Markets Today: Stocks Rise as Weak U.S. Economic News Knocks Bond Yields Lower

Rich Asplund - Barchart - Wed Aug 30, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.05%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.07%.

Stock indexes this morning recovered from overnight losses and are slightly higher after weaker-than-expected U.S. economic news knocked bond yields lower. The Aug ADP employment change rose less than expected, and U.S. Q2 GDP was revised lower, bolstering speculation the Fed is nearing the end of its rate-hike cycle.

Stock indexes today were initially under pressure on signs of sticky inflation in Europe, which may prompt the ECB to raise interest rates higher for longer after Germany’s August CPI and Spain’s August core CPI rose more than expected.

The U.S. Aug ADP employment change rose +177,000, weaker than expectations of +195,000 and the smallest increase in 5 months. However, July was revised upward to +371,000 from the initially reported +324,000.

U.S. Q2 GDP was revised downward to 2.1% (q/q annualized) from 2.4%. The Q2 core PCE price index was revised lower to +3.7% q/q from +3.8% q/q.

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 47% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are mixed. The 10-year T-note yield is down -1.0 bp at 4.110%. The 10-year German bund yield is up +3.7 bp at 2.547%. The 10-year UK gilt yield is down -0.2 bp to 4.421%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.14%. China’s Shanghai Composite Index closed up +0.04%. Japan’s Nikkei Stock Index closed up +0.33%.

The Euro Stoxx 50 today retreated from a 2-week high and is moderately lower. European stocks today initially moved higher on carryover support from Tuesday’s gains in U.S. stocks and a larger-than-expected decline in German July import prices. Also, Eurozone new car registrations increased for the twelfth consecutive month in July. However, stocks gave up their advance and turned lower after Eurozone Aug economic confidence fell more than expected to a 2-3/4 year low and after Germany’s August consumer prices and Spain’s August core consumer prices rose more than expected.

Eurozone Aug economic confidence fell -1.2 to a 2-3/4 year low of 93.3, weaker than expectations of 93.5.

Eurozone July new car registrations rose +15.2% y/y to 851,000, the twelfth consecutive month of increases.

The German July import price index fell -13.2% y/y, weaker than expectations of -13.1% y/y and the biggest decline in 36 years.

German Aug CPI (EU harmonized) eased to +6.4% y/y from +6.5% y/y in July, stronger than expectations of +6.3% y/y.

Spain Aug CPI (EU harmonized) rose to +2.4% y/y from +2.1% y/y in July, right on expectations. Aug core CPI eased to +6.1% y/y from +6.2% y/y in July, stronger than expectations of +6.0% y/y.

China’s Shanghai Composite today closed slightly higher. Chinese stocks found support today after Bloomberg reported that the government asked Citic Trust and CCB Trust, two of the country’s biggest financial firms, to examine the books of liquidity-stressed Zhongrong International Trust, potentially paving the way for a state-led rescue of the shadow lender. A similar examination by Citic of Huarong Asset Management led to a $6.6 billion bailout of the bad debt manager in 2021. Zhongrong and closely linked wealth firm Zhongzhi Enterprise Group roiled markets earlier this month after halting payments on numerous investment products the firms sold. A decline in Chinese bank stocks limited gains in the overall market on profit concerns on reports the banks were preparing to reduce rates on the majority of outstanding mortgages.

Japan’s Nikkei Stock Index today rose to a 2-week high and closed moderately higher. Japanese technology stocks rallied today on the heels of sharp gains in U.S. tech stocks on Tuesday. Also, cryptocurrency-related companies rose on carryover support from a rally in their U.S. peers after a U.S. court overturned a Securities and Exchange Commission (SEC) decision to block an ETF that invests directly in Bitcoin. The Nikkei Stock Index fell back from its best levels on weakness in Japanese manufacturing and automation-related stocks due to weaker Chinese demand that has undercut their earnings. Also, Japanese makers of computers, printers, and related equipment moved lower after HP Inc. cut its full-year cash flow and profit outlook, saying a rebound in the PC market will take longer than expected.

The Japan Aug consumer confidence index unexpectedly fell -0.9 to 36.2, weaker than expectations of an increase to 37.4.

Pre-Market U.S. Stock Movers

HP Inc (HPQ) tumbled more than -8% in pre-market trading after reporting Q3 revenue of $13.20 billion, weaker than the consensus of $13.38 billion, and cutting its full-year free cash flow estimate to $3 billion from a prior forecast of $3.0 billion-$3.5 billion, below the consensus of $3.43 billion.

Box Inc (BOX) dropped more than -9% in pre-market trading after reporting Q2 billings of $232.5 million, below the consensus of $243.1 million, and cutting its 2024 revenue forecast to $1.04 billion-$1.044 billion from a previous forecast of $1.045 billion-$1.055 billion, weaker than the consensus of $1.05 billion.

Brown-Forman (BF/B) dropped more than -3% in pre-market trading after reporting Q1 EPS of 48 cents, weaker than the consensus of 53 cents.

Ambarella (AMBA) plunged more than -18% in pre-market trading after forecasting Q3 adjusted gross margin of 62%-64%, the midpoint below the consensus of 63.5%. Cowen then downgraded the stock to market perform from outperform.

Centene (CNC) slid more than -1% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Texas Instruments (TXN) fell more than -2% in pre-market trading after Bernstein downgraded the stock to underperform from market perform.

PVH Corp (PVH) rose more than +1% in pre-market trading after reporting Q2 adjusted EPS of $1.98, stronger than the consensus of $1.75.

Transocean Ltd (RIG) rallied more than +2% in pre-market trading after winning a $222 million contract for an ultra-deepwater drillship to work offshore India.

Pal Alto Networks (PANW) gained nearly +1% in pre-market trading after WestPark Capital initiated a buy rating on the stock with a price target of $340.

UDR Inc (UDR) rose nearly +1% in pre-market trading after Scotiabank upgraded the stock to sector outperform from sector perform.

Today’s U.S. Earnings Reports (8/30/2023)

Brown-Forman Corp (BF/B), Cooper Cos Inc/The (COO), Crowdstrike Holdings Inc (CRWD), Five Below Inc (FIVE), Okta Inc (OKTA), Pure Storage Inc (PSTG), Salesforce Inc (CRM), Veeva Systems Inc (VEEV), Victoria's Secret & Co (VSCO).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.