Stocks Gain on a Positive U.S. Payrolls Report

Morning Markets

September S&P 500 futures (ESU22) this morning are up +0.72%.  U.S. stock indexes this morning shook off overnight losses and moved moderately higher.  Stock indexes rallied after this morning’s the U.S. Aug payroll report showed the unemployment rate unexpectedly ticked higher and wage pressures eased after average hourly earnings rose less than expected.  Another supportive factor for equities is the more than +9% jump in Lululemon Athletica in pre-market trading after the company boosted its full-year revenue outlook.

U.S. Aug nonfarm payrolls rose +315,000, showing a stronger labor market than expectations of +298,00. The Aug unemployment rate unexpectedly rose +0.2 to 3.7% versus expectations of no change at 3.5%, as the Aug labor force participation rate rose +0.3 to 62.4%, stronger than expectations of 62.2%.

U.S. Aug average hourly earnings rose +0.3% m/m and +5.2% y/y, a slower pace of increase than expectations of +0.4% m/m and +5.3% y/y.

According to EPFR Global data, global equity funds had outflows of $9.4 billion in the week ended Aug 31, the fourth-largest redemptions this year.  U.S equities had outflows of $6.1 billion in the week to Aug 31, the largest outflow in 10 weeks.

The Euro Stoxx 50 today is up +0.77%, recovering moderately from Thursday’s 1-1/2 month low.  A decline in European stock valuations following this week’s sell-off has attracted dip buyers in equities today.  A rally in sports apparel stocks lifted the overall market after Lululemon Athletica raised its full-year outlook.  Gains in European stocks were limited today after Eurozone July producer prices rose at a record pace and after German trade data disappointed.  Inflation concerns also pushed up European government bond yields that weighed on stocks after the 10-year UK gilt yield today rose to an 8-1/2 year high of 2.943%, and the 10-year German bund yield rose +1.8 bp to 1.580%, just below Thursday’s 2-month high.  

Eurozone July PPI rose a record +37.9% y/y, stronger than expectations of +37.3% y/y.

German July exports fell -2.1% m/m, the biggest decline in 4 months.  German July imports fell -1.5% m/m, the biggest decline in 6 months.

China’s Shanghai Composite today rebounded from a 4-week low and closed slightly higher.  The Shanghai Composite today initially extended Thursday’s losses down to a 4-week low on growth concerns in China after the government locked down Chengdu, the capital of Sichuan province with 21 million people, to contain a Covid outbreak.  The lockdown threatens to disrupt economic activity and exacerbate supply-chain issues. However, a rebound in Chinese technology socks sparked a recovery in the overall market after Broadcom gave a strong sales forecast for the current quarter, easing concern that spending on internet infrastructure is slowing.

Japan’s Nikkei Stock Index today slid to a 1-month low. Concern that fresh Covid lockdowns in China will snarl supply chains and undercut global growth weighed on Japanese stocks.  However, a rally in Japanese exporters limited losses in the overall market after the yen today sank to a new 24-year low against the dollar.  The weak yen bolsters earnings prospects for exporters. 

Pre-Market U.S. Stock Movers

Energy stocks and energy service providers are climbing in pre-market trading, with the price of WTI crude up more than +2%.  Exxon Mobil (XOM), Devon Energy (DVN), Occidental Petroleum (OXY), Marathon Oil (MRO), and Schlumberger (SLB) are up more than +2%.

Lululemon Athletica (LULU) jumped more than +9% in pre-market trading after reporting Q2 adjusted EPS of $2.20, stronger than the consensus of $1.87, and raised its 2023 adjusted EPS forecast to $9.75-$9.90 from an earlier forecast of $9.35-$9.50, above the consensus of $9.45.

Broadcom (AVGO) climbed more than +2% in pre-market trading after reporting Q3 net revenue of $8.46 billion, above the consensus of $8.41 million, and forecast Q4 revenue of $8.90 billion, stronger than the consensus of $8.72 billion.

Okta (OKTA) gained almost +1% in pre-market trading after Guggenheim Securities upgraded the stock to neutral from sell.

Nvidia (NVDA) fell -1% in pre-market trading after Daiwa Securities downgraded the stock to neutral from outperform.

LyondellBasell Industries NV (LYB) fell more than -1% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight, saying petrochemical companies are “probably not the best places to put new money to work.

Yum China (YUMC) dropped more than -2% in pre-market trading on growth concerns after China locked down Chengdu, a city of 21 million people, which will hurt the company’s Chinese restaurant sales. 

Addentax (ATXG) plunged more than -30% in pre-market trading, extending Thursday’s -95% plunge after the Chinese garment maker surged 13,000% in its market debut on Wednesday.  

Today’s U.S. Earnings Reports (9/2/2022)

Bowlero Corp (BOWL), P3 Health Partners Inc (PIII), Republic First Bancorp Inc (FRBK).

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