Stocks Slip Before the Open as Hawkish Fed Outlook Weighs on Sentiment, ECB Decision in Focus

Oleksandr Pylypenko - Barchart - Thu Jun 15, 2023

June S&P 500 futures (ESM23) are down -0.29%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.57% this morning after three major U.S. benchmark indices finished the regular session mixed as hawkish signals from the Federal Reserve weighed on sentiment, while investors also awaited key U.S. retail sales data.

The Federal Reserve held its policy rate at 5.0%-5.25% on Wednesday, breaking a streak of 10 consecutive rate increases over 14 months. At the same time, the Summary of Economic Projections released by the central bank revealed that most policymakers now expect the Fed’s benchmark rate to reach a peak of 5.6% by the end of 2023, up from the previous projection of 5.1%, implying that at least two more quarter-point hikes are in the cards. Federal Reserve Chairman Jerome Powell stated that the central bank would consider the cumulative impact of hikes when making future decisions regarding whether or not to implement further rate increases. In addition, Powell conveyed a positive outlook on the battle against inflation, noting that multiple factors are showing progress.

In Wednesday’s trading session, UnitedHealth (UNH) plunged over -6% and weighed on other health insurance stocks after the company warned that its medical care ratio, the share of premiums spent on healthcare costs, would come under pressure in Q2 amid a post-COVID recovery in outpatient medical care among seniors. Also, regional bank stocks retreated, weighed down by a more than -5% drop in Zions Bancorporation (ZION) after the lender cautioned that its net interest margin would drop this quarter as it pays more to hold onto depositors. On the positive side, shares of hospital and surgical-center operators advanced, with Universal Health Services Inc (UHS) gaining over +3% and Surgery Partners Inc (SGRY) rising about +5%. In addition, semiconductor stocks gained ground, with Intel Corporation (INTC) and NVIDIA Corporation (NVDA) climbing over +4%.

Data on Wednesday showed that the U.S. producer price index eased to +1.1% y/y in May from +2.3% y/y in April due to a decline in the costs of energy goods and food, better than expectations of +1.5% y/y.

Today, all eyes are focused on U.S. Retail Sales data in a couple of hours. Economists, on average, forecast that May Retail Sales will come in at -0.1% m/m, compared to the previous value of +0.4% m/m.

Also, investors will likely focus on the U.S. Philadelphia Fed Manufacturing Index, which stood at -10.4 in May. Economists foresee the June figure to be -13.5.

U.S. Core Retail Sales data will be reported today. Economists foresee this figure to stand at +0.1% m/m in May, compared to the previous number of +0.4% m/m.

U.S. Industrial Production data will come in today. Economists expect May’s figure to be +0.1% m/m, compared to the previous number of +0.5% m/m.

U.S. Export and Import Price Indexes for May will also be in focus today. Economists anticipate Export Price Index to be at 0.0% m/m and Import Price Index to stand at -0.6% m/m.

U.S. Initial Jobless Claims data will be reported today as well. Economists estimate this figure to be 250K, compared to last week’s value of 261K.

In the bond markets, United States 10-Year rates are at 3.818%, up +0.56%.

The Euro Stoxx 50 futures are down -0.43% this morning as investors digested hawkish signals from the Federal Reserve while cautiously awaiting the latest monetary policy decision from the European Central Bank. Mining stocks are under pressure today after data showed that Chinese economic activity softened in May. At the same time, retail stocks outperformed, with H & M Hennes & Mauritz Ab (HMB.S.DX) rising about +5% after the company announced that June has got off to a strong start. The ECB is scheduled to announce its interest rate decision later in the day, with economists expecting a 25 basis-point rate increase. In corporate news, shares of Softwareone Holding Ag (SWON.Z.EB) climbed over +20% after Bain Capital Private Equity offered 2.93 billion Swiss francs in cash to buy the company.

France’s CPI and Eurozone’s Trade Balance data were released today.

