Markets Today: Stock Indexes Tumble as ECB Signals Even Higher Interest Rates

Rich Asplund - Barchart - Thu Dec 15, 2022

Morning Markets

December S&P 500 futures (ESZ22) this morning are down -1.32%, and December Nasdaq 100 E-Mini futures (NQZ22) are down -1.60%.

Stock indexes this morning are moderately lower on negative carry-over from Wednesday when the Fed signaled interest rates would go higher, for longer. Losses in stock indexes accelerated after the ECB raised its inflation estimates and said, “interest rates still have to rise significantly at a steady pace.” This morning’s economic news was mixed for stocks as U.S. Nov retail sales fell more than expected, while weekly jobless claims unexpectedly declined.

Tesla is down more than -2% in pre-market trading and is weighing on technology stocks after CEO Musk sold $3.58 billion of his company’s stock over the past two sessions. Also, Nvidia fell more than -2% after HSBC initiated coverage on the stock with a reduce rating.

A decline in T-note yields is supportive for stocks, with the 10-year T-note yield down -2.8 bp at 3.448%. T-note prices shook off a sharp drop in German bund prices after the ECB raised its inflation forecasts and instead moved higher on this morning’s weaker-than-expected U.S. economic news.

U.S. Nov retail sales fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 11 months. Also, Nov retail sales ex-autos unexpectedly fell -0.2% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 11 months

The U.S. Dec Philadelphia Fed business outlook survey rose +5.6 to -13.8, weaker than expectations for a rise to -10.0.

The U.S. Dec Empire manufacturing survey general business conditions index fell -15.7 to a 4-month low of -11.2, weaker than expectations of -1.0.

U.S. weekly initial unemployment claims unexpectedly fell -20,000 to an 11-week low of 211,000, showing a stronger labor market than expectations of an increase to 232,000.

The Bank of England, as expected, raised its official bank lending rate by +50 bp to a 14-year high of 3.50%.

Overseas stocks today are lower. The Euro Stoxx 50 index is down sharply by -1.76%. European stocks retreated today after the ECB raised its main refinancing rate by +50 bp as expected but said interest rates still need to rise significantly at a steady pace. Stocks extended their losses after the ECB cut its Eurozone 2023 GDP forecast and raised its 2023 inflation forecast. The 10-year German bund yield rose to a 3-1/2 week high of 2.05% after the ECB raised its inflation forecast.

The ECB, as expected, raised its main refinancing rate 50 bp to 2.50% and said, "interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target."

The ECB lowered its 2023 Eurozone GDP forecast to +0.5% from a previous estimate of +0.9% and raised its 2023 Eurozone inflation forecast to +6.3% from a previous estimate of +5.5%.

Eurozone Nov new car registrations rose +16.3% y/y to 830,000, the biggest increase in 1-1/2 years.

The German Nov wholesale price index eased to 14.9% y/y from 17.4% y/y in Oct, the slowest pace of increase in 14 months.

China’s Shanghai Composite closed down -0.25%, and Japan’s Nikkei Stock Market Index closed down by -0.37%.

The Shanghai Composite fell to a 1-1/2 week low today on weaker-than-expected Chinese industrial production and retail sales reports. Today’s news suggests China's Q4 GDP may be weaker than initially projected and will likely remain subdued into next year. Also, concerns are rising that there will be more disruption to growth as Covid infections surge after the government abruptly dropped its Zero-Covid policy. Losses in the overall market were limited as Chinese chip makers rose on expectations for additional government support for the sector to cope with foreign sanctions.

China Nov industrial production rose +2.2% y/y, weaker than expectations of +3.5% y/y and the smallest increase in 6 months.

China Nov retail sales fell -5.9% y/y, weaker than expectations of -4.0% y/y and the biggest decline in 6 months.

Nov prices for China’s 70-city newly-built commercial residential buildings fell -0.25% m/m, the fifteenth consecutive month that prices have declined.

Japan’s Nikkei Stock Index today closed moderately lower on negative carry-over from a slump in U.S equity markets Wednesday after the Fed signaled higher interest rates. However, losses in the overall market were limited by better-than-expected Japanese trade date for November. Also, defense stocks rallied today after the government announced a new tax to fund its 43-trillion-yen ($317 billion) military spending plan.

Japan’s trade data was better than expected as Nov exports rose +20.0% y/y, stronger than expectations of +19.7% y/y. Also, Nov imports rose +30.3% y/y, stronger than expectations of +26.9% y/y.

Pre-Market U.S. Stock Movers

Tesla (TSLA) is down more than -2% in pre-market trading after Elon Musk sold $3.6 billion of Tesla stock between Dec 12-14, his fourth time selling shares this year.

Nvidia (NVDA) dropped more than -2% in pre-market trading after HSBC initiated coverage on the stock with a reduce rating, citing the near-term chip inventory correction and demand uncertainty.

Lockheed Martin (LMT) slid more than -1% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Warner Bros Discovery (WBD) dropped more than -2% in pre-market trading after it said it now sees total pre-tax restructuring charges of $4.1 billion-$5.3 billion versus a previous view of $3.2 billion-$4.3 billion.

Western Digital (WDC) tumbled more than -5% in pre-market trading after Goldman Sachs downgraded the stock to sell from neutral.

Marriott International (MAR) slid more than -1% in pre-market trading after Barclays downgraded the stock to equal weight from overweight.

Snap Inc (SNAP) fell more than -2% in pre-market trading after Jeffries downgraded the stock to hold from buy.

Novavax (NVAX) sank nearly -10% in pre-market trading after it offered $125 million of shares and $125 million of convertible bonds and said its agreement to supply Covid vaccines to the UK had been cut in half.

Verizon Communications (VZ) rose nearly +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight.

L3Harris Technologies (LHX) climbed more than +2% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight.

Plains All American Pipeline LP (PAA) rose more than +1% in pre-market trading after agreeing to sell 21% non-operated/undivided ownership interest in the Keyera Fort Saskatchewan facility to Keyera for about 365 million Canadian dollars.

Today’s U.S. Earnings Reports (12/15/2022)

Adobe Inc (ADBE), Jabil Inc (JBL), Quanex Building Products Corp (NX), Scholastic Corp (SCHL).

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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.