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Stocks Decline on Concerns About a European Energy Crisis

Barchart - Wed Jul 20, 8:15AM CDT
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Morning Markets

September S&P 500 futures (ESU22) this morning are down by -0.30% on concern that an energy crisis in European could send the region into recession and undercut global growth prospects.  Russian President Putin warned that if a pipeline part for the Nord Steam link that was caught up in sanctions isn’t returned to Russia, then gas flows to Europe will be cut to 20% of capacity as early as next week.  However, losses in stock indexes were limited as Netflix jumped +7% in pre-market trading after reporting it lost fewer streaming customers in Q2 than feared.

Citigroup, in a report to clients today, warned that a global recession is a “clear and present danger,” estimating a 50% probability of a recession over the next 12 to 18 months

The Euro Stoxx 50 is down -0.61% today.  The Euro Stoxx 50 fell back from a 1-1/4 month high today and is moderately lower. Concern that Europe will lose access to Russian gas and fall into an energy crisis has undercut European stocks today.  The European Union proposed that the bloc cut its natural gas consumption by 15% over the next eight months to ensure that any Russian cutoff of gas supplies won’t disrupt industries over the winter.  A decline in technology stocks also weighed on the overall market as ASML Holding NV, Europe’s largest semiconductor equipment maker, fell more than -4% after cutting its 2022 sales growth estimate to around 10% from approximately 20%. 

European stocks initially moved higher on the heels of Tuesday’s surge in U.S. technology stocks. Also, political risks in Italy eased and gave stocks an early boost after Prime Minister Draghi told the Italian Senate today that his coalition can be rebuilt, dampening concerns he’ll quit the government and throw the country into chaos. 

German Jun PPI rose +0.6% m/m and +32.7% y/y, weaker than expectations of +1.5% m/m and +33.7% y/y.

China’s Shanghai Composite Index today climbed to a 1-week high and closed up by +0.77%.  A rally in Chinese technology stocks today led the overall market higher in hopes that a crackdown on the sector by regulators was ending.  The Wall Street Journal reported that Chinese regulators are expected to fine Didi Global more than $1 billion after a year-long probe into the company.  The government will then allow the company to restore its main apps to mobile stores and add new users to its platform.

Chinese property stocks also moved higher today after Henen Asset Management, and government-backed developer Zhengzhou Real Estate Group, said they will jointly set up a fund to help cash-strapped developers complete housing projects.  Chinese homebuyers have boycotted making mortgage payments on at least 301 housing projects in about 91 cities as of Sunday, which threatens to deepen China’s real estate slump by spreading to banks who hold the mortgages.   

Japan’s Nikkei Stock Index rallied to a 1-1.4 month high today and closed up sharply by +2.67%. Japanese technology stocks surged on positive carry-over from a sharp rally in U.S. technology stocks on Tuesday.  Also, a +7% jump in Netflix today has eased Q2 earnings concerns and helped push Japanese stocks higher. Short covering in stocks today ahead of the results of Thursday’s BOJ policy meeting is another supportive factor for Japanese stocks.

Pre-Market U.S. Stock Movers

ASML Holding NV (ASML) slid -2% in pre-market trading after forecasting Q3 sales of 5.1 billion euros ($5.22 billion) to 5.4 billion euros, weaker than the consensus of 6.48 billion euros, and reducing its full-year sales growth guidance to 10% from 20%.

Baker Hughes (BKR) tumbled -6% in pre-market trading after reporting Q2 revenue of 5.00 billion, below the consensus of $5.35 billion. 

Interactive Brokers (IBKR) fell more than -3% in pre-market trading after reporting Q2 adjusted net revenue of $717 million, below the consensus of $738 million.

Networking stocks are under pressure today after Bank of America downgraded several stocks in the sector, citing economic concerns.  Arista Networks (ANET) and Juniper Networks (JNPR) both slid more than -4% in pre-market trading after they were downgraded to underperform from buy.  F5 (FFIV) fell more than -2% in pre-market trading after being downgraded to neutral from buy. 

Caesars Entertainment (CZR) fell more than -2% in pre-market trading after Truist Securities cut its price target on the stock to $70 from $105. 

Bath & Body Works (BBWI) dropped -10% in pre-market trading after cutting its Q2 EPS from continuing operations to 40-42 cents from a prior view of 60-65 cents, weaker than the consensus of 60 cents.

Netflix (NFLX) jumped +7% in pre-market trading after reporting it lost 970,000 paid streaming customers in Q2, less than the consensus of 2 million. 

Omnicom (OMC) climbed more than +6% in pre-market trading after reporting Q2 revenue of $3.57 billion, better than the consensus of $3.46 billion.

Biogen (BIIB) rose more than +4% in pre-market trading after reporting Q2 adjusted EPS of $5.25, stronger than the consensus of $4.10, and raised its full-year adjusted EPS estimate to $15.25-$16.75, well above a prior view of $14.25-$16.00.

JB Hunt (JBHT) moved up more than +3% in pre-market trading after reporting Q2 operating revenue of $3.84 billion, better than the consensus of $3.58 billion. 

Today’s U.S. Earnings Reports (7/20/2022)

Abbott Laboratories (ABT), Baker Hughes Co (BKR), Biogen Inc (BIIB), Comerica Inc (CMA), Crown Castle International Corp (CCI), CSX Corp (CSX), Discover Financial Services (DFS), Elevance Health Inc (ELV), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Las Vegas Sands Corp (LVS), M&T Bank Corp (MTB), 

MarketAxess Holdings Inc (MKTX), Nasdaq Inc (NDAQ), Northern Trust Corp (NTRS), Tesla Inc (TSLA), 

United Airlines Holdings Inc (UAL).



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