Markets Today: Stocks Slip on China Economic Concerns and Higher Bond Yields

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.33%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.28%.

U.S. stock index futures this morning are moderately lower.  Negative carry-over from a decline in Chinese stocks is weighing on U.S. stock index futures on some disappointment that China’s State Council didn’t mention specific economic support measures and that the Chinese central bank cut lending rates less than expected.  Stocks maintained moderate losses after bond yields rose on this morning’s stronger-than-expected U.S. housing news.

Long liquidation pressures are also undercutting stock indexes ahead of Wednesday’s semi-annual report to Congress from Fed Chair Powell. Markets are concerned Powell may take a hawkish tone after the FOMC last week warned of additional interest rate hikes this year.

U.S. May housing starts unexpectedly surged +21.7% m/m to a 13-month high of 1.631 million, stronger than expectations of a decline to 1.400 million.  May building permits, a proxy for future construction, rose +5.2% m/m to a 7-month high of 1.491 million, stronger than expectations of 1.425 million.

The U.S. Jun NAHB housing market index, released on Monday’s holiday, rose +5 to an 11-month high of 55, stronger than expectations of 51.

Market odds for the Fed to raise the fed funds target range by +25 bp at the July 25-26 FOMC meeting rose to 72% today from 69% last Friday. 

Global bond yields are mixed.  The 10-year T-note yield is up +1.4 bp at 3.775%.  The 10-year German bund yield is down -6.2 bp at 2.455%, and the UK 10-year gilt yield is down -12.4 bp at 4.367%.

On the bearish side for stocks, Warner Bros Discovery dropped more than -2% in pre-market trading after weekend box office receipts for the opening of “The Flash” came in below expectations.  Also, Nike is down more than -1% after Morgan Stanley said inventory problems could weigh on the company’s margins in Q4.  In addition, U.S.-listed Chinese stocks are falling after China’s State Council failed to issue specific economic support measures and the PBOC cut lending rates less than expected.

On the bullish side, Dice Therapeutics surged more than +38% in pre-market trading after Eli Lilly tendered an offer to buy the company for $2.4 billion.   Also, Coherent is up more than +5% after Needham & Co raised its price target on the stock to $64 from $33.  In addition, Avis Budget Group and U.S. Foods Holding Corp are up more than +1% after Morgan Stanley upgraded the stocks to overweight from equal weight.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.10%.  China’s Shanghai Composite closed down -0.47%, and Japan’s Nikkei Stock Index closed up +0.06%. 

The Euro Stoxx 50 index today is moderately lower.  Stocks came under pressure today from global growth concerns after the People’s Bank of China disappointed the markets and did not cut interest rates as much as was expected.  Also, European chemical makers retreated today, led by a -15% slump in Lanxess AG after the company cut its profit outlook, citing weak demand.  That sparked a sell-off in other chemical makers, including BASF SE, after Morgan Stanley said the profit warning gives a “bearish read across” to the whole sector.  Stock losses were contained on easing price pressures in Europe after German May producer prices rose at the slowest pace in nearly 2-1/2 years. 

Eurozone Apr construction output fell -0.4% m/m, the second straight monthly decline.

German May PPI eased to +1.0% y/y from +4.1% y/y in Apr, better than expectations of +1.7% y/y and the slowest pace of increase in nearly 2-1/2 years.

ECB Governing Council member Rehn said a pullback in core prices is a pre-requisite for pausing rate hikes and "inflation excluding energy and food is falling only gradually and not to the extent desired."

China’s Shanghai Composite Stock Index today posted moderate losses.  Chinese property stocks came under pressure today on disappointment the PBOC did not cut lending rates as much as expected.  The PBOC today cut the one-year and five-year loan prime rates by -10 bp, smaller than expectations for a -15 bp cut.

