to 8.4% of its own shares, totaling 300 billion yen. At the same time, Dentsu Group plunged more than -7% after the advertising firm slashed its full-year net profit guidance. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -4.31% to 18.85.

The Japanese GDP has been reported at +1.5% q/q and +6.0% y/y in the second quarter, stronger than expectations of +0.8% q/q and +3.1% y/y.

The Japanese June Industrial Production came in at +2.4% m/m, stronger than expectations of +2.0% m/m.

Pre-Market U.S. Stock Movers

DR Horton Inc (DHI) and Lennar Corporation (LEN) climbed about +2% in pre-market trading after Warren Buffett’s Berkshire Hathaway revealed new positions in the stocks.

LL Flooring Holdings Inc (LL) surged over +12% in pre-market trading after the company announced that it had planned to explore strategic alternatives, including a potential sale of the company.

Arena Group Holdings Inc (AREN) soared about +18% in pre-market trading after the company signed a binding letter of intent with Simplify Inventions, LLC and its founder, Manoj Bhargava, to acquire certain assets of its subsidiary Bridge Media Networks.

Getty Images Holdings Inc (GETY) tumbled more than -18% in pre-market trading after the company reported downbeat Q2 results and cut its FY23 revenue guidance.

Delcath Systems Inc (DCTH) spiked about +66% in pre-market trading after announcing that the U.S. Food and Drug Administration approved HEPZATO KIT as a liver-directed treatment for adult patients with metastatic uveal melanoma.

Caredx Inc (CDNA) rose over +5% in pre-market trading after Raymond James upgraded the stock to Outperform from Market Perform.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Tuesday - August 15th

Home Depot (HD), Suncor Energy (SU), Alcon (ALC), Agilent Technologies (A), Nu Holdings (NU), Sea (SE), Cardinal Health (CAH), Legend Bio (LEGN), Jack Henry&Associates (JKHY), Tencent Music Entertainment Group (TME), Coherent (COHR), CAVA Group (CAVA), H&R Block (HRB), Dlocal (DLO), IHS Holding (IHS), Mercury (MRCY), Stride (LRN), Dada Nexus (DADA), Riskified (RSKD), HUYA (HUYA), Eagle Point Cred (ECC), Mondee Holdings (MOND), International General Insurance (IGIC), GigaCloud Technology (GCT), Terran Orbital (LLAP), Rekor Systems (REKR).

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