Markets Today: Stocks Sag Ahead of Fed Chair Powell’s Speech

Morning Markets

Stock indexes this morning are slightly lower ahead of a speech later today by Fed Chair Powell that may provide hints about whether the Fed will slow its pace of interest rate increases, as the markets expect.  The markets are expecting only a +50 bp rate hike at the upcoming December 13-14 meeting after the FOMC has raised rates by +75 bp at each of its last four meetings.

China’s Shanghai Composite Stock Index reached a new 2-1/2 month high.  Chinese stocks are underpinned as the easing of Covid restrictions in some parts of the country sparked optimism of an economic reopening.  Also, there was a rally in European stocks today after Eurozone consumer prices in November slowed more than expected. 

Today’s U.S. economic news was mixed for stocks after U.S. Q3 GDP saw a larger-than-expected upward revision, and the Nov ADP employment report posted its smallest increase in nearly 2 years.  Higher T-note yields are bearish for stocks, with the 10-year T-note yield up +2.6 bp at 3.770%.

U.S. Nov ADP employment rose +127,000, weaker than expectations of +200,000 and the smallest increase in 22 months.

U.S. Q3 GDP was revised upward by +0.3 to 2.9% (q/q annualized), slightly stronger than expectations of 2.8%, as Q3 personal consumption was revised up by +0.3 to 1.7%, slightly better than expectations of 1.6%.

The U.S. Q3 core PCE deflator was unexpectedly revised upward by +0.1 to 4.6% q/q, stronger than expectations of unchanged at 4.5% q/q.

U.S. Oct wholesale inventories rose +0.8% m/m, higher than expectations of +0.5% m/m. 

Bitcoin (^BTCUSD) is up +2.1% this morning at a 2-week high, which is a supportive factor for stocks.  Bitcoin rose today on M&A activity after Binance, the world’s biggest cryptocurrency exchange, bought Japan’s Sakura Exchange Bitcoin, which will pave the way for Binance to enter Japan as a regulated entity.  The terms of the transaction were not disclosed.

Overseas stocks today are mixed.  The Euro Stoxx 50 index today is up by +0.68%.  European stocks are stronger today after Eurozone consumer prices eased and on hopes for reduced Covid restrictions in China.  However, the upside was contained as today’s economic news showed weakness in Germany’s labor market.  Also, higher German bund yields are bearish for stocks, with the 10-year German bund yield up +3.3 bp at 1.955%. 

Eurozone Nov CPI rose +10.0% y/y, a smaller increase than expectations of +10.4% y/y.  The Eurozone Nov core CPI rose by a record +5.0% y/y, right on expectations, and unchanged from October.

German Nov unemployment rose +17,000, above expectations of +13,500 and a sign of a weaker labor market.  Also, the German Nov unemployment rate unexpectedly rose +0.1 to a 17-month high of 5.6%, showing a weaker labor market than expectations of unchanged at 5.5%.

China’s Shanghai Composite climbed to a new 2-1/2 month high but closed only slightly higher by +0.05%, and Japan’s Nikkei Stock Market Index closed down -0.21%.  Chinese stocks moved higher for a second day, and the yuan climbed to a 2-week high against the dollar, as the easing of Covid restrictions in some parts of the country sparked optimism of an economic reopening.  China removed lockdown restrictions today in its main urban areas of Zhengzhou, home to Apple's largest manufacturing site in China.  Gains in stocks were limited by economic concerns after today’s news that China’s Nov manufacturing and non-manufacturing PMIs fell more than expected and contracted by the most in 7 months

The China Nov manufacturing PMI fell -1.2 to 48.0, weaker than expectations of 49.0 and the steepest pace of contraction in 7 months.

The China Nov non-manufacturing PMI fell -2.0 to 46.7, weaker than expectations of 48.0 and the steepest pace of contraction in 7 months.

Japan’s Nikkei Stock Market Index today dropped to a 2-week low and closed moderately lower. Weaker-than-expected Japanese industrial output weighed on stocks after today’s news showed Japan Oct industrial production fell -2.6% m/m, weaker than expectations of -1.8% m/m and the biggest decline in 5 months.  Weakness in the yen today boosted exporter stocks and limited losses in the overall market.

Pre-Market U.S. Stock Movers

HP Enterprise (HPE) climbed more than +3% in pre-market trading after reporting Q4 revenue of $7.87 billion, well above the consensus of $7.37 billion and forecasting Q1 net revenue of $7.2 billion-$7.6 billion, above the consensus of $7.0 billion. 

Horizon Therapeutics (HZNP) surged +33% in pre-market trading after it confirmed it is in “highly preliminary discussions” with Amgen, Johnson & Johnson, and Sanofi about a possible deal. 

Workday (WDAY) jumped more than +8% in pre-market trading after raising its 2023 subscription revenue forecast to $5.56 billion from $5.54 billion, better than the consensus of $5.54 billion.

Wayfair (W) rallied more than +10% in pre-market trading after saying the five-day peak holiday period between Thanksgiving and Cyber Monday included “a low single-digit sales increase in the U.S. compared to the same period in 2021.” 

Crypto stocks are climbing in pre-market trading, with the price of Bitcoin up more than +2% at a 2-week high.   Marathon Digital (MARA) and Riot Blockchain (RIOT) are up more than +4%.  Coinbase Global (COIN) and Silvergate Capital (SI) are up more than +2%.

Cybersecurity stocks are tumbling in pre-market trading after Crowdstrike Holdings (CRWD) sank more than -20% after forecasting Q4 revenue of $619.1 million-$628.2 million, weaker than the consensus of $634.8 million.  Also, SentinelOne (S) and Zscaler (ZS) are down more than -6%, and Cloudflare (NET) is down more than -2%.

NetApp (NTAP) dropped more than -12% in pre-market trading after reporting Q2 revenue of $1,66 billion, below the consensus of $1.68 billion and forecasting Q3 net revenue of $1.53 billion-$1.68 billion, weaker than the consensus of $1.71 billion. 

Carvana (CVNA) fell more than -1% in pre-market trading after Bank of America downgraded the stock to neutral from outperform.

Hormel Foods (HRL) fell nearly -2% in pre-market trading after reporting Q4 net sales of $3.30 billion, below the consensus of $3.38 billion and forecasting 2023 net sales of $12.6 billion to $12.9 billion, weaker than the consensus of $13.01 billion. 

Today’s U.S. Earnings Reports (11/30/2022)

Donaldson Co Inc (DCI), Elastic NV (ESTC), Five Below Inc (FIVE), Hormel Foods Corp (HRL), 

Leslie's Inc (LESL), nCino Inc (NCNO), Nutanix Inc (NTNX), Okta Inc (OKTA), Petco Health & Wellness Co Inc (WOOF), Pure Storage Inc (PSTG), PVH Corp (PVH), Salesforce Inc (CRM), Snowflake Inc (SNOW), Splunk Inc (SPLK), Synopsys Inc (SNPS), Victoria's Secret & Co (VSCO).

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