Markets Today: Stocks Fall on a Hawkish Fed Outlook

Morning Markets

March S&P 500 futures (ESH23) this morning are down -0.79% and March Nasdaq 100 E-Mini futures (NQH23) are down -1.03%. 

U.S. stock index futures this morning are extending last Friday’s losses on concern the Fed will have to raise interest rates for longer after last Friday’s stronger-than-expected Jan payroll report.  Concern about the escalation of U.S.-China geopolitical tensions is also weighing on market sentiment after the U.S. shot down an alleged Chinese spy balloon over the weekend. 

Negative corporate news today is another bearish factor for stock index futures.  Tyson Foods is down more than -5% in pre-market trading after reporting weaker-than-expected Q1 sales.  Also, T-Mobile US, PayPal Holdings, and Datadog are down at least 2% after being downgraded.

Rising global bond yields are bearish for stocks, with the 10-year T-note yield today climbing to a 3-1/2 week high of 3.629%, and the 10-year German bund yield up +10.2 bp to 2.295%.

On the positive side for stocks is increased M&A activity, with Catalent up more than +25% in pre-market trading after a Bloomberg report said that Danaher is said to be interested in acquiring the company.  Also, Life Storage is up more than +11% after Public Storage made an $11 billion unsolicited bid for the company.

Overseas markets are mixed.  The Euro Stoxx 50 index is down -1.46%.  China’s Shanghai Composite stock index closed down -0.76%, and Japan’s Nikkei Stock index closed up +0.67%. 

The Euro Stoxx 50 index today is posting moderate losses on concerns that the world’s central banks will have to keep their monetary policies tighter for longer to stamp out inflation.  Last Friday’s U.S. Jan payroll report showed the U.S. unemployment rate unexpectedly fell to a 53-year low, which will keep the pressure on the Fed to keep raising interest rates.

Also, comments today from ECB Governing Council members Vasle and Holzmann pushed up European government bond yields and weighed on stocks when they said interest rate hikes are far from over.  Losses in European mining stocks also weighed on the overall market after iron ore prices fell to a nearly 3-week low amid rising inventories in China.

Today’s Eurozone economic news was mixed for stocks.  On the bearish side, Eurozone Dec retail sales fell -2.7% m/m, weaker than expectations of -2.5% m/m and the biggest decline in 20 months.  Conversely, Eurozone Jan Sentix investor confidence rose +9.5 to -8.0, stronger than expectations of -13.5.  Also, German Dec factory orders rose +3.2% m/m, stronger than expectations of +2.0% m/m and the biggest increase in 15 months.

Hawkish ECB comments today were negative for stocks.  ECB Governing Council member Vasle said ECB interest rate hikes are "far from over" despite a slowdown in inflation as core inflation remains "much too high."  Also, ECB Governing Council member Holzmann said, "the risk of over-tightening of monetary policy seems dwarfed by the risk of doing too little," and the ECB must "show its teeth until it sees a credible convergence in its inflation target."

China’s Shanghai Composite today fell to a 2-week low and closed moderately lower.  Rising U.S-China geopolitical tensions sparked risk-off sentiment that led to the selling of Chinese stocks after the U.S. shot down an alleged Chinese spy balloon.  Weakness in Chinese healthcare stocks also weighed on the overall market after the government’s top anti-graft agency published a statement urging further investigation into widespread corruption in the sector.  On the positive side for stocks today, Chinese suppliers for electric vehicle charging facilities and automakers rose after the government announced the start of a pilot program to increase new energy vehicles used in areas including public transport, taxi services, and postal delivery.

Japan’s Nikkei Stock Index today rallied to a 7-week high and closed moderately higher.  A decline in the Japanese yen to a 3-1/2 week low today boosted exporter stocks and real estate companies, which lifted the overall market.  The yen is under pressure after the Nikkei reported that the government approached BOJ Deputy Governor Amamiya to lead the BOJ when current governor Kuroda steps down in April. The appointment of Amamiya to BOJ Governor also boosted stocks as he is seen as likely to extend the BOJ’s ultra-easy monetary policy stance.

Pre-Market U.S. Stock Movers

Datadog (DDOG) tumbled more than -4% in pre-market trading after KeyBanc Capital Markets downgraded the stock to sector weight from overweight. 

PayPal Holdings (PYPL) dropped more than -2% in pre-market trading after Raymond James downgraded the stock to market perform from outperform. 

Newmont (NEM) fell more than -5% in pre-market trading after it offered to buy Newcrest Mining in a deal worth $17 billion. 

U.S.-listed Chinese stocks are falling in pre-market trading after the action by the U.S. to shoot down an alleged Chinese surveillance balloon heightened tensions between the two countries.  Pinduoduo (PDD) and Alibaba Group Holding (BABA) are down more than -2%.   Also, JD.com (JD), Baidu (BIDU), and NetEase (NTES) are down more than -1%. 

Tyson Foods (TSN) tumbled more than -5% in pre-market trading after reporting Q1 sales of $13.26 billion, below the consensus of $13.52 billion. 

RH (RH) dropped more than -4% in pre-market trading after Telsey Advisory Group downgraded the stock to market perform from outperform.

T-Mobile US (TMUS) dropped more than -2% in pre-market trading after MoffettNathanson downgraded the stock to market perform from outperform.

Catalent (CTLT) surged more than +25% in pre-market trading after a Bloomberg report said that Danaher is said to be interested in acquiring the company. 

Spotify (SPOT) rose more than +1% in pre-market trading after Atlantic Equities LLP upgraded the stock to overweight from neutral.

Cummins (CMI) gained nearly +1% in pre-market trading after reporting Q4 net sales of $7.77 billion, better than the consensus of $7.24 billion. 

Life Storage (LSI) jumped more than +11% in pre-market trading after Public Storage made an $11 billion unsolicited bid for the company.

Today’s U.S. Earnings Reports (2/6/2023)

Activision Blizzard Inc (ATVI), Cincinnati Financial Corp (CINF), Cummins Inc (CMI), IDEXX Laboratories Inc (IDXX), Loews Corp (L), ON Semiconductor Corp (ON), Simon Property Group Inc (SPG), Skyworks Solutions Inc (SWKS), Take-Two Interactive Software (TTWO), Tyson Foods Inc (TSN), UDR Inc (UDR).

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