Markets Today: Stocks Climb as Chinese Markets Recover

Rich Asplund - Barchart - Thu Aug 17, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.32%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.41%.

Stock indexes this morning are moderately higher, garnering support from a recovery in Chinese stocks. U.S. stock indexes extended their overnight gains on signs the U.S. economy can achieve a soft landing after weekly jobless claims fell more than expected and after the Aug Philadelphia Fed business outlook survey rose more than expected to a 16-month high.

U.S. stock indexes have some positive carryover from a slight recovery in Chinese stocks after the Shanghai Stock Index rebounded from a 7-1/2 month low when the Zhongzhi Enterprise Group said it plans to restructure debt and sell assets after the review in order to repay investors. This week, Chinese stocks have been under pressure as liquidity concerns in China’s shadow banking system intensified after Zhongrong International Trust, a unit of Zhongzhi Enterprise Group, missed payments on dozens of its investment products.

U.S. weekly initial unemployment claims fell -9,000 to 239,000, showing a slightly stronger labor market than expectations of 240,000.

The U.S. Aug Philadelphia Fed business outlook survey rose +25.5 to a 16-month high of 12.0, stronger than expectations of -10.4.

The markets are discounting the odds at 12% for a +25 bp rate hike at the September 20 FOMC meeting and 43% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are higher. The 10-year T-note yield rose to a 9-3/4 month high of 4.310% and is up +3.8 bp to 4.288%. The 10-year German bund yield is up +3.3 bp at 2.683%. The 10-year UK gilt yield jumped to a 14-year high of 4.714% and is up +5.4 bp at 4.700%.

Overseas stock markets are lower. The Euro Stoxx 50 is down -0.33%. China’s Shanghai Composite Index today closed up +0.43%. Japan’s Nikkei Stock Index closed down -0.44%.

The Euro Stoxx 50 dropped to a 5-week low and is moderately lower. Stocks are falling on concerns the Fed will boost interest rates higher and for longer after Wednesday’s minutes of the July FOMC meeting stated that policymakers saw “significant” inflation risks that may merit more rate hikes. European government bond yields also rose on the hawkish FOMC minutes, with the 10-year UK gilt yield rising to a more than 14-year high of 4.713%. Weaker-than-expected earnings results also weighed on European stocks as Adyen NV sank more than -20% after reporting first-half earnings that mixed estimates, and Gerberit AG fell -4% after reporting first-half sales that missed estimates.

ECB Governing Council member Kazaks said, "If we look at the coming months, if there'll be increases in interest rates, then they'll be really very small."

China’s Shanghai Composite today recovered from a 7-1/2 month low and closed moderately higher. Short covering emerged in Chinese stocks in late trading today on a report that said Zhongzhi Enterprise Group was planning to restructure its debt and hired KPMG LLP to conduct an audit of its balance sheet. The Chinese shadow band plans to restructure debt and sell assets after the review in order to repay investors. Zhongzhi Enterprise Group has over 1 trillion yuan ($137 billion) of assets. Chinese stocks today initially opened lower, led by a slide in insurance stocks, after a Citigroup report said opacity of insurers’ investment portfolios will “inevitably lead to valuation derating.” Also, Lenovo Group tumbled more than -3% after missing profit estimates for the second straight quarter.

The yuan recovered from a 9-1/4 month low against the dollar today and moved higher on a report that said Chinese authorities told state-owned banks to step up intervention in the currency market this week and that government officials are considering the use of tools such as cutting banks’ foreign-exchange reserve requirements to prevent a rapid depreciation in the yuan.

Japan’s Nikkei Stock Index today dropped to a 2-1/2 month low and closed moderately lower. Concerns that U.S. interest rates will be higher for longer and Chinese economic woes are undercutting Japanese stocks. Material-related stocks led the overall market lower due to caution over the outlook for the Chinese economy. Also, today's economic news was weaker-than-expected and weighed on stocks, including Japan's July exports, which fell more than expected by the most in more than two years. On the positive side, Japanese banks and insurance stocks moved higher in hopes of an improved earnings environment. The yen recovered from a 9-1/4 month low against the dollar today and moved higher after a weak 20-year Japan bond auction pushed the 10-year JGB bond yield up to a 2-week high.

The Japan Jun tertiary industry index fell -0.4% m/m, weaker than expectations of -0.2% m/m.

Japan Jul exports fell -0.3% y/y, weaker than expectations of -0.2% y/y and the biggest decline in over two years. Also, Jul imports fell -13.5% y/y, the biggest decline in 2-3/4 years.

Japan Jun core machine orders rose +2.7% m/m, weaker than expectations of +3.5% m/m.

Pre-Market U.S. Stock Movers

Walmart (WMT) rose more than +1% in pre-market trading after reporting Q2 comparable sales ex-gas rose +6.3%, stronger than the consensus of +4.04% and raising its 2024 net sales forecast to about +4%-4.5% from a previous estimate of +3.5%.

Ball Corp (BALL) climbed more than +3% in pre-market trading after BAE Systems agreed to buy Ball’s aerospace division for around $5.6 billion.

Cisco Systems (CSCO) rose more than +2% in pre-market trading after reporting Q4 revenue of $15.20 billion, better than the consensus of $15.05 billion, and forecasting Q1 revenue of $14.50 billion-$14.70 billion, the midpoint above the consensus of $14.57 billion.

Chesapeake Energy (CHK) jumped more than +5% in pre-market trading after S&P Dow Jones Indices said the company would replace Mercury Systems in the S&P MidCap 400 before the opening of trading on Aug 21.

Adobe (ADBE) gained more than +1% in pre-market trading after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $630, saying the company is “emerging as an AI leader.”

Tapestry (TPR) fell more than -2% in pre-market trading after reporting Q4 adjusted EPS of 95 cents, weaker than the consensus of 97 cents, and forecasting 2024 adjusted EPS of $4.10-$4.15, below the consensus of $4.22.

Hawaiian Electric Industries (HE) plunged more than +18% in pre-market trading amid concerns over the company’s potential liabilities following the Maui wildfires.

Wolfspeed Inc (WOLF) sank more than -13% in pre-market trading after reporting a Q4 adjusted loss per share of -42 cents, steeper than the consensus of -20 cents, and forecasting a Q1 adjusted loss per share of -60 cents to -75 cents, much weaker than the consensus of -30 cents.

CVS Health (CVS) dropped more than -4% in pre-market trading after the Wall Street Journal reported that Blue Shield of California is dropping the company’s pharmacy benefit manager, Caremark.

Invitation Homes (INVH) slid more than -1% in pre-market trading after BTIG LLC downgraded the stock to neutral from buy.

Today’s U.S. Earnings Reports (8/17/2023)

Applied Materials Inc (AMAT), BILL Holdings Inc (BILL), Globant SA (GLOB), Keysight Technologies Inc (KEYS), Lumentum Holdings Inc (LITE), Madison Square Garden Sports Corp (MSGS), Ross Stores Inc (ROST), Tapestry Inc (TPR), Walmart Inc (WMT).

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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.