Markets Today: Stocks Continue Their Rally

Morning Markets

The S&P 500 Index ($SPX) (SPY) today is up +0.46%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.30%.

U.S. stock indexes are moderately higher, despite Amazon.com being down more than -3% after warning of a growth slowdown in its cloud services.

Bond yields fell after the U.S. Mar PCE core deflator, the Fed's preferred inflation gauge, eased to +4.6% y/y, right on expectations. An easing of U.S. banking concerns also boosted market sentiment as First Republic Bank jumped more than +13% on a Reuters report that said U.S. officials are coordinating plans to rescue the bank. 

The markets are showing a 92% chance of a 25 bp rate hike by the Federal Reserve at the May 2-3 FOMC meeting and have fully priced in a 25 bp rate hike by the ECB at its May 4 ECB meeting.

Global bond yields are lower.  The 10-year T-note yield is down -7.0 bp at 3.450%.  The 10-year German bund yield is down -11.9 bp at 2.340%.  The 10-year UK gilt yield is down -6.5 bp at 3.729%.

Federal Reserve data showed emergency loans outstanding to financial institutions through two backstop lending facilities rose to $155.2 billion in the week through April 26 from $143.9 billion the previous week.

U.S. Mar personal spending was unchanged m/m, stronger than expectations of -0.1% m/m.  Mar personal income rose +03% m/m, stronger than expectations of +0.2% m/m.

The U.S. Q1 employment cost index rose +1.2% (q/q annualized), stronger than expectations of +1.1% 

The U.S. Mar PCE core deflator, the Fed's preferred inflation gauge, eased to +4.6% y/y from +4.7% y/y in Mar, right on expectations.

On the bearish side for stocks, Amazon.com gave up a +12% surge in pre-market trading and is down -1% after the company highlighted weakness in Amazon Web Services, its most profitable division.  Also, Capital One Financial is down more than -4% after reporting Q1 adjusted EPS below consensus.  In addition, Snap is down more than -18% after reporting Q1 revenue below consensus.

On the bullish side, Intel is up more than +4% in pre-market trading after reporting better-than-expected Q1 adjusted revenue and projecting a return to free cash flow in the second half of the year. Also, First Republic Bank is up more than +13% after Reuters reported that the Treasury, FDIC, and Federal Reserve are coordinating talks with companies about putting together a lifeline for the bank.  In addition, Mondelez International is up more than +3% after reporting Q1 adjusted EPS above consensus.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.73%.  China’s Shanghai Composite closed up +1.14%, and Japan’s Nikkei Stock Index closed up +1.40%. 

The Euro Stoxx 50 index today tumbled to a 3-week low and is moderately lower.  A slower pace of economic growth and signs of sticky inflation are undercutting European stocks today after Eurozone Q1 GDP expanded at a slower-than-expected pace and France's Apr consumer prices unexpectedly strengthened.  Automakers also declined after Mercedes-Benz AG warned of a slowing global economy.  Some negative earnings reports also weighed on the overall market, with Remy Cointreau SA falling more than -9% after reporting weaker-than-expected Q4 sales.

Eurozone Q1 GDP rose +0.1% q/q and +1.3% y/y, weaker than expectations of +0.2% m/m and +1.4% y/y.

French Apr CPI (EU harmonized) unexpectedly strengthened to +6.9% y/y from +6.7% y/y in Mar.

German Apr CPI (EU harmonized) eased to +7.6% y/y from +7.8% y/y in Mar, the slowest pace of increase in 13 months.

China’s Shanghai Composite Stock Index today closed moderately higher.  Chinese stocks rallied today as the country’s top leaders reiterated support for the economy.  The Xinhua News Agency reported that China’s Communist Party’s Politburo, the top decision-making body led by President Xi Jinping, painted a cautiously optimistic view of the economy at its latest meeting and vowed to continue fiscal and monetary support as domestic demand is still insufficient.  Financial stocks also moved higher after the Politburo vowed to deepen reforms and resolve risks at smaller banks and insurers.   Better-than-expected quarterly earnings results from Haier Smart Home, XPeng, and BYD also boosted the overall market. 

