Pre-Market Brief: Stocks Mixed As COVID Surge in China Weighs On Sentiment

March S&P 500 futures (ESH23) are trending up +0.30% this morning after three major U.S. benchmark indices finished the regular session lower, giving up modest initial gains, as growing fears about a recession in 2023 and surging COVID-19 cases in China weighed on sentiment. Three major U.S. stock indexes were weighed down primarily by losses in the Oil & Gas, Basic Materials, and Technology sectors.

In Wednesday’s trading session, the Nasdaq slid to more than two-month lows as the U.S. 10-year Treasury yield recovered from a brief fall to rise for a third consecutive session, with Apple Inc (AAPL) leading the declines in large-cap tech stocks. Shares of Apple fell over -3% as iPhone supply shortage concerns remain amid labor shortages at Foxconn’s massive iPhone plant in central China. Energy stocks also retreated, dragged by lower oil prices as surging COVID-19 cases in China, the world’s top oil importer, weighed on sentiment.

Data on Wednesday showed that U.S. pending home sales stood at -4.0% m/m, weaker than expectations of -0.8% m/m, falling for a sixth consecutive month in November to the second-lowest on record amid a sharp rise in borrowing costs. At the same time, Richmond Manufacturing Index unexpectedly stood at +1 in December, stronger than expectations of -10.

“The latest slide on Wall Street puts stocks on a firmer course to close out the year with a loss due to higher interest rates and the increasing probability of a U.S. recession,” Wells Fargo said in a note.

Meanwhile, U.S. rate futures have priced in a 71.9% chance of a 25 basis point rate increase and a 28.1% chance of a 50 basis point hike at February’s monetary policy meeting. 

Today, all eyes are focused on the U.S. Initial Jobless Claims data in a couple of hours. Economists, on average, forecast that Initial Jobless Claims will stand at 225K, compared to last week’s value of 216K.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be -1.520M, compared to last week’s value of -5.894M.

In the bond markets, United States 10-Year rates are at 3.862%, down -0.62%.

The Euro Stoxx 50 futures are up +0.16% this morning in thin holiday trading. However, those gains are likely to be fragile as worries about the spread of COVID-19 from China weigh on risk appetite in one of the final trading days of the year. Risk appetite faded on news that several countries would require inbound airline passengers from China to show a negative COVID-19 test before entry.

Today, European investors are also likely to focus on the new ECB economic bulletin issue to assess updates on economic, financial, and monetary developments, which form the basis for the Governing Council’s policy decisions.

Eurozone M3 Money Supply and Eurozone Private Sector Loans data were released today.

Eurozone November M3 Money Supply has been reported at 4.8% y/y, weaker than expectations of 5.0% y/y.

Eurozone Private Sector Loans came in at 4.1% y/y in December, weaker than expectations of 4.3% y/y.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.44%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.94%.

China’s Shanghai Composite today closed lower as rising COVID cases in China worried investors and raised doubts about the chances of a quick recovery for the world’s second-largest economy after the relaxation of severe COVID restrictions. On Monday, China’s National Health Commission announced it would stop requiring quarantine for inbound travelers starting from Jan. 8th. However, several countries, including the United States and Japan, imposed mandatory COVID-19 tests for travelers from China.

“With this current combination of rising cases with an opening up of China restrictions, we’re seeing that investors are concerned that the ramifications are going to spread through many different industries and sectors as it did in the earlier COVID period,” said Greg Bassuk, a chief executive at AXS Investments in Port Chester, New York.

At the same time, Japan’s Nikkei 225 Stock Index closed lower, diving to a nearly three-month low. The index’s downward momentum was fueled by losses in the Shipbuilding, Textile, and Power sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 0.36% to 19.51.

Pre-Market U.S. Stock Movers

Kala Pharmaceuticals Inc (KALA) jumped over +17% in pre-market trading, extending yesterday’s gains after the company announced that the FDA accepted an IND application for its lead product candidate, KPI-012.

TG Therapeutics Inc (TGTX) climbed about +9% in pre-market trading, extending yesterday’s gains after the company announced that the FDA approved Briumvi for the treatment of relapsing forms of multiple sclerosis.

Tesla Inc (TSLA) rose about +3% in pre-market trading on dip-buying after the company’s shares snapped a brutal seven-day losing streak. 

Cal-Maine Foods Inc (CALM) slid more than -3% in pre-market trading after the company reported mixed Q2 results.

Hyzon Motors Inc (HYZN) gained about +12% in pre-market trading after the company announced an equity capital contribution pact with Chevron.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Thursday - December 29th

Siemens Gamesa ADR (GCTAY), Sprott Physical Gold and Silver Trust (CEF), Eaton Vance Tax Manag Glb Buy Write (ETW), Mitek (MITK), Oramed (ORMP), Eaton Vance Tax Managed Buy Closed (ETB), Blade Air Mobility (BLDE), Byrna Technologies (BYRN), Inotiv (NOTV), Wolford ADR (WLFDY).

More Stock Market News from Barchart

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• China’s Economy May Struggle Early Next Year