Markets Today: Stocks Extend Their Rally After U.S. Producer Prices Soften

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.37% at a 15-month high, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.73% at a 17-month high.

U.S. stock index futures this morning are moving higher on optimism that the moderation of U.S. price pressures will allow the Federal Reserve to end its interest rate hiking campaign soon.  This morning’s news showed U.S. producer prices in June rose less than expected. Stock indexes fell back from their best levels, though, after weekly jobless claims unexpectedly fell, a sign of a resilient U.S. labor market. 

While this week’s CPI and PPI reports are unlikely to dissuade the Fed from raising interest rates by 25 bp later this month, it increases the chances that this month’s rate hike could be the last rate hike in this cycle. 

U.S. Jun PPI final demand eased to +0.1% y/y from +0.9% y/y in May, better than expectations of +0.4% y/y and the smallest pace of increase in 2-3/4 years.  Also, Jun PPI ex-food and energy eased to +2.4% y/y from +2.6% y/y in May, better than expectations of +2.6% y/y and the smallest pace of increase in almost 2-1/2 years.

U.S. weekly initial unemployment claims unexpectedly fell -12,000 to 237,000, showing a stronger labor market than expectations of an increase to 250,000.

The markets are discounting the odds at 89% for a +25 bp rate hike at the next FOMC meeting on July 25-26.  The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are lower.  The 10-year T-note yield fell to a 1-week low of 3.797% and is down -2.7 bp at 3.830%. The 10-year German bund yield fell to a 1-week low of 2.472% and is down -7.8 bp at 2.500%.  The 10-year UK Gilt yield fell to a 1-week low of 4.426% and is down -3.8 bp at 4.476%.  

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.88%.  China’s Shanghai Composite Index today closed up +1.26%.  Japan’s Nikkei Stock Index today closed up +1.49%.

The Euro Stoxx 50 today climbed to a 1-week high and is moderately higher.  A rally in European government bonds has lowered yields and is supportive for equities on hopes that the Federal Reserve is nearing the end of its interest rate hiking campaign.  The 10-year German bund yield and the 10-year UK gilt yields fell to 1-week lows.  Technology and mining stocks outperformed, while construction stocks were laggards.  On the negative side, Eurozone manufacturing activity in May rose less than expected.

The minutes of the June 15 ECB meeting stated that “a very broad consensus supported the 25 bp rate increase” as it was widely felt that core inflation hadn’t shown a turning point. 

Eurozone May industrial production rose +0.2% m/m, weaker than expectations of +0.3% m/m.

China’s Shanghai Composite today rallied to a 1-week high and closed moderately higher.  Strength in Chinese technology stocks led gains in the overall market on signs the government is ending its regulatory crackdown on the sector after Chinese Premier Li Qianq met with senior executives of mega-cap Chinese tech companies and praised them as “trailblazers of the era.” Stocks related to artificial intelligence also rallied after JD.com, China’s second-largest e-commerce platform, unveiled a large language model for enterprise use.  Also, speculation of more policy support for the economy boosted stocks after the Chinese trade news for June disappointed. 

China Jun exports fell -12.4% y/y, weaker than expectations of -10.0% y/y and the largest decline in over three years. Also, Jun imports fell -6.8% y/y, weaker than expectations of -4.1% y/y.

Japan’s Nikkei Stock Index today closed moderately higher on carryover support from Wednesday’s rally in U.S. stocks on optimism that the Fed was close to ending its interest rate hike cycle.  Sony climbed more than +2%, and companies that supply it also moved higher today after Goldman Sachs added Sony Corp to its Conviction List and upgraded the stock to buy from neutral.  Also, Japanese exporter stocks moved higher today after the yen fell back from a 1-1/2 month high against the dollar and turned lower.  On the negative side, Japanese seafood producers declined on news Hong Kong will immediately ban imports from 10 Japanese prefectures once the country discharges wastewater from the Fukushima nuclear disaster site. 

Pre-Market U.S. Stock Movers

Walt Disney (DIS) rose more than +1% in pre-market trading after the company extended its contract with CEO Iger for another two years.

Delta Air Lines (DAL) climbed more than +4% in pre-market trading after reporting Q2 adjusted EPS of $2.68, stronger than the consensus of $2.41, and raised its full-year adjusted EPS estimate to $6 to $7 from a prior estimate of $5 to $6. 

PepsiCo (PEP) rose more than +2% in pre-market trading after reporting Q2 net revenue of $22.32 billion, above the consensus of $21.71 billion, and raised its full-year organic revenue estimate to up +10% from a previous estimate of +8%, higher than the consensus of +8.06%.

Trade Desk (TTD) jumped more than +3% in pre-market trading after Nasdaq said the stock will replace Activision Blizzard in the Nasdaq 100 before the open of trade on July 17. 

Meta Platforms (META) gained more than +1% in pre-market trading after the Financial Times reported the company is set to release a commercial version of its artificial intelligence model imminently. 

Intercept Pharmaceuticals (ICPT) jumped more than +9% in pre-market trading after HC Wainwright & Co double-upgraded the stock to buy from sell. 

Fastenal (FAST) dropped more than -2% in pre-market trading after reporting Q2 net sales of $1.88 billion, below the consensus of $1.89 billion.

Sofi Technologies (SOFI) tumbled more than -4% in pre-market trading after Morgan Stanley downgraded the stock to underweight from equal weight, saying the company is mispriced.

ViaSat (VSAT) plunged more than -20% in pre-market trading after it said an unexpected event occurred during reflector deployment that may materially impact the performance of the ViaSat-3 Americas satellite. 

Carvana (CVNA) dropped more than -5% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from neutral, saying the shares have disconnected from fundamentals. 

Coinbase Global (COIN) fell more than -2% in pre-market trading after Barclays downgraded the stock to underweight from equal weight.

Today’s U.S. Earnings Reports (7/13/2023)

Cintas Corp (CTAS), Conagra Brands Inc (CAG), Delta Air Lines Inc (DAL), Fastenal Co (FAST), PepsiCo Inc (PEP), Progressive Corp/The (PGR).

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