Markets Today: Stocks Slightly Higher Despite Strength in U.S. Sep PPI

Rich Asplund - Barchart - Wed Oct 12, 2022

Morning Markets

December S&P 500 futures (ESZ22) this morning are up by +0.15%. A slight recovery in chip stocks in pre-market trading is boosting the overall market following the sharp losses seen over the past two sessions. Also, a +4% jump in Moderna in pre-market trading is positive for the overall market after Merck & Co exercised its option to develop and commercialize a cancer vaccine with Moderna jointly.

Stock indexes fell back from their best levels after this morning’s economic news showed U.S. Sep producer prices rose more than expected. That helped push bond yields higher as the 10-year T-note yield is up +1.1 bp to 3.956%. The markets are awaiting this afternoon’s minutes from the Sep 20-21 FOMC meeting for clues to Fed policy intentions.

U.S. Sep PPI final demand rose +0.4% m/m and +8.5% y/y, stronger than expectations of +0.2% m/m and +8.4% y/y. Sep PPI ex-food & energy was up +7.2% y/y, slightly lower than expectations of +7.3% y/y.

The Euro Stoxx 50 today is up by +0.09%. Better-than-expected economic news today on Eurozone Aug industrial production was bullish for stocks. Also, a rebound in European chip stocks is supporting modest gains in the overall market after Oddo BHF said Q3 earnings reports from European chip makers are set to be solid, as many of them have little exposure to the weakening smartphone and PC end markets. Stocks came off of their best levels after Germany’s Economy Ministry cut its 2022 and 2023 German GDP forecasts. Also, rising bond yields are weighing on stocks after the 10-year German bund yield today rose to an 11-year high at 2.397%.

Germany's Economy Ministry today cut its German 2022 GDP forecast to 1.4% from an April estimate of 2.2%, and cut its German 2023 GDP forecast to a contraction of -0.4% from an April forecast of +2.5% expansion, citing soaring power costs that will crimp industrial output and dampen consumer spending.

Eurozone Aug industrial production rose +1.5% m/m, stronger than expectations of +0.7% m/m and the biggest increase in 9 months.

Asian markets today settled mixed. China’s Shanghai Composite closed up +1.53%, and Japan’s Nikkei Stock Index closed down -0.02%.

China’s Shanghai Composite today recovered from a 5-1/2 month low and rallied moderately. Chinese stocks today recovered early losses and pushed higher on dip buying and short covering ahead of the once-in-five-year party congress that begins later this week. Stocks also found support on signs of stronger credit growth in China after economic news showed China’s Sep aggregate financing, the broadest measure of credit growth, rose +3.53 trillion yuan, stronger than expectations of +2.75 trillion yuan. Stocks on Wednesday initially moved lower on concern that China’s Covid Zero policy will today undercut economic activity after an article in the state-sponsored People’s Daily Tuesday said Covid Zero policy is “sustainable” and the country must stick to the strategy.

China Sep aggregate financing, the broadest measure of credit growth, rose +3.53 trillion yuan, stronger than expectations of +2.75 trillion yuan.

Japan’s Nikkei Stock Index today fell to a 1-week low as semiconductor stocks retreated for a second day. Chip stocks are under pressure after the U.S. announced new curbs on companies conducting technology business with China last Friday. Japanese tool makers get around 30% of their new orders from China. Also, weaker-than-expected Japanese economic news on Aug core machine orders weighed on the overall market. The Nikkei Stock Index recovered nearly all of its losses today as stocks tied to travel and tourism rallied after Japan opened its border to vaccinated visitors from 68 visa-waived countries. Also, exporter stocks caught a bid in late trading after the yen tumbled to a new 24-year low against the dollar.

Japan Aug core machine orders fell -5.8% m/m, weaker than expectations of -2.8% m/m and the biggest decline in 6 months.

Pre-Market U.S. Stock Movers

Chip stocks are moving higher in pre-market trading as they recover some of their sharp losses over the past two sessions. Advanced Micro Devices (AMD), Intel (INTC), Nvidia (NVDA), and Micron Technology (MU) are up more than +1%.

Moderna (MRNA) rose more than +4% in pre-market trading after Merck said it would pay Moderna $250 million in Q3 after it exercised its option to jointly develop and commercialize personalized cancer vaccine mRna-4157/V940.

Lyft (LYFT) jumped +3% in pre-market trading after Gordon Haskett upgraded the stock to buy from hold with a price target of $24.

PepsiCo (PEP) rose more than +1% in pre-market trading after reporting Q3 organic revenue up +16%, well above the consensus of +9.1%, and raised its full-year organic revenue forecast to up +12% from a prior view of up +10%, stronger than the consensus of +9.92%.

Norwegian Cruise Line Holdings (NCLH) climbed more than +3% in pre-market trading after UBS upgraded the stock to buy from neutral, citing material improvement in the company’s Q3 preview.

American International Group (AIG) gained nearly +2% in pre-market trading after Jeffries upgraded the stock to buy from hold with a price target of $64.

Bed Bath & Beyond (BBBY) rallied more than +3% in pre-market trading after Bloomberg reported that advisers at Perella Weinberg organized a group of bondholders in hopes of striking a deal with the company to exchange notes 2024 for longer-dated securities.

Boeing (BA) fell almost -1% in pre-market trading after Credit Suisse initiated coverage on the stock with a recommendation of underperform.

Pioneer Natural Resources (PXD) fell nearly -1% in pre-market trading after Citigroup downgraded the stock to neutral from buy.

Stanley Black & Decker (SWK) slid -1% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Owens & Minor (OMI) sank nearly -10% in pre-market trading after cutting its full-year adjusted Ebitda forecast to $527 million-$537 million from a previous forecast of $570 million-$610 million, weaker than the consensus of $583.7 million.

Today’s U.S. Earnings Reports (10/12/2022)

Duck Creek Technologies Inc (DCT), Genco Shipping & Trading Ltd (GNK), PepsiCo Inc (PEP).

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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.