Markets Today: Stocks Fall as Weak China News Sparks Global Economic Concerns

Morning Markets

June E-Mini S&P 500 futures (ESM23) this morning are down -0.47%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.46%.

U.S. stock index futures this morning are moderately lower on global economic concerns after Chinese reports showed manufacturing and service sector activity slowed more than expected.  Losses accelerated this morning after Cleveland Fed President Mester said the Fed needs to go further with its interest rate hikes, and she "doesn't see a compelling reason to pause."

The debt ceiling agreement struck by White House negotiators and Republican leaders last Saturday goes to a vote in the House later today after advancing by the House Rules Committee Tuesday night on a 7-6 vote.  If the measure passes the House, it will go to the Senate for approval.  Congress is under pressure to approve the measure before June 5, when Treasury Secretary Yellen warned the U.S. risks default.

Global bond yields are lower and are supportive of stocks.  The 10-year T-note yield fell to a 1-1/2 week low of 3.637% and is down -1.9 bp at 3.668%.  The 10-year German bund yield fell to a 2-1/2 week low of 2.241% and is down -5.8 bp at 2.284%, and the UK 10-year gilt yield slid to a 1-week low of 4.152% and is down -5.3 bp at 4.194%.

On the bearish side for stocks, energy stocks and energy service providers are under pressure in pre-market trading, with the price of WTI crude down more than -2% at a 3-1/2 week low.  Also, Advanced Auto Parts plummeted more than -25% after reporting Q1 comparable store sales unexpectedly fell and reducing guidance on full-year net sales.  In addition, Hewlett Packard Enterprise is down more than -8% after reporting Q2 net revenue below consensus and reducing guidance on its full-year revenue estimate.

On the bullish side, Twilio climbed more than +5% in pre-market trading after The Information reported that activist investor Legion Partners met with the company’s board of directors and managers to suggest changes to the board.  Also, Box Inc is up more than +3% after reporting better-than-expected Q1 adjusted EPS and raising guidance on its full-year adjusted EPS estimate.  American Airlines Group is up more than +2% after raising guidance on Q2 adjusted EPS.

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.65%.  China’s Shanghai Composite closed down -0.61%, and Japan’s Nikkei Stock Index closed down -1.41%. 

The Euro Stoxx 50 index today fell to a 2-month low and is moderately lower.  European luxury goods makers led declines in the overall market after Chinese economic news today showed manufacturing and services activity slowed more than expected. Mining and energy stocks also retreated as copper prices and crude oil moved lower on concerns slowing economic activity in China will crimp demand for commodities.  Limiting losses in the overall market is an easing of inflation pressures after German May CPI rose at the slowest pace in 15 months and France's May CPI rose at the slowest pace in a year.  The slide in stocks and weakening price pressures also knocked bond yields lower as the 10-year German bund yield fell to a 2-1/2 week low.

German May CPI (EU harmonized) eased to +6.3% y/y from +7.6% y/y in Apr, better than expectations of +6.7% y/y and the slowest pace of increase in 15 months.

The German Apr import price index fell -7.0% y/y, the most in 3 years, and a larger decline than expectations of -5.8% y/y.

France May CPI (EU harmonized) eased to +6.0% y/y from +6.9% y/y in Apr, better than expectations of +6.4% y/y and the slowest pace of increase in a year.

France's Apr consumer spending unexpectedly fell -1.0% m/m, the third straight decline and weaker than expectations of a +0.3% m/m increase.

China’s Shanghai Composite Stock Index today posted moderate losses.  Chinese stocks were under pressure today on signs that China’s economy continues to struggle, with manufacturing and service sector activity slowing more than expected.  Global funds continue to flee Chinese stocks as disappointing economic data, geopolitical risks, and weakness in the property market dampens market sentiment. Also, the yuan tumbled to a 6-month low against the dollar today.  Overseas investors sold 3.8 billion ($545 million) of mainland shares via trading links with Hong Kong today.  Strength in Chinese security software companies pulled the overall market up from its worst levels after President Xi Jinping called for greater efforts to modernize the country’s national security defenses.

The China May manufacturing PMI unexpectedly fell -0.4 to 48.8, weaker than expectations of an increase to 49.5 and the weakest report in 5 months.  Also, the May non-manufacturing PMI fell -1.9 to 54.5, weaker than expectations of 55.2.