The French May CPI has been reported at -0.1% m/m and +5.1% y/y, in line with expectations.

Eurozone April Trade Balance stood at -11.7B, weaker than expectations of +21.5B.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.74%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.05%.

China’s Shanghai Composite today closed higher after the central bank cut the borrowing cost of its medium-term policy loans. The People’s Bank of China cut the interest rate on its one-year medium-term lending facility rate by 10 basis points to 2.65% for the first time in 10 months Thursday, which could signal a forthcoming cut in the PBOC’s benchmark loan prime rates next week. At the same time, data on Thursday showed that Chinese industrial production, retail sales, and fixed asset investment all grew at a slower-than-anticipated pace in May, bolstering expectations that Beijing will ramp up stimulus measures to support the fragile economic recovery. Meanwhile, shares of Hong Kong-listed property stocks rose on Thursday amid hopes for more interest rate cuts, with Sunac China climbing about +7% and Logan Group Co Ltd rising more than +5%.

“Looking forward, the market hopes for more supportive policies to stimulate consumption. Another positive catalyst for Chinese equities would be increased communication between the US and China,” said Jian Shi Cortesi, an investment director of China equity funds at GAM Investments.

The Chinese May Fixed Asset Investment stood at +4.0% y/y, weaker than expectations of +4.4% y/y.

The Chinese May Industrial Production has been reported at +3.5% y/y, weaker than expectations of +3.8% y/y.

The Chinese May Retail Sales came in at +12.7% y/y, weaker than expectations of +13.7% y/y.

The Chinese May Unemployment Rate was at 5.2%, in line with expectations.

At the same time, Japan’s Nikkei 225 Stock Index closed slightly lower today, snapping a four-day winning streak as investors digested Japanese trade data and weighed mixed messages from the U.S. Federal Reserve. Data on Thursday showed that the country’s exports unexpectedly grew for the 27th consecutive month in May on robust car sales while imports declined, with Japan’s trade gap narrowing by 42% compared to the previous year. Also, the Cabinet Office reported Thursday that Japan’s core machinery orders rebounded in April. In addition, data from the Ministry of Finance released on Thursday revealed that foreign investors became net buyers of Japanese stocks for the 11th straight week, buying 1.3 trillion yen worth of shares in the week ended June 10th. Focus is now squarely on the Bank of Japan interest rate decision, with investors betting that the central bank will stick with its ultra-easy monetary policy. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 2.71% to 21.99.

The Japanese April Core Machinery Orders came in at +5.5% m/m and -5.9% y/y, stronger than expectations of +3.0% m/m and -8.0% y/y.

The Japanese May Exports stood at +0.6% y/y, stronger than expectations of -0.8% y/y.

The Japanese May Imports came in at -9.9% y/y, stronger than expectations of -10.3% y/y.

The Japanese May Trade Balance has been reported at -1,372.5B, weaker than expectations of +1,331.9B.

Pre-Market U.S. Stock Movers

Ammo Inc (POWW) climbed more than +3% in pre-market trading after the company reported better-than-expected sales in Q4.

Lennar Corporation (LEN) gained over +2% in pre-market trading after the company posted upbeat Q2 results.

Domino’s Pizza Inc (DPZ) rose more than +2% in pre-market trading after Stifel upgraded the stock to Buy from Hold.

Accenture plc (ACN) gained about +1% in pre-market trading after Piper Sandler upgraded the stock to Neutral from Underweight.

Editas Medicine Inc (EDIT) plunged about -7% in pre-market trading after announcing the pricing of an underwritten offering of 12.5M shares of its common stock at a public offering price of $10.00 per share.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Thursday - June 15th

Adobe (ADBE), Kroger (KR), Jabil Circuit (JBL), John Wiley&Sons (WLY), 111 Inc (YI), Aurora Mobile (JG), TAAT Global Alternatives (TOBAF).

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On the date of publication, Oleksandr Pylypenko 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.