Japan’s Nikkei Stock Index today rallied to an 8-1/4 month high and closed moderately higher.  Better-than-expected Japanese economic news on retail sales and industrial production boosted market sentiment and sparked a rally in stocks.  Stock gains accelerated today after the BOJ maintained its current monetary policy, including stimulus measures, at the first policy meeting chaired by BOJ Governor Ueda.  The yen fell to a 7-week low on the dovish BOJ, which sparked gains in Japanese exporter stocks.  In addition, strength in corporate earnings also gave the overall market a lift after Makita, Mirai, and JVCKenwood reported stronger-than-expected earnings results.

Japan Mar industrial production fell -0.7% y/y, a smaller decline than expectations of -1.2% y/y.

Japan Mar retail sales rose +0.6% m/m, stronger than expectations of +0.3% m/m.

Japan Tokyo Apr CPI ex-fresh food and energy rose +3.8% y/y, stronger than expectations of +3.5% y/y and the biggest increase in 41 years.

The Japan Mar jobless rate unexpectedly rose +0.2 to a 16-month high of 2.8%, showing a weaker labor market than expectations of a decline to 2.5%.

The BOJ voted 9-0 to maintain its policy balance rate at -0.1% and keep its 10-year JGB yield target at about 0%.  The BOJ cut its 2023 Japan GDP estimate to 1.4% from a previous estimate of 1.7% and raised its 2023 core CPI estimate to 1.8% from 1.6%.

The BOJ scrapped its forward guidance on interest rates and said it would patiently continue with monetary easing.

Pre-Market U.S. Stock Movers

Amazon.com (AMZN) gave up a +12% surge in pre-market trading and is down -1% after the company highlighted weakness in Amazon Web Services, its most profitable division.  Other cloud stocks fell after Amazon warned of slowing growth in cloud services, with Datadog (DDOG) and Snowflake (SNOW) down more than -3%. 

Capital One Financial (COF) dropped more than -4% in pre-market trading after reporting Q1 adjusted EPS of $2.31, well below the consensus of $3.90.

Snap (SNAP) sank more than -18% in pre-market trading after reporting Q1 revenue of $988.6 million, weaker than the consensus of $1.01 billion.

Cloudflare (NET) plunged more than 24% in pre-market trading after cutting its full-year revenue forecast to $1.28 billion from $1.33 billion-$1.34 billion, below the consensus of $1.34 billion. 

Pinterest (PINS) dropped more than -12% in pre-market trading after reporting a Q1 net loss of -$209 million, wider than the consensus of -$131.1 million.

Intel (INTC) rose more than +4% in pre-market trading after reporting Q1 adjusted revenue of $11.72 billion, stronger than the consensus of $11.1 billion, and projected a return to free cash flow in the second half of the year.

First Republic Bank (FRC) jumped more than +13% in pre-market trading after Reuters reported that the Treasury, FDIC, and Federal Reserve are coordinating talks with companies about putting together a lifeline for the bank.

Mondelez International (MDLZ) climbed more than +3% in pre-market trading after reporting Q1 adjusted EPS of 89 cents, above the consensus of 80 cents.

Fortune Brands Innovations (FBIN) gained more than +1% in pre-market trading after Jeffries upgraded the stock to buy from hold with a price target of $84.

Royal Caribbean (RCL) rose more than +2% in pre-market trading after JPMorgan Chase initiated coverage of the stock with a recommendation of overweight and a price target of $94.

International Paper (IP) gained more than +1% in pre-market trading after RBC Capital Markets upgraded the stock to outperform from sector perform.

Colgate-Palmolive (CL) rose more than +1% in pre-market trading after reporting Q1 net sales of $4.77 billion, better than the consensus of $4.60 billion.

Today’s U.S. Earnings Reports (4/28/2023)

Aon PLC (AON), Charter Communications Inc (CHTR), Chevron Corp (CVX), Colgate-Palmolive Co (CL), Exxon Mobil Corp (XOM), LyondellBasell Industries NV (LYB), Newell Brands Inc (NWL).

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