Stocks Mixed as Weak China and European Economic News Sparks Risk-Off Sentiment

Rich Asplund - Barchart - Tue Sep 5, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.20%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.08%.

Stock indexes this morning are mixed. The broader market is lower today as weaker-than-expected economic news from China and the Eurozone sparked a risk-off sentiment in asset markets. China’s service sector saw the slowest pace of growth this year in August, and the Eurozone Aug S&P composite PMI was revised downward to its weakest level in 2-3/4 years. Also, higher global bond yields today are weighing on stocks.

The Nasdaq 100 Stock Index is slightly higher today, led by a +7% jump in Airbnb and a +3% gain in Tesla. Airbnb is higher on its inclusion into the S&P 500 Stock Index later this month, and Tesla is climbing after its China Aug vehicle deliveries rose more than +30% m/m.

U.S. July factory orders fell -2.1% m/m, the biggest decline in 8 months but stronger than expectations of a -2.5% m/m drop.

Fed Governor Waller signaled he supports a pause in Fed rate hikes when he said. "There is nothing that is saying we need to do anything imminent anytime soon, and we can just sit there and wait for the data."

The markets are discounting the odds at only 4% for a +25 bp rate hike at the September 20 FOMC meeting and 41% 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 4.256% and is up +6.9 bp at 4.248%. The 10-year German bund yield rose to a 1-1/2 week high of 2.612% and is up +2.9 bp at 2.607%. The 10-year UK gilt yield rose to a 1-1/2 week high of 4.513% and is up +4.3 bp at 4.506%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.24%. China’s Shanghai Composite Index closed down -0.71%. Japan’s Nikkei Stock Index closed up +0.30%.

The China Aug Caixin services PMI fell -2.3 to an 8-month low of 51.8, weaker than expectations of 53.5.

Today’s stock movers…

Homebuilders are under pressure today after the 10-year T-note yield climbed to a 1-week high, which pushed mortgage rates higher and undercuts housing demand. As a result, PulteGroup (PHM), Lennar (LEN), DR Horton (DHI), and Toll Brothers (TOL) are down more than -4%.

Xylem (XYL) is down more than -5% to lead losers in the S&P 500 after CEO Decker said he would retire at year-end and COO Pine will assume the CEO position.

Illumina (ILMN) is down more than -4% to lead losers in the Nasdaq 100 after the company announced Jacob Thaysen would be CEO effective September 25, disappointing analysts who expected a company insider to be named as the next CEO.

Casino stocks with exposure to Macau are falling today after reports show Chinese travelers to Macau remain below pre-pandemic levels, with Q2 visitors only 63% of the travelers to Macau in Q2 of 2019. As a result, Las Vegas Sands (LVS), Wynn Resorts (WYNN), MGM Resorts International (MGM), and Caesars Entertainment (CZR) are down more than -3%.

U.S.-listed Chinese stocks are falling after today’s news showed activity in China’s service sector slowed more than expected in August. As a result, Alibaba Group Holding (BABA), Baidu (BIDU), JD.com (JD), NetEase (NTES), and PDD Holdings (PDD) are down more than -2%.

CF Industries (CF) is up more than +4% to lead gainers in the S&P 500 after Tampa CFR ammonia prices surged more than 32% to $3900 per metric ton in the week ended Sep 1.

Airbnb (ABNB) is up more than +7% to lead gainers in the Nasdaq 100 after the S&P Dow Jones Indices said the stock would join the S&P 500 Stock Index before the opening of trading on September 18.

Energy stocks and energy service providers are climbing today, with the price of WTI crude up more than +1% at a 9-1/2 month high. As a result, Occidental Petroleum (OXY) is up more than +2%. Also, APA Corp (APA), Haliburton (HAL), Devon Energy (DVN), and ConocoPhillips (COP) are up more than +1%.

Tesla (TSLA) is up more than +2% after China’s Passenger Car Association reported Tesla's August China shipments jumped +30.9% m/m to 84,159 units.

Blackstone (BX) is up more than +3% after the S&P Dow Jones Indices said the stock would join the S&P 500 Stock Index before the opening of trading on September 18.

Oracle (ORCL) is up more than +1% after Barclays upgraded the stock to overweight from equal weight with a price target of $150.

Stryker (SYK) is up almost +1% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $315.

Across the markets…

December 10-year T-notes (ZNZ23) today are down -17 ticks, and the 10-year T-note yield is up +6.9 bp at 4.248%. Dec T-note prices today fell to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.256%. T-notes are under pressure on negative carryover from a jump in European government bond yields after the 10-year German bund yield, and the 10-year UK gilt yield rose to 1-1/2 week highs. T-note prices recovered from their worst levels after Fed Governor Waller signaled his support for a pause in Fed rate hikes.

The dollar index (DXY00) today is up +0.34% and posted a 5-1/2 month high. Weakness in stocks today has boosted liquidity demand for the dollar. Also, higher T-note yields today have strengthened the dollar’s interest rate differentials. In addition, weaker-than-expected economic news today from China and the Eurozone have boosted optimism in the U.S. economy and the dollar.

EUR/USD (^EURUSD) is down by -0.54% and fell to a 2-3/4 month low. Dollar strength today has sparked long liquidation in the euro. Also, weaker-than-expected Eurozone economic news today on July producer prices and the Aug S&P composite PMI is dovish for ECB policy and bearish for EUR/ISD. The euro recovered from its worst levels after the ECB’s monthly survey showed longer-term consumer price expectations increased.

The Eurozone Aug S&P composite PMI was revised downward by -0.3 to 46.7 from the previously reported 47.0, the steepest pace of contraction in 2-3/4 years.

Eurozone July PPI eased to -7.6% y/y from -3.4% y/y in June, right on expectations and the sharpest decline in 14 years.

The ECB reported July 1-year CPI consumer expectations were unchanged at 3.4% from June, but the July 3-year CPI consumer expectations unexpectedly rose to 2.4% from 2.3% in June.

USD/JPY (^USDJPY) is up +0.71%. The yen today tumbled to a 10-month low against the dollar. Risin T-note yields undercut the yen today along with central bank divergence, with the Fed, BOE, and ECB all raising interest rates while the BPJ maintains record-low interest rates. Today’s Japanese economic news also weighed on the yen after Japan household spending fell more than expected.

Japan Jul household spending fell -5.0% y/y, weaker than expectations of -2.5% y/y and the biggest decline in almost 2-1/2 years.

October gold (GCV3) today is down -8.9 (-0.46%), and Dec silver (SIZ23) is down -0.422 (-1.68%). Precious metals prices this morning are moderately lower, with silver falling to a 1-1/2 week low. Today's rally in the dollar index to a 5-1/2 month high is bearish for metals. Also, rising global bond yields are negative for precious metals prices. Losses in metals were limited as a slump in stocks today boosted safe-haven demand for precious metals. Also, comments today from Fed Governor Waller were bullish for precious metals when he signaled that he supports a pause in Fed rate hikes.

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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.