Stocks Fall on Weakness in Banks and Chinese Economic Concerns
What you need to know…
Stocks this morning are moderately lower, with the Dow Jones Industrials falling to a 4-week low. Weakness in bank stocks is weighed on the overall market after Fitch Ratings warned it may have to downgrade the sector again. U.S. economic news today was mixed for stocks as Jul retail sales rose more than expected, but the Aug NAHB housing market index unexpectedly declined. Stocks recovered from their worst levels after T-note yields erased an early advance and turned lower.
Concern that China’s faltering economy will drag down global growth is weighing on stocks after China reported disappointing news on industrial production and retail sales. Stocks remained under pressure even after the People’s Bank of China (PBOC) unexpectedly cut interest rates today, which only deepened anxiety about China’s economy.
U.S. Jul retail sales rose +0.7% m/m, stronger than expectations of +0.4% m/m. Also, Jul retail sales ex-autos rose +1.0% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 6 months.
The U.S. Aug Empire manufacturing survey general business conditions fell -20.1 to -19.0, weaker than expectations of -1.0.
The U.S. Jul import price index ex-petroleum was unchanged m/m, stronger than expectations of -0.2% m/m.
The U.S. Aug NAHB housing market index unexpectedly fell -6 to 50, weaker than expectations of no change at 56.
China Jul industrial production rose +3.7% y/y, weaker than expectations +4.3% y/y.
China Jul retail sales rose +2.5% y/y, weaker than expectations of +4.0% y/y and the slowest pace of increase in 5 months.
The PBOC unexpectedly cut the rate on its one-year loans, or the medium-term lending facility, by -15 bp to 2.50% versus expectations of no change at 2.65%.
The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 38% for that +25 bp rate hike at the November 1 FOMC meeting.
Global bond yields are mixed. The 10-year T-note yield fell back from a 9-1/2 month high of 4.268% and is down -1.9 bp at 4.189%. The 10-year German bund yield climbed to a 5-1/4 month high of 2.737% and is up +4.8 bp at 2.686%. The 10-year UK gilt yield climbed to a 1-month high of 4.666% and is up +3.5 bp at 4.620%.
Overseas stock markets are mixed. The Euro Stoxx 50 is down -1.05%. China’s Shanghai Composite Index today closed down -0.07%. Japan’s Nikkei Stock Index closed up +0.56%.
Today’s stock movers…
Discover Financial Services (DFS) is down more than -7% to lead losers in the S&P 500 after CEO Hochschild resigned effective immediately.
Weakness in bank stocks is weighing on the overall market after Fitch Ratings said it would have to reevaluate ratings on U.S. banks it covers it downgrades the industry again. KeyCorp (KEY), Comerica (CMA), Citizens Financial Group (CFG), Truist Financial (TFC), and Zions Bancorp (ZION) are down more than -3%. Also, JPMorgan Chase (JPM) is down more than -2% to lead losers in the Dow Jones Industrials. In addition, Fifth Third Bancorp (FITB), Lincoln National (LNC), Bank of America (BAC), M&T Bank (MTB), Regions Financial (RF), and Huntington Bancshares (HBAN) are down more than -2%.
Mining stocks are under pressure today after the price of copper and silver dropped to 1-1/2 month lows. As a result, Freeport McMoran (FCX) is down more than -3%, and Newmont (NEM) and Southern Copper (SCCO) are down more than -1%.
Refining stocks are under pressure after Bank of America Global Research downgraded Marathon Petroleum, Phillips 66, and Valero Energy to neutral from buy. As a result, Marathon Petroleum (MPC) and Valero Energy (VLO) are down more than -2%, and Marathon Petroleum (MPC) is down more than -1%.
U.S.-listed Chinese stocks are falling today after weaker-than-expected economic news on industrial production and retail sales heightened concerns about China’s economy. As a result, PDD Holdings (PDD) is down more than -3%. Also, JD.com (JD) and Alibaba Group Holding (BABA) are down more than -2. In addition, Baidu (BIDU) is down more than -1%.
