Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.04%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.08%.

Stock indexes this morning are modestly lower.  Negative carryover from a fall in Chinese stocks today weighs on U.S. stock indexes.  The markets are awaiting this afternoon’s release of the minutes of the July 25-26 FOMC meeting for clues as to the future direction of Fed policy.  This morning’s U.S. housing news was mixed as July housing starts rose more than expected, but July building permits rose less than expected.

China’s economic woes continue to weigh on global markets.  The yuan fell to a 9-1/4 month low today, and the Shanghai Composite closed down -0.82% after China’s July home sales fell for the second month by the most in 7 months.  Also, liquidity concerns in China’s shadow banking system have intensified after Zhongrong International Trust missed payments on dozens of its investment products. 

Weekly data from the Mortgage Bankers Association showed mortgage applications fell -0.8% w/w, the fifth straight week of declines.  The U.S. 30-year mortgage rate rose to 7.16% last week, matching the highest since 2001.

U.S. Jul housing starts rose +3.9% m/m to 1.452 million, stronger than expectations of 1.450 million. However, Jul building permits, a proxy for future construction, rose +0.1% m/m to 1.442 million, weaker than expectations of 1.463 million.

The markets are discounting the odds at 10% for a +25 bp rate hike at the September 20 FOMC meeting and 39% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield is up +1.2 bp to 4.223%, just below Tuesday’s 9-1/2 month high of 4.268%.  The 10-year German bund yield is down -0.9 bp at 2.664%.  The 10-year UK gilt yield is up +3.7 bp at 4.626%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.08%.  China’s Shanghai Composite Index today closed down -0.82%.  Japan’s Nikkei Stock Index closed down -1.46%.

The Euro Stoxx 50 fell to a 1-week low and is slightly lower.  Stocks are under pressure on concerns that economic woes in China will weigh on global growth.  Chinese stocks closed lower today even after the PBOC cut interest rates on Tuesday.  Barclays and JPMorgan Chase both cut their growth estimates for China this year as recent economic news shows China’s economy continues to struggle.  Losses in European stocks are limited after today’s news showed Eurozone industrial activity unexpectedly rose in June. Also, a decline in German bund yields is supportive of stocks. 

Eurozone Jun industrial production unexpectedly rose +0.5% m/m, stronger than expectations of no change.

China’s Shanghai Composite today closed moderately lower.  Property stocks retreated today, and the yuan fell to a 9-1/4 month low after economic news showed China’s July new home sales fell for a second month by the most in seven months.  Also, signs that the liquidity crisis is widening in China’s shadow banking system are pressuring stocks after Zhongrong International Trust, China's ninth-biggest trust with about 600 billion yuan in assets, missed payments on 30 investment products and halted redemptions on some short-term instruments.  The firm said liquidity has dried up "unexpectedly," making it hard to meet short-term debt obligations as most of the underlying assets are long-term and illiquid.  The firm has 270 high-yield products totaling 39.5 billion yuan ($5.4 billion) due this year.  On the positive side, Chinese healthcare stocks rose after Zheshang Securities said the recent clarification on the crackdown on corruption and bribe-taking at hospitals had calmed concerns over the sector.

China Jul new home sales fell -0.23% m/m, the biggest decline in 7 months.

JPMorgan Chase cut its China 2023 GDP forecast to 4.8% from a 6.4% estimate in May.  Barclays cut its China 2023 GDP forecast to 4.5% from a prior forecast of 4.9%.

Japan’s Nikkei Stock Index fell to a 2-1/4 month low and closed moderately lower.  Japanese bank stocks retreated today, following Tuesday’s losses in U.S. bank stocks, on a report that said Fitch Ratings would have to reconsider its ratings on individual banks if it downgraded the sector again.  Also, hawkish comments Tuesday from Minneapolis Fed President Kashkari bolstered concerns that U.S. interest rates will stay higher for longer weighed on stocks when he said the Fed might not be done raising interest rates.  In addition, concerns that weakness in China’s economy will curb demand for Japanese goods are also undercutting equities. 

Pre-Market U.S. Stock Movers

Target (TGT) jumped more than +8% in pre-market trading after reporting Q2 Ebitda of $1.90 billion, better than the consensus of $1.58 billion.

Progressive Corp (PGR) is up more than +5%in pre-market trading after reporting net premiums written for July rose +21% y/y to $5.95 billion.   

TJX Cos (TJX) climbed more than +3% in pre-market trading after reporting Q2 net sales of $12.80 billion, stronger than the consensus of $12.44 billion, and raising its full-year comparable sales estimate to +3% to +4% from a prior view of +2% to +3%, better than the consensus of +3.01%. 

H&R Block (HRB) rallied more than +6% in pre-market trading after reporting Q4 adjusted EPS from continuing operations of $2.05, better than the consensus of $1.88. 

Coinbase Global (COIN) rose more than +5% in pre-market trading after it won approval from the National Futures Association to operate as a Futures Commission Merchant and offer access to crypto futures.

Cava Group (CAVA) rallied more than +10% after forecasting profit margins for 2023 of at least 23%, three percentage points higher than in 2022. 

Nubank (NU) climbed more than +3% in pre-market trading after reporting Q2 total revenue of $1.87 billion, above the consensus of $1.65 billion.

Electric-vehicle makers are falling in pre-market trading after Tesla cut its prices in China for the second time in three days, fueling concerns of renewing a price war.  As a result, Telsa (TSLA), Lucid Group (LCID), and Rivian Automotive (RIVN) are down -1% or more. 

Coherent (COHR) plunged more than -20% in pre-market trading after forecasting 2024 revenue of $4.5 billion-$4.7 billion, weaker than the consensus of $4.88 billion. 

Tower Semiconductor Ltd (TSEM) dropped more than -10% in pre-market trading after Intel agreed to terminate its previously disclosed agreement to buy the company. 

Mercury Systems (MRCY) sank more than -9% in pre-market trading after reporting Q4 revenue of $253.2 million, below the consensus of $278.7 million, and forecasting 2024 revenue of $950 million-$1.00 billion, weaker than the consensus of $1.05 billion.

Marathon Petroleum (MPC) slid more than -1% in pre-market trading after Mizuho Securities downgraded the stock t neutral from buy. 

Today’s U.S. Earnings Reports (8/16/2023)

Amcor PLC (AMCR), Avnet Inc (AVT), Cisco Systems Inc (CSCO), Paycor HCM Inc (PYCR), Performance Food Group Co (PFGC), Synopsys Inc (SNPS), Target Corp (TGT), TJX Cos Inc/The (TJX), Wolfspeed Inc (WOLF).

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