Markets Today: Stocks Fall on Negative Carryover from China’s Debt Crisis

Rich Asplund - Barchart - Mon Aug 14, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.15%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.14%.

Stock indexes this morning gave up an overnight advance and are modestly lower. Higher T-note yields this morning are a bearish factor for stocks. Also, a -2% fall in Tesla in pre-market trading is undercutting technology stocks on concern the company will reignite a price war among electric vehicle makers after cutting auto prices in China again.

U.S. stock indexes also have negative carryover on the slide in the Shanghai Stock Index to a 7-1/4 month low today on concern the property debt crisis was worsening in China. Country Garden Holdings, one of China’s biggest property developers, is seeking to extend a maturing bond for the first time and halted trading in local yuan notes. Also, liquidity concerns in China have ramped up after a unit of Zhongzhi Enterprise Group, one of China’s top private wealth managers, missed payments on multiple high-yield investment products.

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 42% 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 1-week high of 4.186% and is up +2.7 bp at 4.180%. The 10-year German bund yield climbed to a 1-week high of 2.642% and is up +0.1 bp at 2.624%. The 10-year UK gilt yield climbed to a 1-month high of 4.548% and is up +0.9 bp at 4.536%.

Overseas stock markets are lower. The Euro Stoxx 50 is down -0.07%. China’s Shanghai Composite Index today closed down -0.34%. Japan’s Nikkei Stock Index closed down -1.27%.

The Euro Stoxx 50 today gave up early gains and is modestly lower. China’s property debt concerns are weighing on market sentiment. Also, weakness in energy and basic resource stocks is leading the overall market lower. In addition, an increase in European government bond yields is bearish for equities, with the 10-year German bund yield and 10-year UK gilt yield climbing to 1-week highs. On the positive side are signs of easing price pressures in Europe after German wholesale prices in July fell for the fourth consecutive month.

The German Jul wholesale price index fell -2.8% y/y, the fourth consecutive month prices have declined year over year.

China’s Shanghai Composite today dropped to a 7-1/4 month low and closed moderately lower. Concerns that China’s property debt crisis is deepening are undercutting stocks and knocked the yuan to a 6-week low against the dollar on news that Country Garden Holdings is seeking to extend a maturing bond for the first time. The Chinese property developer is soliciting bondholders’ feedback on a proposal to extend the payment of a yuan note due September 2. The bond has 3.9 billion yuan ($537 million) of principal outstanding. Chinese electric vehicle makers also fell today after Tesla rolled out a new round of price cuts in China, raising concern the price war among automakers will continue. The Shanghai Stock Index market recovered from its worst levels on reports that the Chinese government was addressing the property crisis.

China’s banking regulator, the National Financial Regulatory Administration, has set up a task force to examine risks at Zhongzhi Enterprise Group, one of the country’s top private wealth managers that oversees more than 1 trillion yuan ($138 billion) of assets after a unit of the company missed payments on multiple high-yield investment products. The regulator required Zhongrong International Trust to report its plans for future payments and available assets that can be disposed of to deal with the liquidity crunch. Zhongrong Trust has 270 products totaling 39.5 billion yuan due this year.

Japan’s Nikkei Stock Index was closed moderately lower. The potential of higher-for-longer U.S. interest rates weighed on Japanese stocks after last Friday’s U.S. producer price report for July was stronger than expected. Also, a slump in Chinese stocks dampened market sentiment on concern China’s property crisis was deepening. In addition, stocks fell on concern Typhoon Lan would make landfall in central Japan near Osaka on Tuesday, causing factories to halt production and disrupt transportation with trains and flights canceled. Japanese stocks remained under pressure despite a decline in the yen to a 9-month low against the dollar, which supports exporter stocks.

Pre-Market U.S. Stock Movers

U.S. Steel (X) soared more than +30% in pre-market trading after it said it rejected a takeover offer from Cleveland-Cliffs and said it would instead start a review of its strategic options.

Monday.com (MNDY) jumped more than +5% in pre-market trading after reporting Q2 revenue of $175.7 million, better than the consensus of $169.3 million, and forecasting Q3 revenue of $181 million-$183 million, stronger than the consensus of $178.8 million.

Okta (OKTA) climbed more than +4% in pre-market trading after Goldman Sachs raised its recommendation on the stock to buy from sell, saying subscription revenue is likely to bottom.

Coterra Energy (CTRA) rose more than -1% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral with a price target of $35.

Hyatt Hotels (H) may move higher today after Bernstein named it as its Top Pick among global hotel operators and said the recent decline in the stock is an entry point for a stock that trades at an “unwarranted” discount.

Airbnb (ABNB) gained nearly +1% in pre-market trading after Citigroup raised its price target on the stock to $160 from $135.

Parsons Corp (PSN) gained over +1% in pre-market trading after Bank of America upgraded the stock to buy from hold.

Tesla (TSLA) slid more than -2% in pre-market trading after it rolled out a new round of price cuts in China, fueling concern the move could restart a price war among electric vehicle makers. Other electric vehicle makers fell on the news, with Lucid Group (LCID) and Rivian Automotive (RIVN) falling -1% or more.

Fertilizer stocks are falling in pre-market trading on downgrades from Barclays. Mosaic (MOS) is down more than -2% after Barclays downgraded it to underweight from equal weight and CF Industries (CF) is down more than -1% after Barclays downgraded it to equal weight from overweight.

Urban Outfitters (URBN) dropped more than -2% in pre-market trading after Citigroup downgraded the stock to neutral from buy.

Mariott International (MAR) fell more than -1% in pre-market trading after Bernstein downgraded the stock to market perform from outperform.

Today’s U.S. Earnings Reports (8/14/2023)

2seventy bio Inc (TSVT), Altus Power Inc (AMPS), AST SpaceMobile Inc (ASTS), Bioxcel Therapeutics Inc (BTAI), Charge Enterprises Inc (CRGE), CompoSecure Inc (CMPO), Definitive Healthcare Corp (DH), Eos Energy Enterprises Inc (EOSE), Forafric Global PLC (AFRI), Fortrea Holdings Inc (FTRE), Heron Therapeutics Inc (HRTX), Humacyte Inc (HUMA), Li-Cycle Holdings Corp (LICY), Navitas Semiconductor Corp (NVTS), OptimizeRx Corp (OPRX), PDS Biotechnology Corp (PDSB), Roivant Sciences Ltd (ROIV), Sanara Medtech Inc (SMTI), SomaLogic Inc (SLGC), Southland Holdings Inc (SLND), Terawulf Inc (WULF), Transphorm Inc (TGAN), Urban One Inc (UONEK), XP Inc (XP), Zevra Therapeutics Inc (ZVRA).

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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.