Stocks Slip as Strong U.S. Economic News Pushes Bond Yields Higher

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -0.14%.  This morning’s U.S. economic news pointed to a resilient economy that will encourage the Fed to remain hawkish.  U.S weekly jobless claims unexpectedly fell to a 3-1/2 month low, and Aug retail sales unexpectedly rose, which pushed the 10-year T-note yield up +2.7 bp to 3.432%.  The markets have fully priced in a +75 bp interest rate increase by the Fed at next week’s FOMC meeting.

Stocks today are seeing support after overnight news that railroad companies and unions representing more than 100,000 workers reached a tentative labor agreement.  That will avert a nationwide rail strike on Friday that could have been very damaging to the U.S. economy.

U.S. weekly initial unemployment claims unexpectedly fell -5,000 to a 3-1/2 month low of 213,000, showing a stronger labor market than expectations of an increase to 227,000.

U.S. Aug retail sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.1% m/m decline.  However, Aug retail sales ex-autos unexpectedly fell -0.3% m/m, weaker than expectations of unchanged.

The U.S. Sep Philadelphia Fed business outlook survey fell -16.1 to -9.9, weaker than expectations of 2.3.

The U.S. Sep Empire manufacturing survey general business conditions index rose +29.8 to -1.5, stronger than expectations of -12.9.

The U.S. Aug import price index ex-petroleum fell -0.2% m/m, a smaller decline than expectations of -0.6% m/m.

The Euro Stoxx 50 today is down -0.24%.  Economic concerns are weighing on European stocks today on comments from ECB Vice President Guindos, who said "the Eurozone is now facing a challenging outlook" and "we expect output growth to slow down substantially." Stocks are also being undercut by concern that higher energy prices will boost inflation and undercut growth as nat-gas prices today jumped by more than +3% to a 1-week high.

ECB Vice President Guindos said "the Eurozone is now facing a challenging outlook" and "we expect output growth to slow down substantially."  Also, "at the current low level of interest rates, monetary policy is still accommodative, thus supporting demand and ultimately also contributing to price pressures." 

ECB Governing Council member Makhlouf said, "raising interest rates is absolutely necessary as persistent inflation is damaging to macroeconomic stability."

Eurozone Q2 labor costs eased to +4.0% y/y from +4.2% y/y in Q1.

The German Aug wholesale price index eased to +18.9% y/y from +19.5% y/y in July.

Asian markets today settled mixed.  China’s Shanghai Composite Index closed down -1.16%, and Japan’s Nikkei Stock Index closed up +0.21%. 

China’s Shanghai Composite Index today dropped to a 1-1/2 week low.  Weakness in Chinese real estate stocks and homebuilders weighed on the overall market today as China’s housing crisis deepened.  Data show that about 660 million square meters of homes were sold in China this year through the end of July, the lowest amount since 2015.  Also, Chinese manufacturing activity has slowed due to pandemic lockdowns as Chinese steel output dropped to a 4-year low in July.  The economic weakness is undercutting the yuan, which fell to a 2-year low today of 6.9967 yuan/USD.

Japan’s Nikkei Stock Index today rose modestly on positive carry-over from stabilization in U.S. stocks on Wednesday.  Also, today’s Japanese trade news was bullish for stocks after Japan Aug exports rose +22.1% y/y, the biggest increase in a year. Weakness in utility stocks limited gains in the overall market after Kyushu Electric Power Co and Chugoku Electric Power Co announced plans to scrap their dividends as higher costs are eating into earnings. 

Pre-Market U.S. Stock Movers

Devon Energy (DVN) fell -1% in pre-market trading after JPMorgan Chase downgraded the stock to neutral.

Phillips 66 (PSX) slid more than -1% in pre-market trading after Wolfe Research downgraded the stock to peer-perform from outperform.

Kohl’s (KSS) dropped more than -1% in pre-market trading after Jeffries downgraded the stock to hold from buy.

Electronic Arts (EA) fell more than -1% in pre-market trading after Atlantic Equities Lp downgraded the stock to neutral from overweight. 

Union Pacific (UNP) climbed nearly +5% in pre-market trading after railroad companies and unions representing more than 100,000 workers reached a tentative labor agreement. 

Netflix (NFLX) gained more than +2% in pre-market trading after Evercore ISI upgraded the stock to outperform from in-line.

Danaher (DHR) jumped more than +4% in pre-market trading after it said it would spin off its environmental and applied solutions unit. 

Nordstrom (JWN) rose more than +2% in pre-market trading after Jeffries upgraded the stock to a buy from hold.  

Marriot International (MAR), Hyatt Hotels (H), and Hilton Worldwide Holdings (HLT) all rose +1% in pre-market trading after Berenberg upgraded the hotel stocks to buy from hold.

APA Corp (APA) climbed more than +2% in pre-market trading after it doubled its quarterly dividend to an annualized rate of $1 per share from 50 cents and approved a further 40 million shares of additional share repurchase authorization.

Today’s U.S. Earnings Reports (9/15/2022)

Adobe Inc (ADBE), Bowlero Corp (BOWL).

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