Markets Today: Stocks Mixed with Energy Stocks Climbing as Saudi Arabia Cuts Oil Production

Rich Asplund - Barchart - Mon Jun 5, 2023

Morning Markets

June E-Mini S&P 500 futures (ESM23) this morning are up +0.1%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.15%.

U.S. stock index futures this morning are mixed. Energy stocks are climbing in pre-market trading as crude prices jumped more than +2% to a 1-month high after Saudi Arabia said it would make an extra 1 million bpd cut in its crude production starting in July. Technology stocks are under pressure with rising bond yields.

In a note to clients Sunday, Morgan Stanley said, "We think that the downside risk to U.S. earnings is now," with earnings per share for the S&P 500 set to drop -16% this year. "While a deteriorating liquidity backdrop is likely to put downward pressure on equity valuations over the next three months, we also see EPS disappointment ahead as revenue growth slows and margins contract further."

Global bond yields are higher. The 10-year T-note yield is up +5.0 bp at 3.741%. The 10-year German bund yield is up +7.0 bp at 2.383%, and the UK 10-year gilt yield is up +4.8 bp at 4.204%.

On the bullish side for stocks, energy stocks are climbing in pre-market trading, with WTI crude up more than +2% at a 1-month high. Also, Palo Alto Networks is up more than +5% after S&P Dow Jones Indices said the company will replace Dish Network in the S&P 500 before the open of trade on June 20. In addition, ImmunGen is up more than +18% after the company reported results of its Elahere drug in a late-stage trial for the treatment of ovarian cancer, showing the drug is superior to chemotherapy.

On the bearish side, Epam Systems tumbled more than -10% in pre-market trading after cutting its Q2 adjusted EPS estimate. Also, Airbnb is down more than -2% on signs of insider selling after an SEC filing showed director Gebbia sold $37 million of stock. In addition, Dollar General is down more than -1% after Morgan Stanley downgraded the stock.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.02%. China’s Shanghai Composite closed up +0.07%, and Japan’s Nikkei Stock Index closed up +2.20%.

The Euro Stoxx 50 index today is slightly higher. Strength in European energy stocks is lifting the overall market after OPEC+ unexpectedly decided to cut crude production levels by 1.0 million bpd starting in July. Also, an easing of producer price pressures is supportive for equities after Eurozone Apr PPI rose +1.0% y/y, the slowest pace of increase in 2-1/4 years. Furthermore, stronger-than-expected German trade news was bullish for stocks after German Apr exports unexpectedly rose. However, economic concerns are limiting the upside in European stocks after today’s news showed the Eurozone Jun Sentix investor confidence fell to a 5-month low. Also, the Eurozone May S&P composite PMI index was revised downward. In addition, Morgan Stanley said European stocks are likely to underperform in the short term.

ECB Governing Council member Vujcic said, "Disinflation in the Eurozone is expected to be gradual, with the risks still tilted upward driven by risks coming from the tight labor market and underlying price pressures in the services sector."

Eurozone Apr PPI rose +1.0% y/y, weaker than expectations of +1.7% y/y and the slowest pace of increase in 2-1/4 years.

The Eurozone Jun Sentix investor confidence fell -3.9 to a 5-month low of -17.0, weaker than expectations of -15.1.

The Eurozone May S&P composite PMI was revised downward to 52.8 from the initially reported 53.3.

German Apr exports unexpectedly rose +1.2% m/m, stronger than expectations of -2.5% m/m.

Morgan Stanley said European stocks are likely to underperform in the short term, sliding by 8% to 10% over the summer months due to slowing economic growth and the renewed outperformance of growth stocks.

China’s Shanghai Composite Stock Index today climbed to a 1-1/2 week high and closed slightly higher. Strength in Chinese technology stocks ad companies connected to Apple suppliers rose on expectations for the launch of Apple’s new mixed-reality headset. Also, an upward revision to the China May Caixin services PMI is positive for stocks. Weakness in Chinese property stocks limited gains in the overall market despite new measures mulled by the government to boost the sector on disappointment the measures don’t go far enough.

The China May Caixin services PMI unexpectedly rose +0.7 to 57.1, stronger than expectations of a decline to 55.2.

Japan’s Nikkei Stock Index today rallied sharply to a new 32-year high. Japanese stocks continue to outpace global peers, helped by tailwinds including corporate guidance reforms, solid corporate earnings, and easy monetary policy while other countries raised interest rates. Japanese machinery stocks rose on signs the Fed may pause its interest rate hikes and after last Friday’s stronger-than-expected May payrolls report eased recession fears. Japanese companies related to hydrogen supply rallied today after a report of government investment in a network for clean-energy fuel. Finally, weakness in the yen is lifting exporter companies on the prospects for higher corporate earnings.

The Japan May Jibun Bank services PMI was revised downward to 55.9 from the initially reported 56.3.

Pre-Market U.S. Stock Movers

Energy stocks and energy service providers are climbing in pre-market trading, with WTI crude up more than +2% at a 1-month high. Chevron (CVX), Conoco Phillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Exxon Mobile (XOM), Occidental Petroleum (OXY), Marathon Oil (MRO), Schlumberger (SLB), and Valero Energy (VLO) are up more than +1%.

Palo Alto Networks (PANW) jumped more than +5% in pre-market trading after S&P Dow Jones Indices said the company would replace Dish Network in the S&P 500 before the opening of trade on June 20.

Apple (AAPL) is up nearly +1% in pre-market trading as it is expected to launch a mixed-reality headset at the Worldwide Developers Conference later today.

ZoomInfo Technologies (ZI) rose more than +2% in pre-market trading after it said it would reduce its workforce by about 3%.

ImmunGen (IMGN) surged more than +18% after the company reported results of its Elahere drug in a late-stage trial for the treatment of ovarian cancer showed the drug is superior to chemotherapy.

Southwestern Energy (SWN) climbed more than +2% in pre-market trading after Citigroup said the company looks like a “logical target” to be acquired by either Coterra Energy or Chesapeake Energy.

Epam Systems (EPAM) tumbled more than -10% in pre-market trading after cutting its estimate for Q2 adjusted EPS to $2.33-$2.40 from a prior estimate of $2.38-$2.46.

Airbnb (ABNB) slid more than -2% in pre-market trading on signs of insider selling after an SEC filing showed director Gebbia sold $37 million of stock on May 31.

Dollar General (DG) fell more than -1% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Today’s U.S. Earnings Reports (6/5/2023)

Anterix Inc (ATEX), HealthEquity Inc (HQY), IDT Corp (IDT), JOANN Inc (JOAN), Latch Inc (LTCH), Science Applications Internati (SAIC), Urban One Inc (UONEK), Veradigm Inc (MDRX), Vinco Ventures Inc (BBIG).

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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.