Markets Today: Stocks Weighed Down by Higher Bond Yields

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.28%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.50%, both at 3-week lows.

Stock indexes this morning are moderately lower, weighed down by today’s rise in the 10-year T-note yield to an 8-3/4 month high.  Also, some weaker-than-expected earnings results are undercutting stocks, with Qualcomm down more than -7% and PayPal Holdings down more than -8% in pre-market trading.  The markets will look to earnings results after today’s close from Apple and Amazon.com for market direction.

Stock indexes recovered from their worst levels after this morning’s news that U.S. Q2 nonfarm productivity rose more than expected and Q2 unit labor costs fell more than expected, easing inflation concerns. 

This morning’s positive comments from Richmond Fed President Barkin were also bullish for stocks when he said the larger-than-expected easing in inflation in June might be an indication the U.S. economy can have a "soft landing," returning to price stability without a damaging recession.

U.S. weekly initial unemployment claims rose +6,000 to 227,000, showing a slightly weaker labor market than expectations of 225,000.

U.S. Q2 nonfarm productivity rose +3.7%, better than expectations of +2.2% and the largest increase since Q3 2020.  Q2 unit labor costs rose +1.6%, weaker than expectations of +2.5%.

The Bank of England (BOE), as expected, raised its key interest rate by +25 bp to 5.25% and said, "If there were to be evidence of more persistent inflation pressures, then further tightening in monetary policy would be required."

The markets are discounting the odds at 17% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield jumped to an 8-3/4 month high of 4.163% and is up +7.7 bp at 4.155%.  The 10-year German bund yield rose to a 3-week high of 2.591% and is up +4.2 bp at 2.577%.  The 10-year UK gilt yield climbed to a 2-1/2 week high of 4.463% and is up +4.8 bp at 4.451%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.72%.  China’s Shanghai Composite Index today closed up +0.58%.  Japan’s Nikkei Stock Index closed down -1.68%.

The Euro Stoxx 50 today dropped to a 3-week low and is moderately lower.  Weakness in technology stocks is leading losses in European stocks today, with Infineon Technologies AG down more than -7% after forecasting weaker-than-expected Q4 revenue.  Also, weak economic news weighed on market sentiment after the Eurozone Jul S&P composite PMI was revised downward to an 8-month low, and German Jun trade data was weaker than expected.  In addition, rising European government bond yields are weighing on stocks, with the 10-year German bund yield climbing to a 3-week high of 2.591%. On the positive side, price pressures are easing in the Eurozone after Jun producer prices posted the biggest year-over-year decline in 3 years.

ECB Executive Board member Panetta said it's "too early" to commit on what the ECB will do in September, but "should the inflation outlook materially deteriorate, a further rate adjustment would be warranted."

Eurozone Jun PPI fell -0.4% m/m and -3.4% y/y, weaker than expectations of -0.3% m/m and -3.2% y/y, with the -3.4% y/y drop being the largest decline in 3 years.

The Eurozone Jul S&P composite PMI was revised downward by -0.3 to an 8-month low of 48.6 from the previously reported 48.9.

German trade data was weaker than expected as Jun exports rose +0.1% m/m, weaker than expectations of +0.3% m/m.  Also, Jun imports fell -3.4% m/m, weaker than expectations of -0.3% m/m.

China’s Shanghai Composite today recovered from early losses and posted moderate gains.  A rally in Chinese brokerage stocks sparked short covering in the overall market and pushed the Shanghai Composite higher in late trading after state media Economic Daily called for boosting residents’ income through stock funds as an important way to expand consumption.  Chinese stocks also garnered support after a gauge of services activity expanded more than expected last month. 

The prospects of additional easing by the People’s Bank of China (PBOC) are bullish for stocks after Citic Securities said the PBOC might cut the reserve-requirement ratio for major banks as soon as this month to boost liquidity as policy loans worth 400 billion yuan ($55.6 billion) are set to mature on August 15, the most since January. When those loans mature, Chinese banks will need to repay the PBOC, leaving them with less cash unless the central bank takes action to boost liquidity in the interbank market.

The China Jul Caixin services PMI unexpectedly rose +0.2 to 54.1, stronger than expectations of a decline to 52.4. 

Japan’s Nikkei Stock Index today extended Wednesday’s decline and closed moderately lower.  Rising global bond yields sparked long liquidation in Japanese stocks after the 10-year T-note yield climbed to an 8-3/4 month high, and the 10-year Japan JGP bond yield jumped to a 9-year high.  Also, economic concerns undercut Japanese stocks after a gauge of services activity last month was revised lower.  A stronger yen today also sparked the selling of exporter stocks. 

The yen recovered from a 3-1/2 week low against the dollar today and moved higher after the Japan JGB bond yield rose to a 9-year high of 0.659%.  That prompted the BOJ to announce an unscheduled debt-purchase operation for the second time this week to push bond yields lower.  The BOJ said it would buy 100 billion yen of 3-year to 5-year bonds and 300 billion yen of 5-year to 10-year bonds.

The Japan Jul Jibun Bank services PMI was revised downward by -0.1 to 53.8 from the initially reported 53.9.

Pre-Market U.S. Stock Movers

Qualcomm (QCOM) tumbled more than -7% in pre-market trading after reporting Q3 adjusted revenue of $8.44 billion, weaker than the consensus of $8.51 billion, and forecast Q4 revenue of $8.1 billion to $8.9 billion, the midpoint below the consensus of $8.79 billion.   

