Bank Jitters and Debt Ceiling Weigh on Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.49%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.10%.

U.S. stock are moderately lower on concern about the health of the U.S. banking system and the debt ceiling impasse. Also, energy stocks are being hammered today, with the price of WTI crude falling more than -4% to a 1-month low. 

The markets are awaiting the conclusion of the 2-day FOMC meeting that begins today to see if the Fed will provide clues as to when it will end its rate-hike campaign.  The markets are worried about the debt limit showdown after Treasury Secretary Yellen on Monday said the government might run out of borrowing power to pay off its bills as early as June 1. 

Weaker-than-expected U.S. JOLTS job openings and factory order reports weighed on stocks but sparked a bond rally.

U.S. Mar JOLTS job openings fell -341,000 to a 23-month low of 9.59 million, showing a weaker labor market than expectations of 9.736 million.

U.S. Mar factory orders rose +0.9% m/m, weaker than expectations of +1.2% m/m.

The markets are showing an 84% chance of a +25 bp rate hike by the Federal Reserve at the Tue/Wed FOMC meeting and have fully priced in a +25 bp rate hike by the ECB at Thursday’s ECB meeting.

Global bond yields are lower.  The 10-year T-note yield is down -13.7 bp at 3.431%.  The 10-year German bund yield fell to a 2-1/2 week low of 2.256% and is down -5.5 bp at 2.258%, and the UK 10-year gilt yield is down -5.6 bp at 3.663%.

The Reserve Bank of Australia unexpectedly raised its benchmark interest rate by +25 bp to 3.85% and said inflation remained too high and further tightening may be required.

On the bearish side for stocks, Arista Networks is down more than -11% after analysts said the company’s Q1 results and forecast for Q2 were strong but cited a lack of visibility for the second half of the year, especially regarding the company’s “cloud titan” customers.  Also, Leidos Holdings is down more than -10% after reporting Q1 adjusted and forecasting full-year adjusted EPS below consensus.  Zebra Technologies is down more than -9% after forecasting weaker-than-expected Q2 adjusted EPS.

On the bullish side, Molson Coors Beverage is up more than +8% after reporting Q1 net sales well above consensus.  Also, Broadridge Financial Solutions is up more than +4% after stronger-than-expected Q3 adjusted EPS.  Marriot International is up more than +3% after reporting Q1 adjusted EPS above consensus and raising guidance on its full-year adjusted EPS estimate.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -1.39%.  China’s Shanghai Composite remains closed for the Golden Week holidays, and Japan’s Nikkei Stock Index closed up +0.12%. 

Today’s stock movers…

Weakness in regional bank stocks is weighing on the overall market.  Comerica (CMA) and Zions Bancorp (ZION) are down more than -12%.  Also, KeyCorp (KEY) is down more than -9%, and Citizens Financial Group (CFG) is down more than -7%.  Trust Financial (TFC), Huntington Bancshares (HBAN), and Regions Financial Corp (RF) are down more than -6%.

Arista Networks (ANET) is down more than -11% to lead losers in the S&P 500 after analysts said the company’s Q1 results and forecast for Q2 were strong but cited a lack of visibility for the second half of the year, especially regarding the company’s “cloud titan” customers.

Leidos Holdings (LDOS) is down more than -10% after reporting Q1 adjusted EPS of $1.47, weaker than the consensus of $1.59, and forecasting full-year adjusted EPS of $6.40-$6.80, the midpoint below the consensus of $6.69.

Zebra Technologies (ZBRA) is down more than -9% after forecasting Q2 adjusted EPS of $3.20-$3.40, well below the consensus of $4.15. 

DuPont de Nemours (DD) is down more than -8% after cutting the top end of its full-year adjusted EPS estimate to $3.55-$3.70 from a previous estimate of $3.50-$4.00, weaker than the consensus of $3.75. 

Sealed Air (SEE) is down more than -8% after reporting Q1 adjusted EPS of 74 cents, weaker than the consensus of 77 cents.

FMC Corp (FMC) is down more than -7% after reporting Q1 revenue of $1.34 billion, below the consensus of $1.43 billion.

Energy stocks and energy service providers are falling today, with the price of WTI crude down more than -4% at a 1-month low.  Halliburton (HAL) is down more than -6%.  Also, Baker Hughes (BKR), Diamondback Energy (FANG), and Marathon Oil (MRO) are down more than -5%.  Devon Energy (DVN), Marathon Petroleum (MPC), Schlumberger (SLB), and Valero Energy (VLO) are down more than -4%.  Chevron (CVX) is down more than -3% to lead losers in the Dow Jones Industrials.

