Markets Today: Stocks Under Pressure on Weak Chinese Economic News
U.S. stock index futures this morning are moderately lower. Global stocks are under pressure today after weaker-than-expected news on China’s services industry sparked concerns about the outlook for the global economy. The China Caixin Jun services PMI fell -3.2 to a 5-month low of 53.9, weaker than expectations of 56.2.
Today's June 13-14 FOMC meeting minutes will be scrutinized to see how hawkish policymakers will remain after they held rates steady but said that inflation has proved stickier than expected. Since last month's policy meeting, mostly positive U.S. economic data has priced out rate cuts this year and pushed the terminal rate up slightly.
The Wall Street Journal announced the U.S. is preparing to curb Chinese companies access to cloud-computing services to train AI models, including those provided by Amazon.com and Microsoft.
The markets are discounting the odds at 83% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.
Global bond yields are mixed. The 10-year T-note yield is up +2.4 bp at 3.878%. The 10-year German bund yield is down -0.1 bp at 2.452%, and the 10-year UK Gilt yield is up +2.9 bp at 4.444%.
Overseas stock markets are lower. The Euro Stoxx 50 is down -0.77%. China’s Shanghai Composite Index today closed -0.69%. Japan’s Nikkei Stock Index today closed -0.25%.
The Euro Stoxx 50 today is moderately lower and followed losses in Asian markets. Mining stocks and metals producers are declining on industrial metals concerns from China after weaker-than-expected news on China’s service sector. Also, signs of weakness in the Eurozone economy are undercutting stocks after the Eurozone S&P Jun composite PMI was revised lower to show the steepest pace of contraction in 6 months. On the positive side, European government bond yields declined after Eurozone May PPI fell by the most in 2-1/2 years and after the ECB’s monthly inflation expectations survey showed inflation expectations declined.
The Eurozone S&P Jun composite PMI was revised lower by -0.4 to 49.9 from the initially reported 50.3, the steepest pace of contraction in 6 months.
Eurozone May PPI fell -1.5% y/y, weaker than expectations of -1.3% y/y and the biggest decline in 2-1/2 years.
The ECB's monthly inflation expectations survey showed inflation expectations for the next 12 months fell to 3.9% in May from 4.1% in April, but inflation expectations for the next 3 years were unchanged at 2.5% from April.
China’s Shanghai Composite closed moderately lower. Concerns about the fading recovery in the Chinese economy are weighing on Chinese stocks after today’s news showed the China Caixin Jun services PMI fell more than expected to a 5-month low. Also, property stocks retreated after defaulted developer Shimao Group Holdings Ltd failed to find a buyer for a $1.8 billion project at a forced auction, even at a heavy discount. The slump in China’s real estate market continues to weigh on the country’s economic prospects after a brief rebound from the ending of Covid restrictions has faded, with home sales resuming declines and property investment worsening. Goldman Sachs Group recently raised its projected default rate for Chinese high-yield property dollar bonds, and China Vanke Co, the country’s second-largest developer by sales, said the home market is “worse than expected.”
The China Caixin Jun services PMI fell -3.2 to a 5-month low of 53.9, weaker than expectations of 56.2.
Japan’s Nikkei Stock Index today posed modest losses as it consolidated just below last month’s 33-year high. Concerns that China’s post-Covid economic recovery is faltering is weighing on stocks on fears it will slow the global economy. The weakness in stocks sparked some safe-haven buying of the yen, which sparked the selling of Japanese exporter stocks. Strength in Japanese semiconductor stocks limited losses in the overall market after Goldman Sachs raised price targets on several companies due to an attractive outlook.
The Japan Jibun Bank Jun services PMI was revised downward by -0.2 to 54.0 from the initially reported 54.2.
Pre-Market U.S. Stock Movers
STMicroelectronics NV (STM) dropped more than -2% in pre-market trading after China imposed restrictions on exporting gallium and germanium, two metals crucial to parts of the chip industry.
Freeport-McMoRan (FCX) and ArcelorMittal (MT) slid more than -2% in pre-market trading as mining stocks dropped after copper and iron ore prices fell more than -1% as the latest negative economic news from China and the Eurozone fueled concerns over the demand outlook for industrial metals.
United Parcel Service (UPS) tumbled more than -2% in pre-market trading on strike concerns after talks between the company and the Teamsters union fell apart this morning.
Conagra Brands (CAG) slid more than -1% in pre-market trading after Jeffries downgraded the stock to hold from buy, citing concerns about near-term volume growth potential.
U.S. Steel (X) fell more than -2% in pre-market trading after BXP Paribas Exane downgraded the stock to neutral from outperform.
Rivian Automotive (RIVN) climbed more than +5% in pre-market trading after it said it began delivering electric vans to Europe for Amazon.com, its first commercial shipments outside of the U.S.
MP Materials (MP) jumped more than +5% in pre-market trading after China announced it would restrict exports of rare earth specialty materials germanium and gallium.
Netflix (NFLX) gained more than +1% in pre-market trading after Goldman Sachs upgraded the stock to neutral from underperform, saying management has executed its password-sharing crackdown more efficiently than expected.
BioMarin Pharmaceutical (BMRN) climbed more than +4% in pre-market trading after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $102.
Today’s U.S. Earnings Reports (7/5/2023)
Burke & Herbert Financial Serv (BHRB), Gencor Industries Inc (GENC), NEXTracker Inc (NXT), SilverBow Resources Inc (SBOW), TuSimple Holdings Inc (TSP), Waldencast Plc (WALD).
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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.
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