Japan’s Nikkei Stock Index today closed moderately lower.  Global growth concerns sparked long liquidation in Japanese stocks after reports today showed China’s manufacturing and service sectors continued to weaken.  Also, weaker-than-expected Japanese retail sales and industrial production reports weighed on equities.  In addition, Japanese stocks with stock options declined today after Finance Minister Suzuki said those stock options would be subjected to payroll taxes.  On the positive side for stocks, a gauge of Japanese consumer confidence rose to a 16-month high in May. 

Japan's Apr industrial production unexpectedly fell -0.4% m/m, weaker than expectations of a +1.4% m/m increase.

Japan Apr retail sales unexpectedly fell -1.2% m/m, the biggest decline in 16 months and weaker than expectations of a +0.5% m/m increase.

The Japan May consumer confidence index rose +0.6 to a 16-month high of 36.0, right on expectations.

Pre-Market U.S. Stock Movers

Nvidia (NVDA) is down more than -1% in pre-market trading on some giveback following the +31% rally in the stock over the past three sessions on optimism surrounding artificial intelligence (AI). 

Energy stocks and energy service providers are under pressure in pre-market trading, with the price of WTI crude down more than -2% to a 3-1/2 week low. ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Marathon Oil (MRO), Occidental Petroleum (OXY), Schlumberger (SLB), and Valero Energy (VLO) are down -1% or more.

Advanced Auto Parts (AAP) plummeted more than -25% in pre-market trading after reporting Q1 comparable store sales unexpectedly fell -0.4% versus expectations of a +0.73% increase and lowered guidance on full-year net sales to $11.2 billion-$11.3 billion from a previous forecast of $11.4 billion-$11.6 billion, weaker than the consensus of $11.4 billion.

HP Inc (HPQ) tumbled more than -4% in pre-market trading after reporting Q2 revenue of $12.91 billion, below the consensus of $13.03 billion. 

Ambarella (AMBA) plunged more than -17% in pre-market trading after forecasting Q2 revenue of $60 million-$64 million, weaker than the consensus of $66.6 million, and CEO Wang said “The cyclical headwinds persist and continue to pressure our financial results.”

Hewlett Packard Enterprise (HPE) sank more than -8% in pre-market trading after reporting Q2 net revenue of $6.97 billion, weaker than the consensus of $7.29 billion, and lowered guidance on its full-year revenue adjusted for currency estimate to +4% to +6% from a previous estimate of +5% to +7%.

Sportsman’s Warehouse (SPWH) tumbled more than -6% in pre-market trading after forecasting Q2 net sales of $310 million-$340 million, the midpoint below the consensus of $333.7 million.

American Airlines Group (AAL) is up more than +2% in pre-market trading after raising guidance on Q2 adjusted EPS to $1.45-$1.65 from a previous estimate of $1.20-$1.40.

Avis Budget Group (CAR) rose more than +3% in pre-market trading after Deutsche Bank upgraded the stock to buy from hold. 

Twilio (TWLO) climbed more than +5% in pre-market trading after The Information reported that activist investor Legion Partners met with the company’s board of directors and managers to suggest changes to the board. 

Box Inc (BOX) is up more than +3% in pre-market trading after reporting Q1 adjusted EPS of 32 cents, better than the consensus of 27 cents, and raised guidance on full-year adjusted EPS to $1.44-$1.50 from a prior view of $1.42-$1.48, above the consensus of $1.42.

Xylem (XYL) gained more than +1% in pre-market trading after Baird upgraded the stock to outperform from neutral with a price target of $135.

Today’s U.S. Earnings Reports (5/31/2023)

Advance Auto Parts Inc (AAP), Capri Holdings Ltd (CPRI), Crowdstrike Holdings Inc (CRWD), Donaldson Co Inc (DCI), nCino Inc (NCNO), NetApp Inc (NTAP), Nordstrom Inc (JWN), Okta Inc (OKTA), Pure Storage Inc (PSTG), PVH Corp (PVH), Salesforce Inc (CRM), Veeva Systems Inc (VEEV), Victoria's Secret & Co (VSCO).

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