Stocks Decline on Weak Chinese and U.S. Economic Data
What you need to know…
Stocks are trading modestly lower today and are under pressure today as disappointing economic data from China signals a slowdown in the world’s second-largest economy that undercuts global growth prospects. Energy, mining, and commodity-producing stocks are leading losses today as the weak Chinese economic data suggest reduced commodity demand. Stock indexes remained lower after this morning’s U.S economic data on the Aug Empire manufacturing survey of general business conditions, and the Aug NAHB housing market index fell more than expected.
Sep WTI crude oil prices this morning are down more than -4% after weaker than -expected U.S. and Chinese economic data signals a slowdown in the global economy that is bearish for energy demand. Also, Iran said it would inform the EU of its official position on a draft text to revive the 2015 nuclear accord by Monday night, signaling it may be nearer to an agreement with the U.S. over a deal that could restore its oil exports to global markets.
The U.S. Aug Empire manufacturing survey general business conditions plunged -42.2 to -31.3, weaker than expectations of 5.0 and the steepest pace of contraction in 2-1/4 years.
The U.S. Aug NAHB housing market index fell -6 to a 2-1/4 year low of 49, weaker than expectations of 54.
The PBOC unexpectedly cut its 7-day reverse repurchase rate by 10 bp to 2.00% and cut its 1-year medium-term lending facility rate by 10 bp to 2.75%.
China July new home prices fell -0.11% m/m, weaker than expectations of -0.10% m/m, and the eleventh consecutive month home prices have fallen.
China July industrial production rose +3.8% y/y, weaker than expectations of +4.3% y/y.
China July retail sales rose +2.7% y/y, weaker than expectations of +4.9% y/y.
Today’s stock movers…
Energy companies and energy service providers are falling today, with crude prices down more than -4%. Diamondback Energy (FANG) is down more than -6% to lead losers in the S&P 500. Also, Marathon Oil (MRO), Valero Energy (VLO), Schlumberger (SLB), and Haliburton (HAL) are down more than -5%. In addition, Occidental Petroleum (OXY), Devon Energy (DVN), Baker Hughes (BKR), and ConocoPhillips (COP) are down more than -3%. Finally, Chevron (CVX) is down more than -3% to lead losers in the Dow Jones Industrials.
Software stocks are under pressure today after Guggenheim Securities warned last Friday that “near-term macro weakness” in the software sector “will persist for longer than most investors anticipate.” Qualcomm (QCOM), Broadcom (AVGO), Crowdstrike Holdings (CRWD), Micron Technology (MU), Marvell Technology (MRVL), NXP Semiconductors NV (NXPI), and ASML Holding NV (ASML) are all down more than -1%.
Moderna (MRNA) is up more than +4% today after the UK approved the company’s “Bivalent” Covid-19 vaccine as a booster. The vaccine targets two coronavirus variants.
Tesla (TSLA) is up more than +1% today after the Nikkei reported that Panasonic Holdings plans to boost the production of electric vehicle batteries it supplies to Tesla by +10% by 2024.
Walt Disney (DIS) is up more than +1% today after activist Dan Loeb increased his stake in Disney and urged its board of directors to consider a spinoff of ESPN, cut costs and add new directors as part of his plan to boost shareholder value.
Take-Two Interactive Software (TTWO) climbed more than +1% today after Bloomberg reported that data from Apptopia showed Take-Two Interactive Software July IAP revenue rose +5.2% y/y, the fastest growth in IAP revenue among app purchases from a year earlier.
Across the markets…
Sep 10-year T-notes (ZNU22) today are up +17 ticks, and the 10-year T-note yield is down -6.9 bp at 2.763%. Weakness in stocks today is boosting the safe-haven demand for T-notes. Also, global growth concerns are supportive of T-notes on weaker-than-expected U.S. and Chinese economic data. Finally, a more than 5% plunge in crude prices today is weighing on inflation expectations and is bullish for T-notes.
The dollar index (DXY00) today is up by +0.35% as a slide in stocks has bolstered liquidity demand for the dollar. Also, signs of weakness in the global economy are boosting safe-haven demand for the dollar after today’s Chinese economic data was weaker than expected. Lower T-note yields today are limiting the upside in the dollar along with weaker than expected U.S. economic data on Aug Empire manufacturing survey general business conditions and the Aug NAHB housing market index.
EUR/USD (^EURUSD) today is down -0.49%. A stronger dollar today is undercutting EUR/USD. The euro is also under pressure today amid drought concerns in Europe that will boost crop prices that fuel inflation. In addition, concerns about an energy crisis that could send the EU into recession are undercutting the euro as Russia limits nat-gas supplies to Europe.
The German July wholesale price index rose +19.5% y/y, the slowest pace of increase in 5 months.
USD/JPY (^USDJPY) today is down -0.47%. Today’s upward revision to Japan’s June industrial production was supportive of the yen. Also, a more than -4% plunge in crude oil prices today is bullish for the yen. However, gains in the yen were contained after Japan Q2 GDP grew less than expected.
Japan June industrial production was revised upward by +0.3 to up +9.2% m/m from the previously reported +8.9% m/m.
Japan Q2 GDP rose +2.2% (q/q annualized), weaker than expectations of +2.6%. The Q2 deflator fell -0.4% y/y, a smaller decline than expectations of -0.8% y/y.
October gold (GCV22) is down -23.9 (-1.32%), and September silver (SIU22) is down -0.578 (-2.79%). Precious metals prices are weighed down today by a stronger dollar. Ongoing liquidation of long gold positions by funds is also undercutting gold prices after long gold positions in ETFs fell to a 5-1/2 month low last Friday. Silver is also under pressure on industrial metals demand concerns after today’s weaker-than-expected U.S. and Chinese economic data. Gold garnered some support today after the PBOC unexpectedly cut interest rates. Also, lower global bond yields today are supportive of gold prices.
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