Markets Today: Stocks Tumble as Bond Yields Jump on U.S. Labor Market Strength

Morning Markets

March S&P 500 futures (ESH23) this morning are down -0.59% and March Nasdaq 100 E-Mini futures (NQH23) are down -0.70%. 

U.S. stock index futures gave up overnight gains and turned lower as T-note note yields jumped on signs of strength in the U.S. labor market.  This morning’s reports showed the Dec ADP employment rose +235,000, showing a stronger labor market than expectations of +150,000.  Also, weekly initial unemployment claims unexpectedly fell to a 3-1/4 month low.  The 10-year T-note yield is up +7.5 bp at 3.758%.

Stock indexes initially moved higher in overnight trade on positive carry-over from a rally in China’s Shanghai Composite to a 2-1/2 week high as China took additional steps to reopen its economy.  China announced today that the border between mainland China and Hong Kong would gradually reopen beginning Sunday. 

Positive corporate news today was also supportive for stocks, with Amazon.com up more than +2% in pre-market trading after it announced it was cutting more than 18,000 employees from its workforce, its biggest workforce reduction ever. Also, Comcast Corp and Charter Communications were up more than +1% after Truist Securities upgraded the stocks to buy from hold.

U.S. Dec ADP employment rose +235,000, showing a stronger labor market than expectations of +150,000. Also, Nov ADP was revised upward to +182,000 from the initially reported +127,000.

U.S. weekly initial unemployment claims unexpectedly fell -19,000 to a 3-1/4 month low of 204,000, showing a stronger labor market than expectations of unchanged at 225,000.

The U.S. Nov trade deficit shrank to a 2-year low of -$61.5 billion from -$77.8 billion in Oct, a smaller deficit than expectations of -$63.0 billion and a positive factor for Q4 GDP.

Overseas markets today are mixed.  The Euro Stoxx 50 index is down -0.26%.  The Shanghai Composite Stock index closed up by +1.01%, and Japan’s Nikkei Stock index closed up by +0.40%.

The Euro Stoxx 50 today is slightly lower.  Higher European bond yields today are pressuring stocks after Wednesday afternoon’s minutes of the Dec 13-14 FOMC meeting signaled policymakers expect higher interest rates to remain in place until more progress is made on inflation.  The 10-year German bund yield is up +6.0 bp at 2.332%.  Weaker-than-expected German trade data for November was also a drag on stocks.  Losses in the overall market were limited after Eurozone Nov producer prices rose less than expected.

German Nov exports unexpectedly fell -0.3% m/m, weaker than expectations of unchanged.  German Nov imports fell -3.3% m/m, weaker than expectations of -0.9% m/m.

Eurozone Nov PPI rose 27.1% y/y, weaker than expectations of +27.5% y/y and the slowest pace of increase in 11 months.

China’s Shanghai Composite rose to a 2-1/2 week high today as China reopens its economy and pivots toward market-friendly policies. Global funds bought a net 12.8 billion yuan ($1.9 billion) of equities listed in Shanghai and Shenzhen today, the biggest one-day inflow in 7 weeks.  The yuan also climbed to a 4-month high against the dollar today after China took steps to reopen its border with Hong Kong. In addition, the People’s Bank of China (PBOC) said it would implement a monetary policy that’s targeted and “forceful” to help support the economy.

The China Dec Caixin services PMI rose +1.3 to 48.0, stronger than expectations of 46.8.

The border between mainland China and Hong Kong will gradually reopen beginning Sunday, and China will cancel flight capacity limits from Hong Kong and Macau and will resume flights to the mainland between the two cities.

Japan’s Nikkei Stock index today posted moderate gains amid optimism in global growth as China reopens its economy.  Gains in Japanese exporters led the overall market higher today after the yen fell to a 1-week low against the dollar, improving the earnings prospects of exporters.  Stocks also received a boost from today’s unexpected increase in Japanese consumer confidence.

The Japan Dec consumer confidence index unexpectedly rose +1.7 to 30.3, stronger than expectations of a decline to 28.3.

Pre-Market U.S. Stock Movers

Amazon.com (AMZN) is up more than +2% in pre-market trading after it announced it would lay off more than 18,000 employees in its largest corporate workforce reduction ever. 

Exxon Mobil (XOM) rose more than +1% in pre-market trading after Piper Sandler said strong refining margins more than offsets weakness in chemical prices. 

Comcast Corp (CMCSA) and Charter Communications (CHTR) gained more than +1% in pre-market trading after Truist Securities upgraded the stocks to buy from hold.

U.S. Foods Holding Corp (USFD) climbed more than +2% in pre-market trading after Barclays upgraded the stock to overweight from equal weight.

Western Digital Corp (WDC) jumped more than +7% in pre-market trading after Bloomberg reported the company had restarted merger talks with Japan’s Kioxia. 

Capital One Financial (COF) and American Express (AXP) fell more than -1% in pre-market trading after Stephens downgraded the stocks to underweight from equal weight.

The Gap (GPS) and Victoria’s Secret (VSCO) tumbled more than -3% in pre-market trading after UBS downgraded the stocks to sell from hold.

Crowdstrike Holdings (CRWD) fell more than -2% in pre-market trading after Stifel cut its price target on the stock to $110 from $120.

Silvergate Capital (SI) plunged more than -30% in pre-market trading after it said total deposits from digital asset customers declined to $3.8 billion as of Dec 31 compared to $11.9 billion on Sep 30.  The company also announced it was slashing its headcount by 200 employees, or 40%.

Today’s U.S. Earnings Reports (1/5/2023)

Conagra Brands Inc (CAG), Constellation Brands Inc (STZ), Lamb Weston Holdings Inc (LW), and Walgreens Boots Alliance Inc (WBA).

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