Tesla (TSLA) is down more than -1% on concern about future profitability after it added lower-price versions of its Model S sedan and Model X utility vehicles that cost $10,000 less than their previous base prices.
DR Horton (DHI) is up more than +1% to lead gainers in the S&P 500 after the most recent 13F filings show Berkshire Hathaway bought positions in the company in Q2.
Home Depot (HD) is up nearly +1% after reporting Q2 comparable store sales fell -2%, a smaller decline than the consensus of -3.64%.
Match Group (MTCH) is up more than +1% after a 13F filing showed Nomura Holdings reported a position of 6.65 million shares in the company or 2.4% of Match Group’s outstanding stock.
Hexcel (HXL) is up more than +1% after RBC Capital Markets upgraded the stock to outperform from sector perform.
Paysafe Ltd (PSFE) is up more than +8% after reporting Q2 revenue of $402.3 million, above the consensus of $394.3 million.
Nvidia (NVDA) is up nearly +1% after UBS raised its price target on the stock to $540 from $475.
Across the markets…
September 10-year T-notes (ZNU23) today are up +4 ticks, and the 10-year T-note yield is down -1.9 bp at 4.189%. Sep T-notes today recovered from a 9-1/2 month nearest-futures low, and the 10-year T-note yield fell back from a 9-1/2 month high of 4.268%. Short covering emerged in T-notes as stocks tumbled and after the Aug NAHB housing market index unexpectedly declined. T-notes this morning initially fell on the stronger-than-expected U.S. July retail sales report. Also, a negative carryover from higher European government bond yields pressured T-note prices after the 10-year German bund yield rose to a 5-1/4 month high of 2.737% and the 10-year UK gilt yield rose to a 1-month high of 4.666%.
The dollar index (DXY00) today is down by -0.24%. Lower T-note yields today are undercutting the dollar. Also, strength in the yen weighed on the dollar after Japan's Q2 GDP expanded more than expected and on BOJ intervention concerns after Japan’s Finance Minister said he’s watching the foreign exchange market with a high sense of urgency.
EUR/USD (^EURUSD) today is up by +0.36%. The euro is climbing today as a jump in the 10-year German bund yields to a 5-1/4 month high has strengthened the euro’s interest rate differentials. Also, the unexpected increase in the German Aug Zew expectations of economic growth supported the euro.
The German Aug Zew expectations of economic growth unexpectedly rose +2.4 to -12.3, stronger than expectations of a decline to -14.9.
USD/JPY (^USDJPY) is down by -0.28%. The yen today rebounded from a 9-month against the dollar and is moderately higher. Stronger-than-expected economic news on Japan’s Q2 GDP and industrial production activity was bullish for the yen. Also, short covering in the yen emerged after comments from Japanese Finance Minister Suzuki bolstered speculation the BOJ was close to intervening in the forex market to prop up the yen when he said he would take appropriate action if authorities deemed movements in the foreign currency market were excessive. The yen today initially declined as early strength in T-note yields weighed on the yen.
Japan Q2 GDP grew +6.0% (q/q annualized), stronger than expectations of +2.9% and the strongest pace of expansion since Q4 2020. The Q2 deflator rose +3.4% y/y, the highest since the data series began in 1995.
Japan Jun industrial production was revised upward by +0.4 to +2.4% m/m from the initially reported +2.0% m/m, the largest increase in 4 months.
October gold (GCV3) today is down -1.3 (-0.07%), and Sep silver (SIU23) is up +0.17 (+0.07%). Precious metals prices this morning are mixed, with gold falling to a 7-week low. Precious metals prices this morning were under pressure after T-note yields jumped when U.S. Jul retail sales rose more than expected. Also, weaker-than-expected Chinese economic news on industrial production was bearish for industrial metals demand and weighed on silver prices. In addition, fund liquidation in gold continues after long gold holdings in ETFs fell to a 3-1/3 year low Monday.
However, silver rebounded from a 1-1/2 month low and moved higher, and gold prices recovered most of their losses after a decline in T-note yields dragged the dollar lower. Also, today’s action by the PBOC to unexpectedly cut interest rates was bullish for precious metals.
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