Markets Today: Stocks Slip as Market Sentiment Remains Fragile

Morning Markets

March S&P 500 futures (ESH23) this morning are down -0.69%, and March Nasdaq 100 E-Mini futures (NQH23) are down -0.22%.

U.S. stock index futures this morning are trading lower.  A decline in regional bank stocks in pre-market trading is weighing on E-mini S&P futures.  First Republic Bank is down more than -12% and is dragging peers lower as sentiment toward the stock remains fragile despite Thursday’s proposal for $30 billion of aid from a consortium of the biggest U.S. banks.  However, losses in E-mini Nasdaq futures are limited as a drop in bond yields supports interest rate-sensitive technology stocks. 

Today’s quarterly triple witching, where contracts expire for index futures, equity index options, and stock options could ramp up volatility in trading.

In a sign of escalating funding strains, Fed data showed that U.S. banks borrowed a record $152.85 billion from the discount window in the week of March 15.

Global bond yields are falling this morning as concerns mount that the turmoil rocking the banking sector will tip the global economy into recession.  The 10-year T-note yield today is down -12.6 bp at 3.451%, and the 10-year German bund yield is down -10.8 bp at 2.182%. 

On the positive side for stocks, FedEx is up more than +10% in pre-market trading after reporting stronger-than-expected Q3 adjusted EPS and raising its full-year adjusted EPS forecast.  Also, US Steel is up more than +5% after forecasting Q1 adjusted Ebitda.  In addition, cryptocurrency-exposed stocks are moving higher in pre-market trading, with the price of Bitcoin surging more than +8% to a 9-month high. 

Overseas stock markets are mixed.  The Euro Stoxx 50 today is down -0.20%.  China’s Shanghai Composite stock index closed down -1.12%, and Japan’s Nikkei Stock Index closed down -0.80%. 

The Euro Stoxx 50 index today gave up early gains and is moderately lower.  Weakness in bank stocks is weighing on the overall market, with Credit Suisse Group AG down more than -10% today after Thursday’s +20% surge.  Strength in energy, mining, and technology stocks are limiting losses in the overall market.  Also, European logistics and freight stocks rose after U.S. peer FedEx reported better-than-expected quarterly earnings and raised its full-year forecast.  Stocks also found support from lower European government bond yields, despite hawkish comments from several ECB policymakers.

Eurozone Q4 labor costs rose by a record +5.7% y/y.

ECB Governing Council member Muller said, "underlying price growth "shows no sign of slowing yet," so it is "too early for the ECB to conclude that the backbone of rapid inflation has been broken and interest-rate hikes can be stopped."

ECB Governing Council member Simkus said he expects the ECB to continue raising interest rates as "inflation trends haven't disappeared." 

ECB Governing Council member Kazimir said core inflation in the Eurozone is "stubbornly sticky," and the ECB must continue tightening monetary policy despite current events.

China’s Shanghai Composite today rallied to a 1-week high and closed moderately higher.  Strength in technology stocks led the overall market higher, when Baidu jumped more than +14% after brokerages, including Citigroup, tested the company’s just-unveiled ChatGPT-like services and expressed approval. China Tower and other Chinese state-controlled companies rallied after the state regulator published a list of companies that it plans to transform into global “first-class exemplary enterprises.” Chinese stocks should see support Monday after the PBOC cut the reserve requirement ratio for banks after today’s close of trading.

The PBOC cut the reserve requirement ratio for banks by 25 bp to 10.75% from 11.00%, the lowest in nearly 16 years. 

Japan’s Nikkei Stock Index today closed moderately higher.  A rally in Japanese bank stocks led the overall market higher on the heels of Thursday’s rally in U.S. bank stocks after a consortium of the biggest U.S. banks pledged $30 billion of fresh cash for First Republic Bank.  Also, Japanese technology stocks rallied after South Korean and Japanese leaders met in Tokyo for the first time since 2011 and pledged to end a long-simmering trade dispute.  Japan lifted export curbs on key semiconductor materials to Korea, and Korea said it would drop its complaint to the World Trade Organization (WTO).

Today’s Japanese economic news supported stocks after the Jan tertiary industry index rose +0.9% m/m, stronger than expectations of +0.5% m/m and the largest increase in 8 months.

Pre-Market U.S. Stock Movers

First Republic Bank (FRC) tumbled more than -12% in pre-market trading as sentiment toward the stock remains fragile despite the proposal for $30 billion of aid from a consortium of the biggest U.S. banks. Also, Wedbush downgraded the stock to neutral from outperform.  Other regional bank stocks are also under pressure, with Western Alliance Bancorp (WAL), Comerica (CMA), Huntington Bancshares (HBAN), and Regions Financial (RF) down -1% or more. 

Merck & Co (MRK) is down more than -1% in pre-market trading after it said results from a Phase 2 trial of its MK-7864A, a co-formulation of two therapies to treat metastatic non-small cell lung cancer, did not reach statistical significance for the primary endpoint of progression-free survival.

Novocure (NVCR) dropped more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from neutral.

RingCentral (RNG) dropped more than -2% in pre-market trading after Oppenheimer downgraded the stock to perform from outperform.

FedEx (FDX) rallied more than +10% in pre-market trading after reporting Q3 adjusted EPS of $3.41, well above the consensus of $2.71 and raised its full-year adjusted EPS forecast to $14.60-$15.20 from a previous forecast of $13.00-$14.00, stronger than the consensus of $13.57. 

Baidu (BIDU) climbed more than +5% in pre-market trading after the company unveiled a ChatGBT-like chatbox that gained positive reviews from analysts. 

Cryptocurrency-exposed stocks are moving higher in pre-market trading, with the price of Bitcoin surging more than +8% to a 9-month high. Marathon Digital (MARA), Riot Platforms (RIOT), Coinbase Global (COIN), Hive Blockchain (HIVE), and Stronghold Digital (SDIG) are up +5% or more. 

US Steel (X) jumped more than +5% in pre-market trading after forecasting Q1 adjusted Ebitda of $375 million, well above the consensus of $304.8 million.

Nvidia (NVDA) rose more than +2% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight.

Warner Bros Discovery (WBD) climbed more than +4% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform.

Today’s U.S. Earnings Reports (3/17/2023)

Gossamer Bio Inc (GOSS), Marathon Digital Holdings Inc (MARA), Nkarta Inc (NKTX), PolyMet Mining Corp (POM), Scholastic Corp (SCHL), Talaris Therapeutics Inc (TALS), Torrid Holdings Inc (CURV), Tyra Biosciences Inc (TYRA), Urban One Inc (UONEK).

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