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Stocks Stabilize after U.S. Producer Prices Rise Less Than Expected

Barchart - Tue Jun 14, 8:00AM CDT
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Morning Markets

June S&P 500 futures (ESM22) this morning are up by +0.63%.  U.S. stock indexes are moderately higher as they stabilize after the sharp losses seen over the past three sessions.   Lower T-note yields today sparked short-covering in stock indexes as the 10-year T-note yield is down -5.1 bp at 3.309%.  Stock indexes added to their gains this morning after U.S. May producer prices rose less than expected, slightly easing inflation concerns.

The markets expect the FOMC to raise the target on the fed funds range by at least 50 bp after its two-day policy meeting that begins today.  The 10-year T-note yield soared to an 11-year high Monday of 3.437% after a Wall Street Journal report suggested the Fed may raise rates as much as 75 bp.  JPMorgan Chase said that even a full percentage point (100 bp) increase is a possibility.

The U.S. May final-demand PPI index rose +10.8% y/y, slightly weaker than expectations of +10.9% y/y.  U.S. May PPI ex-food & energy rose +8.3% y/y, weaker than expectations of +8.6% y/y and the slowest pace of increase in 6 months.

The Euro Stoxx 50 today fell to a 3-1/2 month low and is down by -0.47%.  Hawkish ECB comments today weighed on stocks and pushed government bond yields higher.  The 10-year German bund yield jumped to a new 8-year high today of 1.678% after ECB Governing Council member Knot said, "the ECB is "very worried" about inflation.  Weaker-than-expected data today on German June ZEW business confidence was also negative for stocks.

ECB Governing Council member Knot said, "the ECB is "very worried" about inflation and "if conditions remain the same as today, it will have to raise rates by more than 25 bp" in September.  He added that there is a "real possibility" that rates continue to increase at the ECB's October and December meetings.

The German Jun ZEW expectations of economic growth index rose +6.3 to -28.0, weaker than expectations of -26.8.

The German May wholesale price index rose +1.0% m/m and +22.9% y/y, easing some from April's +2.1% m/m and +23.8% y/y increase.

Asian markets today settled mixed.  China’s Shanghai Composite Index recovered from a 1-week low and rallied to a 2-1/4 month high and closed up by +1.02%.  Japan’s Nikkei stock index tumbled to a 3-1/2 week low and closed down by -1.32%. 

Chinese stocks today initially moved lower on concern that China’s economy will be slow to reopen from pandemic lockdowns after Beijing reported the highest number of new Covid infections in 3 weeks.  However, speculation that the PBOC may reduce the one-year policy loan rate on Wednesday fueled a sharp rally in financial and brokerage stocks that sparked short covering in the overall market and pushed the Shanghai Composite to a 2-1/4 month high. 

Japanese stocks moved lower, led by losses in technology stocks, amid fears that aggressive monetary tightening by the Fed will send the U.S. economy into recession.  The BOJ today bought 2.2 trillion yen ($15.7 billion) of government notes through its fixed-rate operation, the largest amount since such operations began in 2016.  The BOJ is attempting to keep the 10-year JGB bond yield from climbing above the upper end of its 0.25% target range after the 10-year JGB bond yield rose to a 1-1/2 month high today at 0.266%. 

Japan Apr industrial production was revised downward to -1.5% m/m from the previously reported -1.3% m/m.

Pre-Market U.S. Stock Movers

Mega-cap technology stocks are climbing in pre-market trading as they rebound from the sharp losses seen in the past three sessions.  Apple (AAPL), (AMZN), Nvidia (NVDA), Alphabet (GOOGL), Tesla (TSLA), Meta Platforms (META), and Microsoft (MSFT) are all up more than +1%.

Oracle (ORCL) surged +14% in pre-market trading after reporting Q4 revenue of $11.84 billion, stronger than the consensus of $11.66 billion.

U.S. Silica Holdings (SLCA) rose +4% in pre-market trading after Evercore ISI raised its recommendation on the stock to outperform from inline.

U.S.-listed Chinese stocks are gaining in pre-market trading as sentiment toward Chinese stocks improves.  Pinduoduo (PDD) and Baidu (BIDU) are up more than +4%.  Also, Alibaba Group Holding (BABA) and (JD) are up more than +3%. 

Adobe (ADBE) fell more than -4% in pre-market trading after Citigroup cut its price target on the stock to $425 from $455, saying “growth could continue to slow through a choppier macro environment.”

Arista (NET) dropped more than -4% in pre-market trading after Morgan Stanley said that Arista and Micron Technology are among those most at risk in the semiconductor and networking equipment space when tech firms cut spending on data centers. 

Outset Medical (OM) lost nearly -5% in pre-market trading after Cowen cut its price target on the stock to $33 from $60.

Netflix (NFLX) slid -2% in pre-market trading after Benchmark cut its recommendation on the stock to sell from hold. 

Today’s U.S. Earnings Reports (6/14/2022)

Beyondspring Inc (BYSI), Core & Main Inc (CNM), Motorcar Parts of America Inc (MPAA), Portage Biotech Inc (PRTG), Rafael Holdings Inc (RFL).

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.