Markets Today: Stocks Gain on Chinese Property Support and Lower Bond Yields

Rich Asplund - Barchart - Tue Jul 11, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.15%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.19%.

U.S. stock index futures this morning are moderately higher on carryover support from a rally in Chinese stocks after authorities in China stepped up relief measures for property developers. Also, lower bond yields today supported stocks on optimism that U.S. price pressures are continuing to fall. In addition, positive comments from New York Fed President Williams lifted stocks when he said he "doesn't have a recession in his forecast."

An easing of price pressures is bullish for stocks and bonds. Wednesday’s U.S. Jun CPI report is expected to show prices eased to +3.1% y/y from +4.0 y/y in May, the slowest pace in 2-1/4 years. Also, Jun CPI ex-food and energy is expected to ease to +5.0% y/y from +5.3% y/y in May.

New York Fed President Williams said today that he "doesn't have a recession in his forecast" but has lowered his growth forecasts "a little bit" for next year as some of the tightening of monetary policy and some effects of credit tightening will weigh on demand in 2024.

The markets are discounting the odds at 89% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are lower. The 10-year T-note yield is down -1.8 bp at 3.976%. The 10-year German bund yield is down -1.4 bp at 2.626%. The 10-year UK Gilt yield is down -0.9 bp at 4.631%.

Overseas stock markets are higher. The Euro Stoxx 50 is up +0.73%. China’s Shanghai Composite Index today closed up +0.55%. Japan’s Nikkei Stock Index today closed up +0.04%.

The Euro Stoxx 50 today is moderately higher. Stocks are climbing today as market sentiment improved about global growth after China signaled more economic support measures are imminent after authorities took steps toward supporting the ailing property market. European construction and mining stocks outperformed, while automakers declined as BNW dropped more than -1% after the stock was downgraded to hold from buy at Bankhaus Metzler. Also, Dowlais Group Plc tumbled more than -5% after Citigroup initiated coverage of the stock with a sell recommendation.

Today’s Eurozone economic news was negative for stocks after the German Jul ZEW survey expectations of economic growth fell -6.2 to a 7-month low of 14.7, weaker than expectations of -10.6.

China’s Shanghai Composite posted moderate gains today for a second session. Real estate and property stocks rallied today and led the overall market higher after authorities took steps to support the property market by extending loan relief for developers. Also, top state-run financial newspapers today ran reports flagging the likely adoption of more property-supportive policies, along with measures to boost business confidence. In addition, Chinese stocks garnered support on signs of stronger credit growth after today’s aggregate financing and Jun new yuan loan reports rose more than expected.

A joint statement from the PBOC and Financial Regulatory Administration late Monday said that Chinese financial institutions would be encouraged to negotiate with real estate firms to extend outstanding loans in order to spur the delivery of homes under construction. Also, some outstanding loans, including trust loans due before 2024, will be given a one-year repayment extension.

China Jun aggregate financing, the broadest measure of credit growth, rose +4.22 trillion yuan, stronger than expectations of +3.10 trillion yuan. Also, Jun new yuan loans rose +3.05 trillion yuan, stronger than expectations of +2.32 trillion yuan.

Japan’s Nikkei Stock Index closed slightly higher. Strength in semiconductor stocks and suppliers to Taiwan Semiconductor Manufacturing Co (TSMC) led the overall market higher after TSMC reported better-than-expected quarterly sales. Stocks fell back from their best levels today after the yen climbed to a 3-week high against the dollar, which prompted the selling of exporter stocks.

Stock splits among Japanese companies are a positive factor for the overall market. More than 80 Japanese companies have announced stock splits this year, almost double the pace of last year and the most for a period in five years. Although the splits don’t affect the total value of the stocks, they make them more affordable and easier to trade for investors. According to Bloomberg data, more than half of the Japanese stocks that have split have outperformed the overall market a month after announcing the move.

Today’s Japanese economic news was bearish for stocks after Japan Jun machine tool orders fell -21.7% y/y, the sixth consecutive month that orders have declined.

Pre-Market U.S. Stock Movers

JPMorgan Chase (JPM) gained more than +1% in pre-market trading after Jeffries upgraded the stock to buy from hold with a price target of $165.

WD-40 (WDFC) jumped more than +5% in pre-market trading after reporting Q3 EPS of $1.38, stronger than the consensus of $1.22.

Nio (NIO) rose more than +1% in pre-market trading, adding to its 12% jump over the past two sessions, after Morgan Stanley last week said the electric vehicle maker’s sales momentum showed a big improvement last month and is likely to register further gains through September.

Zillow (Z) jumped more than +3% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral with a price target of $62.

Rockwell Automation (ROK) rose more than +1% in pre-market trading after Wolfe Research upgraded the stock to peer perform from underperform.

Alcoa (AA) dropped more than -2% in pre-market trading after Wolfe Research downgraded the stock to underperform from peer perform.

VeriSign (VRSN) slid more than -1% in pre-market trading after Baird downgraded the stock to neutral from outperform.

Truist Financial (TFC) fell more than -1% in pre-market trading after Jeffries downgraded the stock to hold from buy.

Iovance Biotherapeutics (IOVA) slumped more than -11% in pre-market trading after it announced the pricing of an underwritten public offering of 20 million shares of its common stock at $7.50 a share, a nearly 15% discount to Monday’s close.

JetBlue Airways (JBLU) dropped more than -2% in pre-market trading after Evercore ISI downgraded the stock to underperform from neutral.

Today’s U.S. Earnings Reports (7/11/2023)

Alphatec Holdings Inc (ATEC) and Ocean Biomedical Inc (OCEA).

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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.