Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.22%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.24%.

U.S. stock index futures are trading lower after the Bank of England today surprised the markets with a +50 bp rate hike to 5.00% to address the rise in the UK May CPI to +8.7% y/y. The markets had been fully expecting a +25 bp BOE rate hike, but only a modest chance of a +50 bp rate hike.  In addition, Norway’s central bank raised its benchmark rate by +50 bp to 3.75%, and said the rate will “most likely be raised further in August.”  The Swiss central bank raised its key rate by +25 bp to 1.75%.

The markets are waiting for today’s second day of Fed Chair Powell’s semi-annual testimony before Congress as he appears before the Senate Banking Committee.  Mr. Powell will deliver the same prepared statement, but he will answer different questions from panel members, meaning he might say something a little different than he did in his appearance yesterday before the House Financial Services Committee.

Mr. Powell’s comments Wednesday were broadly in line with his comments last week after the FOMC meeting but still disappointed the markets.  Mr. Powell said the Fed believes that higher interest rates will be needed to curb inflation.  He said the Fed remains “strongly committed to bringing inflation back down to our 2% goal.”  However, he said the Fed is making decisions “meeting by meeting,” which means that a rate hike is not guaranteed for the next meeting.

The FOMC last week left its funds rate target unchanged at 5.00%/5.25%, pausing after 15 straight months of rate hikes.  However, the FOMC last week raised the median forecast for the funds rate target in its dot plot to 5.6%, which implies a further +50 bp rate hike from the current effective federal funds rate of 5.07%.  The markets are discounting the odds at 72% that the FOMC, at its next meeting on July 25-26, will raise its funds rate target by +25 bp, up from 69% odds late Wednesday.

Today’s U.S. initial unemployment claims report was slightly weaker than expectations, with the initial claims series remaining unchanged from last week’s revised 1-3/4 year high of 264,000.  That showed a slightly weaker labor market than expectations for a small decline to 259,000.  Meanwhile, continuing claims fell -13,000 to 1.759 million, which showed a stronger labor market than expectations for an increase to 1.785 million.

The U.S. Q1 current account deficit of -$219.3 billion was slightly wider than expectations of -$218.0 billion and widened from the revised Q4 level of -$216.2 billion.

Today’s May U.S. existing home sales report will be released at 10 am ET and is expected to show a -0.7% m/m decline to 4.25 million units from April’s level of 4.28 million. Today’s May U.S. leading economic indicator report will be released at 10 am ET and is expected to fall -0.8% m/m, adding to April’s -0.6% decline. 

Today’s June French confidence report was a bit stronger than expected.  The French June business confidence index was unchanged at 100, in line with market expectations and unchanged from May.  The French June manufacturing confidence index rose +2 points to 101 from 99 in May and was slightly stronger than market expectations of 98.  The French production outlook indicator rose by +1 point to -9 from -10 in May, which was stronger than expectations for a decline to -11.

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.83% for the fourth consecutive daily loss this week. Japan’s Nikkei Stock Index today closed down -0.92%. China’s stock market was closed today and will be closed for a second day on Friday for public holidays. 

Pre-Market U.S. Stock Movers

Tesla (TSLA) is down -3.1% in pre-market trading, adding to Wednesday’s loss of -5.95%, after Morgan Stanley downgraded the stock to equal-weight from overweight, saying that the stock’s rally on AI optimism has “brought the stock to fair valuation.”   Today’s downgrade from Morgan Stanley followed Barclay’s downgrade on Wednesday to equal-weight from overweight on the analyst’s opinion that Tesla has moved “too far, too fast.”

Boeing (BA) is down -2.9% in pre-market trading after its biggest supplier, Spirit AeroSystems (SPR), was forced to suspend its production due to a strike, which will disrupt the production of Boeing’s 737 Max jet.  Spirit AeroSystems (SPR) is down -9.0% in pre-market trading this morning on the unexpected strike vote.

Alcoa Corp. (AA) is down -3.2% in pre-market trading after a downgrade by Morgan Stanley to underweight from equal-weight.

Kellogg (K) is up +0.8% on an upgrade by Bernstein to market-perform from under-perform based on the analyst’s opinion that the Kellogg’s valuation is cheap.

DigitalOcean (DOCN) is down -5.3% on a downgrade by Piper Sandler to underweight from neutral.

Root (ROOT) is up sharply by +41% in pre-market trading on carry-over from Wednesday’s report by the Wall Street Journal that Embedded Insurance plans to launch an acquisition offer for the car-insurance startup of $19.34 a share.  Root rallied by +59% on Wednesday on the report.

Today’s U.S. Earnings Reports (6/22/2023)

Darden Restaurants Inc (DRI), FactSet Research Systems Inc (FDS), Accenture PLC (ACN).

• Unlock Your Trading Potential with this AAPL Risk Reversal Trade
• Stocks Slip Before the Open as Powell’s Hawkish Testimony Weighs on Sentiment, BoE Decision in Focus
• Stocks Fall as Fed Chair Powell Reiterates Hawkish Bias
• The $4.4 Trillion Economic Effect Of AI