PayPal Holdings (PYPL) dropped more than -8% in pre-market trading after reporting Q2 transaction revenue of $6.56 billion, below the consensus of $6.63 billion. 

DXC Technology (DXC) plunged more than -18% in pre-market trading after reporting Q1 revenue of $3.45 billion, weaker than the consensus of $3.56 billion, and cutting its 2024 revenue forecast to $13.88 billion-$14.03 billion from a previous estimate of $14.40 billion-$14.55 billion, well below the consensus of $14.42 billion.

Etsy (ETSY) sank more than -8% in pre-market trading after forecasting Q3 gross merchandise sales of $2.95 billion-$3.10 billion, the midpoint below the consensus of $3.07 billion. 

Occidental Petroleum (OXY) fell more than -2% in pre-market trading after reporting Q2 adjusted EPS of 68 cents, weaker than the consensus of 71 cents. 

NXP Semiconductors (NXPI) dropped more than -3% in pre-market trading on signs of insider selling after an SEC filing showed CEO Sievers sold $4.67 million of stock on Tuesday. 

MGM Resorts International (MGM) tumbled more than -6% in pre-market trading after several analysts said the company’s Q2 results fell short of what were lofty expectations, given the stock had rallied 12% since July. 

Southwest Airlines (LUV) dropped more than -3% in pre-market trading after Jeffries downgraded the stock to underperform from hold.

Moderna (MRNA) climbed more than +5% in pre-market trading after reporting a Q2 revenue of $344 million, better than the consensus of $321.8 million, and forecast full-year Covid-19 vaccine revenue at $6 billion-$8 billion, the midpoint above the consensus of $6.88 billion. 

Confluent (CFLT) jumped more than +9% in pre-market trading after reporting Q2 total revenue of $189.3 million, above the consensus of $183.0 million, and raised its full-year total revenue forecast to $767 million-$772 million from a previous forecast of $760 million-$765 million, stronger than the consensus of $764.2 million.

Fastly (FSLY) rallied more than +6% in pre-market trading after reporting Q2 revenue of $122.8 million, better than the consensus of $118.8 million, and raised its full-year revenue forecast to $500 million-$510 million from a previous forecast of $495 million-$505 million, stronger than the consensus of $502.2 million.

Regeneron (RGEN) climbed more than +4% in pre-market trading after reporting Q2 revenue of $3.16 billion, stronger than the consensus of $3.01 billion. 

Albemarle (ALB) rose more than +5% in pre-market trading after reporting Q2 adjusted Ebitda of $1.03 billion, above the consensus of $725.4 million, and raising its full-year adjusted Ebitda forecast to $3.8 billion-$4.4 billion from a previous estimate of $3.3 billion-$4.0 billion, stronger than the consensus of $3.67 billion. 

Unity Software (U) rallied more than +6% in pre-market trading after reporting Q2 revenue of $533.5 million, above the consensus of $515.5 million, and raised its full-year revenue forecast to $2.12 billion-$2.20 billion from a previous forecast of $2.08 billion-$2.20 billion, the midpoint above the consensus of $2.15 billion.

Warner Bros Discovery (WBD) climbed more than +4% in pre-market trading after reporting Q2 free cash flow of $1.72 billion, well above the consensus of $913.5 million.  

Wayfair (W) jumped more than +7% in pre-market trading after reporting Q2 net revenue of $3.17 billion, better than the consensus of $3.10 billion.

Clorox (CLX) rose more than +5% in pre-market trading after reporting Q4 adjusted EPS of $1.67, well above the consensus of $1.16, and forecasting 2024 adjusted EPS forecast of $5.60-$5.90, stronger than the consensus of $5.57.

Today’s U.S. Earnings Reports (8/3/2023)

Air Products and Chemicals Inc (APD), Alliant Energy Corp (LNT), Amazon.com Inc (AMZN), Amgen Inc (AMGN), Apple Inc (AAPL), Aptiv PLC (APTV), Ball Corp (BALL), Becton Dickinson & Co (BDX), Bio-Rad Laboratories Inc (BIO), Booking Holdings Inc (BKNG), Camden Property Trust (CPT), Cigna Group (CI), ConocoPhillips (COP), Consolidated Edison Inc (ED), Corteva Inc (CTVA), Cummins Inc (CMI), DaVita Inc (DVA), DENTSPLY SIRONA Inc (XRAY), EOG Resources Inc (EOG), EPAM Systems Inc (EPAM), Expedia Group Inc (EXPE), Extra Space Storage Inc (EXR), Fortinet Inc (FTNT), Gen Digital Inc (GEN), Gilead Sciences Inc (GILD), Hasbro Inc (HAS), Huntington Ingalls Industries (HII), Intercontinental Exchange Inc (ICE), Iron Mountain Inc (IRM), Kellogg Co (K), Microchip Technology Inc (MCHP), Moderna Inc (MRNA), Monster Beverage Corp (MNST), Motorola Solutions Inc (MSI), Parker-Hannifin Corp (PH), Pinnacle West Capital Corp (PNW), Quanta Services Inc (PWR), Regency Centers Corp (REG), Regeneron Pharmaceuticals Inc (REGN), ResMed Inc (RMD), Sempra (SRE), Southern Co/The (SO), Stryker Corp (SYK), Targa Resources Corp (TRGP), Teleflex Inc (TFX), Trimble Inc (TRMB), Ventas Inc (VTR), Vulcan Materials Co (VMC), Warner Bros Discovery Inc (WBD), Westrock Co (WRK).

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