Markets Today: Stocks Mixed Despite Expectations for Further Fed Rate Hikes

Rich Asplund - Barchart - Mon Jul 10, 2023

Morning Markets

The S&P 500 Index ($SPX) (SPY) is up +0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.58%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.13%.

U.S. stock indexes this morning are mixed. Pre-market, September E-Mini S&P 500 futures and Sep Nasdaq 100 E-Mini futures fell to 1-week lows on negative carryover from last Friday when the monthly U.S. Jun payrolls report showed wage pressures strengthened, which bolstered expectations for the Fed to hike rates at its meeting later this month. Stock indexes recovered on signs that China will extend policies to support its property market.

The markets are discounting the odds at 89% 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 higher. The 10-year T-note yield is up +1.4 bp to 4.076%. The 10-year German bund yield is up +3.1 bp at 2.668%. The 10-year UK Gilt yield is up +0.6 bp at 4.656%.

Signs that China will extend policy measures to help its ailing property market are supportive of global growth prospects and stocks. A joint statement from the PBOC and Financial Regulatory Administration today said that Chinese financial institutions would be encouraged to negotiate with real estate firms to extend outstanding loans in order to spur the delivery of homes under construction. Also, some outstanding loans, including trust loans due before 2024, will be given a one-year repayment extension.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.80%. China’s Shanghai Composite Index today closed up +0.22%. Japan’s Nikkei Stock Index today closed down -0.61%.

The Euro Stoxx 50 today recovered from early losses and is moderately higher. European stocks shook off early losses and moved higher after Citigroup upgraded European equities to overweight, saying they trade at a record discount to the U.S. and should benefit from a weaker dollar as well as any new stimulus out of China. Also, European chip stocks moved higher after Taiwan Semiconductor Manufacturing reported better-than-expected quarterly sales. Stocks initially opened lower after the July Sentix Eurozone investor confidence fell more than expected to an 8-month low. Also, deflation risks in China knocked copper and iron ore prices lower and undercut mining stocks.

The Eurozone Jul Sentix investor confidence index fell -5.5 to an 8-month low of -22.5, weaker than expectations of -17.9.

China’s Shanghai Composite posted moderate gains. A rally in technology stocks led the Shanghai Composite higher on signs that government regulators were ending their crackdown on the sector after the government imposed more than $1 billion in fines on tech giants Ant Group and Tencent Holdings. An improvement in market sentiment also gave Chinese stocks a boost after U.S. Secretary Yellen held more than 10 hours of talks with top Chinese economic officials. Stocks came off of their best levels on deflation concerns after China's June consumer prices were flat, and producer prices in June posted their steepest decline in 7-1/2 years.

China Jun CPI was unchanged y/y, weaker than expectations of +0.2% y/y, and the weakest rate in 2-1/3 years. Jun PPI fell -5.4% y/y, weaker than expectations of -5.0% y/y and the steepest pace of decline in 7-1/2 years.

Japan’s Nikkei Stock Index tumbled to a 1-month low and extended its string of losses to five sessions, the longest losing streak since December. Higher U.S. bond yields weighed on Japanese stocks after the 10-year T-note yield Friday climbed to a 7-3/4 month high of 4.090%. Also, an increase in Japanese inflation expectations pushed bond yields higher and weighed on stocks after the Japan 10-year breakeven inflation rate today climbed to an 8-1/2 year high of 1.16%. The rise in inflation expectations pushed the 10-year JGB bond yield up to a 2-1/2 month high of 0.468%, adding to signs the BOJ is making progress toward its goal of achieving stable inflation. The BOJ increased the size of its debt purchases in an operation today in an attempt to slow the pace of rising long-term yields.

Today’s Japanese economic news was bearish for stocks after the Japan Jun Eco watchers survey outlook fell -1.6 to a 4-month low of 52.8, weaker than expectations of 54.2.

Pre-Market U.S. Stock Movers

Microsoft (MSFT) slid more than -1% in pre-market trading after Phillip Securities downgraded the stock to neutral from accumulate.

FMC Corp (FMC) tumbled more than -5% in pre-market trading after cutting its full-year revenue forecast to $5.20 billion-$5.40 billion from a prior forecast of $6.08 billion-$6.22 billion.

MercadoLibre (MELI) dropped more than -2% in pre-market trading after Bank of America downgraded the stock to neutral from buy.

Fox Corp (FOX) fell more than -1% in pre-market trading after Wells Fargo Securities downgraded the stock to underweight from equal weight.

U.S.-listed Chinese stocks are under pressure in pre-market trading after weaker-than-expected China Jun CPI and PPI reports raised deflation concerns. As a result, Alibaba Group Holding (BABA), Baidu (BIDU), JD.com (JD), PDD Holdings (PDD), and Trip.com (TCOM) are down -1% or more.

Fisker (FSR) tumbled more than -5% in pre-market trading after saying it intends to offer $340 million of 0% senior unsecured convertible notes due 2025 to an institutional investor.

Helen of Troy (HELE) jumped more than +9% in pre-market trading after reporting Q1 net sales of $474.7 million, better than expectations of $465.4 million.

Weyerhaeuser (WY) climbed more than +2% in pre-market trading after Bank of America upgraded the stock to buy from neutral.

Charles Schwab (SCHW) rose more than +1% in pre-market trading after JMP Securities upgraded the stock to market outperform from market perform.

Icahn Enterprises (IEP) rallied more than +9% in pre-market trading after the Wall Street Journal reported that Carl Icahn finalized amended agreements with banks that untied his personal loans from the trading price of his company’s shares.

Rivian Automotive (RIVN) climbed more than +3% in pre-market trading and is on track to extend gains for a record ninth consecutive session after it recently reported it built more electric vehicles in Q2 than expected and also shipped its first commercial shipments outside the U.S.

Shockwave Medical (SWAV) gained +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from neutral with a price target of $335.

Today’s U.S. Earnings Reports (7/10/2023)

Daktronics Inc (DAKT), E2open Parent Holdings Inc (ETWO), Helen of Troy Ltd (HELE), PriceSmart Inc (PSMT), VOXX International Corp (VOXX), Waldencast plc (WALD), WD-40 Co (WDFC).

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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.