Molson Coors Beverage (TAP) is up more than +8% to lead gainers in after S&P 500 after reporting Q1 net sales of $2.35 billion, better than the consensus of $2.24 billion.   

Broadridge Financial Solutions (BR) is up more than +4% after reporting Q3 adjusted EPS of $2.05, above the consensus of $2.03. 

Zimmer Biomet Holdings (ZBH) is up more than +3% after reporting Q1 net sales of $1.83 billion, stronger than the consensus of $1.70 billion. 

Marriot International (MAR) is up more than +3% to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of $2.09, above the consensus of $1.85 and raised guidance on its full-year adjusted EPS estimate to $7.97-$8.42 from a prior estimate of $7.23-$7.91, stronger than the consensus of $7.71.

NXP Semiconductors NV (NXPI) is up more than +2% after reporting Q1 revenue of $3.12 billion, better than the consensus of $3 billion, and forecast Q2 revenue of $3.10 billion-$3.30 billion, stronger than the consensus of $3.03 billion.

Vertex Pharmaceuticals (VRTX) is up more than +1% after reporting Q1 revenue of $2.37 billion, above the consensus of $2.33 billion.

AmerisouceBergen (ABC) is up more than +2% after reporting Q2 adjusted EPS of $3.50, stronger than the consensus of $3.29, and raising guidance on its full-year adjusted EPS forecast to $11.70-$11.90 from a previous estimate of $11.50-$11.75. 

Across the markets…

June 10-year T-notes (ZNM23) today are up +1-00/32 point, and the 10-year T-note yield is down -13.7 bp at 3.431%.  Jun T-notes this morning are sharply higher.  Short covering by bond dealers is boosting T-notes as the dealers lift short hedges placed on Monday when eleven companies priced $22.6 billion of corporate debt issuance.  T-notes extended their gains on today’s weaker-than-expected JOLTS job openings and factory orders reports.

The dollar index (DXY00) today is down by -0.06%.  The dollar today fell back from a 3-week high and is slightly lower. Weaker-than-expected U.S. JOLTS job openings and factory orders reports knocked T-note yields lower and undercut the dollar. The dollar today initially rose on expectations for the Fed to raise interest rates by +25 bp at the conclusion of the Tue/Wed FOMC meeting.

EUR/USD (^EURUSD) today is up by +0.08%.  The euro today recovered from a 1-week low and is slightly higher.  Dollar weakness today sparked short covering in EUR/USD.  Also, expectations for the ECB to raise interest rates by +25 bp at Thursday’s policy meeting are supportive of the euro.  EUR/USD today initially moved lower after today’s economic reports that showed an easing of Eurozone Apr core consumer price pressures, an easing of European loan demand in the ECB’s quarterly Bank Lending Survey, and an unexpected decline in German Mar retail sales. 

The ECB's quarterly Bank Lending Survey said credit standards "tightened further substantially" in Q1, and the decline in net demand from firms was more than foreseen by banks in the previous three months and the most since the global financial crisis.

Eurozone Apr CPI rose +7.0% y/y, stronger than expectations of +6.9% y/y.  However, Apr core CPI eased to +5.6% y/y from +5.7% y/y in March, right on expectations.

Eurozone Mar M3 money supply eased to +2.5% y/y from +2.9% y/y in Feb, the slowest pace of increase in 8-1/2 years.

The Eurozone Apr S&P manufacturing PMI was revised upward by +0.3 to 45.8, from the initially reported 45.5.

German Mar retail sales unexpectedly fell -2.5% m/m, weaker than expectations of +0.4% m/m and the biggest decline in 5 months.

USD/JPY (^USDJPY) today is down by -0.72%.  The yen today recovered from a 7-week low against the dollar and is moderately higher.  A sharp decline in T-note yields today sparked short covering in the yen.  The yen today initially posted a new 7-week low against the dollar on central bank divergence, with the Fed and ECB expected to raise interest rates this week while the BOJ maintains QE and record low interest rates. 

June gold (GCM3) this morning is up +25.8 (+1.30%), and July silver (SIN23) is up +0.210 (+0.83%).  Precious metals prices this morning are moderately higher, with gold climbing to a 1-week high. A weaker dollar today is positive for metals prices.  A decline in global bond yields today is also bullish for metals.  In addition, precious metals have safe-haven support on concerns about the health of the U.S. banking system and as the U.S. government gets nearer to default without an extension of the debt ceiling.  A bearish factor for metals was today’s action by the Reserve Bank of Australia to unexpectedly hike its benchmark interest rate by +25 bp to 3.85%.

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