Markets Today: Stocks Tumble as Moody’s Cuts Ratings on Regional Banks

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.65%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.61%.

Stock indexes this morning are moderately lower.  Weakness in regional bank stocks in pre-market trading is weighing on the overall market after Moody’s Investors Service cut ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders.  Stocks are also being undercut by concern about the global economy after news that China’s exports and imports in July fell more than expected.

A slump in European stocks today is also undercutting U.S. stocks.  The Euro Stoxx 50 dropped to a 4-week low today as Italian bank stocks sold off after the Italian government unexpectedly unveiled a new tax on bank profits.

Stock indexes recovered from their worst levels on dovish comments from Philadelphia Fed President Harker, who said, "Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold interest rates steady and let the monetary policy actions we have taken do their work."

Moody's Investors Service lowered credit ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders, saying rising funding costs and declining income metrics will erode profitability, the first buffer against losses.  Also, asset risk is rising, in particular for small and mid-size banks with large corporate real estate (CRE) exposures."

The U.S. Jun trade deficit shrank to -$65.5 billion from -$68.3 billion in May, but still showed a larger deficit than expectations of -$65.0 billion.

The markets are discounting the odds at 13% for a +25 bp rate hike at the September 20 FOMC meeting and 31% for a +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are lower.  The 10-year T-note yield fell to a 1-week ow of 3.982% and is down -9.7 bp at 3.992%. The 10-year German bund yield fell to a 1-week low of 2.440% and is down -14.8 bp at 2.452%.  The 10-year UK gilt yield fell to a 1-week low of 4.331% and is down -12.4 bp at 4.338%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -1.45%.  China’s Shanghai Composite Index today closed down -0.25%.  Japan’s Nikkei Stock Index closed up +0.38%.

The Euro Stoxx 50 today dropped to a 4-week low and is moderately lower.  A slump in Italian bank stocks is weighing on European banks and the overall market today after Italy announced an unexpected tax on windfall profits, sending shares of UniCredit SpA and Intesa Sanpaolo SpA down more than -6%. 

On the positive side, the ECB’s monthly inflation expectations survey for June eased, signaling weaker price pressures.  The easing of price pressures and today’s slump in stocks knocked European government bond yields lower as the 10-year German bund yield and the 10-year UK gilt yield fell to 1-week lows.  In addition, Novo Nordisk surged +13% after results from the SELECT cardiovascular outcomes trial for its obesity drug Wegovy achieved its primary objective. 

The ECB's Jun inflation expectations survey eased to 3.4% over the next year versus May's 3.9%.  For the next three years, inflation expectations eased to 2.3% in Jun from 2.5% in May.

China’s Shanghai Composite today fell to a 1-week low and closed moderately lower.  Concern that China’s economic recovery is faltering weighed on stocks today and knocked the yuan down to a 2-1/2 week low against the dollar after China’s exports and imports fell more than expected.  Also, Chinese property developer and real estate stocks fell after Reuters reported that Country Garden Holdings failed to pay coupon payments due Monday.  The developer owed $10.5 million of interest on a dollar bond that matures in 2026 and $12 million on a note due in 2030.   According to Bloomberg data, the builder faces more than $2 billion of bond payments across all currencies for the rest of the year. 

China Jul exports fell -14.5% y/y, weaker than expectations of -13.2% y/y and the biggest decline in nearly 3-1/2 years. Also, Jul imports fell -12.4% y/y, weaker than expectations of -5.6% y/y and the biggest decline in 6 months.

Japan’s Nikkei Stock Index today posted moderate gains. Japanese stocks today followed Monday’s gains in U.S. equity markets.  Also, positive corporate earnings results are bullish for stocks as more than half of company earnings in the latest quarter have surprised to the upside. A decline in Japanese government bond yields and the yen today also boosted stocks after today’s economic news showed wage pressures easing and consumer spending contracting.  The weak data may prompt the BOJ to maintain QE and record low-interest rates.

Japan Jun labor cash earnings rose +2.3% y/y, weaker than expectations of +3.0% y/y.  Also, Jun real cash earnings fell -1.6% y/y, weaker than expectations of -0.9% y/y. 

Japan Jun household spending fell -4.2% y/y, weaker than expectations of -3.8% y/y and the biggest decline in 2 years.