Chinese energy stocks also moved lower today after the China National Petroleum Corp (CNPC) cut its 2023 China crude demand estimate.  The CNPC forecasts 2023 China crude demand will grow by +3.5% to 740 MMT, down from a March estimate of +5.1% to 756 MMT.  On the positive side, Chinese companies related to electric vehicle (EV) chargers and batteries rose after Xinhua reported that the State Council plans to build complete charging facilities by 2030 to support the EV industry. 

The PBOC today cut the 1-year loan prime rate by -10 bp to 3.55% and cut the 5-year loan prime rate by -10 bp to 4.20%.

Japan’s Nikkei Stock Index today closed slightly higher.  Japanese trading companies moved higher today after Berkshire Hathaway raised its stakes in five firms to an average of 8.5% in a move to double down on some of Warren Buffet’s favorite Japanese stocks.  Heavy construction and other machinery stocks rose today on expectations of growing construction demand from several countries and regions, including Turkey, Ukraine, the U.S., and the Middle East. Also, an upward revision to Japan's Apr industrial production was a supportive factor for stocks.  On the negative side, insurance stocks were under pressure after the Nikkei reported that Japan’s Financial Services Agency is probing the parent companies of Tokyo Marine & Nichido Fire Insurance and several others on suspicion of colluding to fix premiums.  Also, exporter stocks retreated after the yen rebounded from a 7-1/4 month low against the dollar and moved higher.

Japan Apr industrial production was revised upward to +0.7% m/m from the initially reported -0.4% m/m.

Pre-Market U.S. Stock Movers

Nike (NKE) slid more than -1% in pre-market trading after Morgan Stanley said inventory problems could weigh on the company’s margins in Q4, even if it reports “mostly in-line” results. 

U.S.-listed Chinese stocks are falling in pre-market trading after China’s State Council failed to issue specific economic support measures and the PBOC cut lending rates less than expected.  As a result.  PDD Holdings (PDD) and JD.com (JD) are down more than -4%.  Also, Alibaba Group Holding (BABA) is down more than -2%, and NetEase (NTES) is down more than -1%. 

SoFi Technologies (SOFI) dropped more than -3% in pre-market trading on signs of insider selling after an SEC filing showed the company’s president, Chief Risk Officer, and Chief Marketing Office sold more than $3.5 million worth of shares last Thursday.

Applied Materials (AMAT) fell more than -1% in pre-market trading after Barclays expressed concern about the company’s valuation.

Arcellx (ACLX) plunged more than -20% in pre-market trading after the FDA placed a clinical hold on the company’s drug for the treatment of patients with relapsed or refractory multiple myeloma. 

Warner Bros Discovery (WBD) dropped more than -2% in pre-market trading after weekend box office receipts for the opening of The Flash came in at $55.1 million, well below a Boxoffice Pro estimate of $69 million.  

Dice Therapeutics (DICE) surged more than +38% in pre-market trading after Eli Lilly tendered an offer to buy the company for $2.4 billion. 

Coherent (COHR) jumped more than +5% in pre-market trading after Needham & Co raised its price target on the stock to $64 from $33. 

Avis Budget Group (CAR) climbed more than +3% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $230.

U.S. Foods Holding Corp (USFD) rose more than +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $54.

Philip Morris (PM) gained more than +1% in pre-market trading after Citigroup upgraded the stock to buy from neutral with a price target of $117.

Today’s U.S. Earnings Reports (6/20/2023)

Ennis Inc (EBF), FedEx Corp (FDX), Latch Inc (LTCH), La-Z-Boy Inc (LZB), Urban One Inc (UONEK), Vinco Ventures Inc (BBIG).

• Overvalued AI Stocks to Avoid, According to Wall Street
• Fedex Iron Condor Could See 56% Return. Here’s How
• Stocks Set to Open Lower as Investors Await Powell Testimony, China’s Rate Cut Disappoints
• RISC-V: The Game-Changer in Microprocessor Investments. Here's 3 Companies Riding the Wave.