Markets Today: Stocks Slip as Weak Eurozone Economic News Fuels Growth Concerns

Rich Asplund - Barchart - Wed Sep 6, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.31% at a 1-week low, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.36%.

Stock indexes this morning are moderately lower on negative carryover from a fall in the Euro Stoxx 50 to a 1-1/2 week low on weaker-than-expected Eurozone economic news. Also, concerns that soaring oil prices will boost inflation and eat into company profits are weighing on the overall market, with airline stocks falling in pre-market trading due to rising jet fuel costs.

The U.S. Jul trade deficit widened to -$65.0 billion from -$63.7 billion in June, a smaller deficit than expectations of -$68.0 billion.

Boston Fed President Collins said it's "too early" to say if inflation is on a sustained path to 2%, and further tightening may be warranted depending on the data. She added that the Fed will "need to hold rates at restrictive levels for some time" as while demand is moderating, it continues to outpace supply, adding to price pressures.

The markets are discounting the odds at 7% for a +25 bp rate hike at the September 20 FOMC meeting and 45% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are mixed. The 10-year T-note yield is down -1.8 bp at 4.242%. The 10-year German bund yield rose to a 2-week high of 2.650% and is up +0.3 bp at 2.614%. The 10-year UK gilt yield fell back from a 2-week high of 4.559% and is down -1.5 bp at 4.510%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.94%. China’s Shanghai Composite Index closed up +0.12%. Japan’s Nikkei Stock Index closed up +0.62%.

The Euro Stoxx 50 slipped to a 1-1/2 week low and is moderately lower. Weakness in today’s Eurozone economic news has sparked growth concerns and is weighing on stocks. Eurozone retail sales in July fell for the first time in four months, and German factory orders plunged by the most in 3-1/4 years. Also, rising government bond yields are fueling stagflation concerns as the 10-year German bund yield rose to a 2-week high today after ECB Governing Council member Knot warned that investors may be underestimating the chances of a rate hike by the ECB at next week’s policy meeting.

Eurozone July retail sales fell -0.2% m/m, right on expectations and the first decline in four months.

German July factory orders fell -11.7% m/m, weaker than expectations of -4.3% m/m and the biggest decline in 3-1/4 years.

ECB Governing Council member Knot said investors betting against an ECB rate hike next week are "maybe" underestimating the likelihood of it happening.

China’s Shanghai Composite Index closed slightly higher. Strength in property and building stocks led the overall market higher today on speculation the government will boost measures to support the sector. A front-page commentary in the state-controlled Securities Times said today that China should drop home-buying restrictions in regions other than top-tier cities with the hottest markets. In a separate report, the China Securities Journal said several regions recently adopted policies to accelerate the pace of property development and sales in order to ease developers’ funding pressures. The broader equities market was muted, and the yuan fell to a 10-month low against the dollar today on speculation the gains in property stocks may only be short-covering.

Japan’s Nikkei Stock Index today rallied to a 5-week high and closed moderately higher. Japanese automakers led the overall market higher, with Toyota Motor climbing more than +2% after SBI Securities raised its price target on Japan’s largest automaker. The Nikkei Stock Index fell back from its best levels as exporter stocks slid when the yen recovered from a 10-month low against the dollar. The yen moved higher after Japan’s top currency official, Masato Kanda, said he wouldn’t rule out any options if forex moves continue. Airline stocks retreated today after crude oil prices rallied to a 9-1/2 month high Tuesday, which boosts jet fuel prices and weighs on airlines’ profits.

Pre-Market U.S. Stock Movers

Airline stocks are under pressure in pre-market trading after Southwest Airlines said that due to surging jet fuel costs, revenue for each seat flown mile would fall -5% to -7% from a year earlier compared with an earlier outlook for a drop of -3% to -7%. As a result, Southwest Airlines (LUV) is down more than -5%. Also, United Airlines Holdings (UAL) is down more than -2%. In addition, American Airlines Group (AAL), Delta Air Lines (DAL), and Alaska Air Group (ALK) are down more than -1%.

Block Inc (SQ) fell over 2% in pre-market trading after UBS downgraded the stock to neutral from buy and said the company is likely to see a slowdown in gross profit growth.

Olin Corp (OLN) slid more than -2% in pre-market trading after Goldman Sachs downgraded the stock to neutral from buy.

Stem Inc (STEM) dropped more than -3% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

AeroVironment (AVAV) surged more than +13% in pre-market trading after reporting Q1 revenue of $152.3 million, better than the consensus of $128.5 million, and raising its 2024 revenue forecast to $635 million-$675 million from a previous forecast of $630 million-$660 million, stronger than the consensus of $656 million.

Gitlab (GTLB) jumped more than +7% in pre-market trading after reporting Q2 revenue of $139.6 million, above the consensus of $129.9 million, and raising its 2024 revenue forecast to $555 million-$557 million from a previous forecast of $541 million-$543 million, better than the consensus of $542.9 million.

Toast (TOST) climbed more than +3% in pre-market trading after UBS upgraded the stock to a buy with a price target of $30.

General Mills (GIS) gained more than +1% in pre-market trading after forecasting 2024 organic net sales of +3% to +4%, stronger than the consensus of +2.97%.

Roku (ROKU) rallied more than +8% in pre-market trading after raising its Q3 net revenue forecast to $835 million-$875 million from a prior view of $815 million and saying it plans to cut about 10% of its workforce.

NexGen Healthcare (NXGN) surged more than +15% in pre-market trading after Thoma Bravo agreed to acquire the company for $23.95 a share.

Mitek Systems (MITK) jumped more than +11% in pre-market trading after reporting Q1 adjusted EPS of 31 cents, well above the consensus of 20 cents, and raising its full-year adjusted operating margin to 30% to 31% from a prior view of 29.5% to 30.5%.

Earnings Reports (9/6/2023)

Akoustis Technologies Inc (AKTS), American Eagle Outfitters Inc (AEO), Argan Inc (AGX), C3.ai Inc (AI), Calavo Growers Inc (CVGW), Cantaloupe Inc (CTLP), ChargePoint Holdings Inc (CHPT), Core & Main Inc (CNM), Couchbase Inc (BASE), Daktronics Inc (DAKT), Dave & Buster's Entertainment (PLAY), GameStop Corp (GME), Intapp Inc (INTA), NioCorp Developments Ltd (NB), Photronics Inc (PLAB), Phreesia Inc (PHR), Sportsman's Warehouse Holdings (SPWH), Sprinklr Inc (CXM), Torrid Holdings Inc (CURV), UiPath Inc (PATH), Verint Systems Inc (VRNT), Yext Inc (YEXT).

More Stock Market News from Barchart

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.