Markets Today: Stocks Weighed Down by Disappointing Chinese and European Economic News

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.25%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.43%.

Stock indexes this morning are moderately lower as weaker-than-expected economic news from China and the Eurozone sparked a risk-off sentiment in asset markets.  China’s service sector saw the slowest pace of growth this year in August, and the Eurozone Aug S&P composite PMI was revised downward to its weakest level in 2-3/4 years.  Also, higher global bond yields today are weighing on stocks.

The markets are discounting the odds at only 7% for a +25 bp rate hike at the September 20 FOMC meeting and 44% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield is up +5.3 bp at 4.232%.  The 10-year German bund yield rose to a 1-1/2 week high of 2.612% and is up +2.3 bp at 2.602%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 4.502% and is up +3.8 bp at 4.500%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.06%.  China’s Shanghai Composite Index closed down -0.71%.  Japan’s Nikkei Stock Index closed up +0.30%.

The Euro Stoxx 50 fell to a 1-week low and is slightly lower.  Weaker-than-expected news on China’s service sector led to selling in European luxury goods makers and sportswear makers, with LVMH and Adidas down more than -2%.  Also, a downward revision to the Eurozone Aug S&P composite PMI to its weakest level in 2-3/4 years signals economic weakness and is undercutting stocks.  In addition, the ECB reported an increase in longer-term inflation expectations that is pushing European government bond yields higher and is bearish for stocks as the 10-year German bund yield rose to a 1-1/2 week high of 2.609%.  Limiting losses in the overall market is strength in European healthcare stocks.

The Eurozone Aug S&P composite PMI was revised downward by -0.3 to 46.7 from the previously reported 47.0, the weakest level in 2-3/4 years.

Eurozone July PPI eased to -7.6% y/y from -3.4% y/y in June, right on expectations and the sharpest decline in 14 years.

The ECB reported July 1-year CPI consumer expectations were unchanged at 3.4% from June, but the July 3-year CPI consumer expectations unexpectedly rose to 2.4% from 2.3% in June.

China’s Shanghai Composite Index closed moderately lower.  Chinese stocks were under pressure today after a report on the country’s service sector showed the slowest growth this year in August, adding to evidence China’s economic recovery is losing momentum and dampening optimism about government stimulus.  On the positive side, Chinese developer Country Garden Holdings made last-minute payments on two dollar-bonds within grace periods, avoiding a default. The payments bought the company time as it tries to sort through 1.36 trillion yuan ($187 billion) of liabilities.

Foreign investors continue to flee Chinese stocks.  According to a Morgan Stanley quant analysis, foreign funds sold about 90 billion yuan ($12 billion) of mainland shares in August via the trading links with Hong Kong, the most since data compiled by Bloomberg began in 2016.

The China Aug Caixin services PMI fell -2.3 to an 8-month low of 51.8, weaker than expectations of 53.5.

Japan’s Nikkei Stock Index today climbed to a 1-month high and closed moderately higher.  A rally in exporter stocks led the overall market higher as weakness in the yen against the dollar today improves the earnings prospects of Japanese exporters. Oki Electric surged more than +16% today after Nikkei reported the company is developing a new manufacturing method to make materials for power semiconductors using gallium nitride.  On the negative side, today’s news on Japanese consumer spending was weaker than expected after Japan's July household spending fell by the most in almost 2-1/2 years.   

Japan Jul household spending fell -5.0% y/y, weaker than expectations of -2.5% y/y and the biggest decline in almost 2-1/2 years.

Pre-Market U.S. Stock Movers

U.S.-listed Chinese stocks are falling in pre-market trading after today’s news that activity in China’s service sector slowed more than expected in August.  As a result, Alibaba Group Holding (BABA), Baidu (BIDU), JD.com (JD), NetEase (NTES), and PDD Holdings (PDD) are down more than -1%.   

General Mills (GIS) slid nearly -1% in pre-market trading after BNP Paribas Exane downgraded the stock to neutral from outperform, citing a slowdown in premium dog food demand.

Blackstone (BX) and Airbnb (ABNB) climbed more than +5% in pre-market trading after the S&P Dow Jones Indices said the stocks would join the S&P 500 Stock Index before the opening of trading on September 18.

Tower Semiconductor Ltd (TSEM) jumped more than +5% in pre-market trading after Intel said it would provide foundry services and 300mm manufacturing capacity to the company.

Stryker (SYK) rose more than +1% in pre-market trading after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $315. 

Oracle (ORCL) gained over +1% in pre-market trading after Barclays upgraded the stock to overweight from equal weight with a price target of $150. 

Viatris (VTRS) jumped more than +7% in pre-market trading after the U.S. FDA tentatively approved the company’s new drug cocktail for children with HIV-1.

Lowe’s (LOW) gained more than +1% in pre-market trading after Bernstein upgraded the stock to outperform from market perform.

NetApp (NTAP) climbed nearly +2% in pre-market trading after Susquehanna Financial upgraded the stock to positive from neutral.

Olin Corp (OLN) rose more than +2% in pre-market trading after KeyBanc Capital Markets upgraded to stock to overweight from sector weight with a price target of $67/ 

Associated Banc-Corp (ASB) rose nearly +1% in pre-market trading after Baird upgraded the stock to outperform from neutral.

NexGen Healthcare (NXGN) surged more than +16% in pre-market trading after Bloomberg News reported that Thoma Bravo is in advanced talks to acquire the company. 

Earnings Reports (9/5/2023)

AeroVironment Inc (AVAV), America's Car-Mart Inc/TX (CRMT), Asana Inc (ASAN), Gitlab Inc (GTLB), HealthEquity Inc (HQY), Waldencast plc (WALD), Zscaler Inc (ZS).

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