The Japan Jul eco watchers outlook unexpectedly rose +1.3 to 54.1, stronger than expectations of a decline to 52.7.

Pre-Market U.S. Stock Movers

U.S. regional bank stocks are under pressure in pre-market trading after Moody’s Investors Service lowered credit ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders.  As a result, Citizens Financial Group (CFG), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), Lincoln National (LNC), M&T Bank (MTB), Northern Trust (NTRS), PNC Financial Services Group (PNC), Regions Financial (RF), Truist Financial Corp (TFC), and US Bancorp (USB) are down -2% or more. 

United Parcel Service (UPS) is down more than -5% in pre-market trading after reporting Q2 revenue of $22.1 billion, weaker than the consensus of $23.0 billion, and cutting its full-year revenue estimate to about $93 billion from a prior view of about $97 billion, below the consensus of $96.63 billion. 

Datadog (DDOG) plummeted more than -21% in pre-market trading after cutting its full-year revenue forecast to $2.05 billion-$2.06 billion from a previous forecast of $2.08 billion-$2.10 billion, weaker than the consensus of $2.09 billion.

International Flavors & Fragrances (IFF) plunged more than -20% in pre-market trading after reporting Q2 net sales of $2.93 billion, weaker than the consensus of $3.08 billion, and cut its full-year sales forecast to $11.3 billion-$11.6 billion from a previous forecast of about $12.3 billion, below the consensus of $12.17 billion. 

Coterra Energy (CTRA) tumbled more than -3% in pre-market trading after reporting Q2 cash flow from operations of $646 million, well below the consensus of $692.3 million.

Home Depot (HD) and Lowe’s (LOW) fell more than -1% in pre-market trading after Telsey Advisory Group downgraded both stocks to market perform from outperform.

Westlake Corp (WLK) fell more than -1% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from neutral. 

Beyond Meat (BYND) sank more than -15% in pre-market trading after reporting Q2 net revenue of $102.1 million, below the consensus of $108.5 million, and cutting its full-year net revenue forecast to $360 million-$380 million from a previous estimate of $375 million-$415 million, weaker than the consensus of $388.1 million.

Eli Lilly (LLY) jumped more than +9% in pre-market trading after reporting Q2 revenue of $8.31 billion, stronger than the consensus of $7.58 billion, and raising its full-year revenue estimate to $33.4 billion-$33.9 billion from a prior estimate of $31.2 billion-$31.7 billion.

Lucid Group (LCID) climbed more than +4% in pre-market trading after it said it would produce at least 10,000 vehicles this year.

Paramount Global (PARA) rose more than +4% in pre-market trading after reporting Q2 revenue of $7.62 billion, stronger than the consensus of $7.43 billion. 

Chegg (CHGG) rallied more than +20% in pre-market trading after reporting Q2 net revenue of $182.9 million, stronger than the consensus of $176.6 million.

Palantir Technologies (PLTR) gained more than +2% in pre-market trading after reporting Q2 adjusted operating profit of $135.0 million, above the consensus of $121.5 million, and raising its full-year adjusted operating profit estimate to above %576 million from a previous forecast of $506 million-$556 million, better than the consensus of $530.3 million.

Horizon Therapeutics (HZNP) rose more than +1% in pre-market trading after reporting Q2 net sales of $945.0 million, well above the consensus of $880.4 million.

TransDigm (TDG) gained more than -1% in pre-market trading after reporting Q3 net sales of $1.74 billion, above the consensus of $1.67 billion.

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

Akamai Technologies Inc (AKAM), Axon Enterprise Inc (AXON), Bio-Techne Corp (TECH), Broadridge Financial Solutions (BR), Duke Energy Corp (DUK), Eli Lilly & Co (LLY), Expeditors International of Wa (EXPD), FleetCor Technologies Inc (FLT), Fox Corp (FOXA), Insulet Corp (PODD), Jacobs Solutions Inc (J), NRG Energy Inc (NRG), Organon & Co (OGN), Sealed Air Corp (SEE), Take-Two Interactive Software (TTWO), TransDigm Group Inc (TDG), United Parcel Service Inc (UPS), Zoetis Inc (ZTS).

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