Stocks Rally as China Eases Covid Restrictions

Morning Markets

June S&P 500 futures (ESM22) this morning are up +1.09%.  U.S. stock indexes this morning are pushing higher on an improvement in market sentiment on expectations for global economic activity to pick up as China eases pandemic lockdowns.  U.S. stock indexes also received a boost on a Sunday report from Goldman Sachs that predicts the U.S. economy is on a narrow path to a soft landing. 

Gains in technology stocks are leading U.S stock indexes higher this morning on carry-over support from a rally in Chinese technology stocks on signs the government may be easing its crackdown on the sector.  The Wall Street Journal reported that Chinese regulators are close to wrapping up their investigation of Didi Global and several other major tech companies, a sign the regulatory crackdown may be ending.

Goldman Sachs predicts the U.S. economy is on a narrow path to a soft landing as improving inflation figures and other factors suggest the Fed may be able to accomplish its aggressive interest rate hike plan without tipping the economy into recession.

The Euro Stoxx 50 index today is up +1.47% at a 1-week high.  European stocks today are moving higher on global economic optimism as China continues to ease Covid restrictions.  Commodity-related stocks and mining companies are leading advancers today on speculation the easing of pandemic restrictions in China will spur demand for commodities. Energy stocks are also higher as the price of crude oil climbed to a 3-month high today. 

European bond yields are climbing on expectations the ECB on Thursday will announce an end to bond purchases and signal it will begin raising interest rates in July.  The 10-year German bund yield rose to a 7-3/4 year high today of 1.297% 

Asian markets today closed higher.  China’s Shanghai Composite Index rallied to a 7-week high and closed up +1.28%.  Japan’s Nikkei Stock Index rallied to a 2-month high and closed up +0.56%.  Chinese technology shares rallied today after the Wall Street Journal reported that Chinese regulators are preparing to wrap up their investigation into Didi Global and restore the company’s apps to mobile stores as soon as this week.  Chinese stocks also rose on expectations for a pickup in economic activity as the government eases pandemic restrictions as the Covid infection rate continues to decline.

The China May Caixin services PMI rose +5.2 to 41.4, weaker than expectations of a rise to 46.0.

Japanese stocks pushed higher today, led by gains in transportation and restaurant stocks after the Nikkei news service reported that the Japanese government is considering restarting the “Go To” domestic travel subsidy campaign as soon as this month. Japanese defense-related stocks rose today after North Korea fired eight short-range ballistic missiles Sunday, making it the most missile launches by North Korea in a single year under Kim Jong Un.

Comments today from BOJ Governor Kuroda were supportive of stocks when he said, “the BOJ is aiming for prices to rise within a virtuous cycle of economic improvement that includes wage gains.”

The Japan May Jibun Bank services PMI was revised upward to 52.6 from the previously reported 51.7, the fastest pace of expansion in 6 months.

Pre-Market U.S. Stock Movers

Amazon.com (AMZN) rose more than +2% in pre-market trading as the company’s 20 for 1 stock split takes effect today. 

Tesla (TSLA) is up more than +4% in pre-market trading after CEO Musk said tweeted Saturday that Tesla’s total workforce would rise, even as the number of salaried workers remained broadly the same.  Other electric vehicle makers are also higher in pre-market trading amid optimism over China’s reopening from Covid restrictions, with Rivian Automotive (RIVN) and Lucid Group (LCID) up more than +2%. 

Crowdstrike Holdings (CRWD) climbed nearly +4% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal-weight.

ON Semiconductor Corp. (ON) and Keurig Dr Pepper (KDP) jumped more than +8% in pre-market trading after S&P Dow Jones Indices said after the market closed last Friday that both companies will be added to the S&P 500 Index on June 21.

Solar stocks are climbing in pre-market trading following reports that President Biden plans to issue a waiver on any new tariffs that the Commerce Department might decide to impose on Southeastern Asian countries as part of its current investigation into Chinese solar companies, which would be supportive for U.S. solar installs.  Array Technologies (ARRY) is up more than +11%, SunRun (RUN) is up more than +9%, SunPower (SPWR) is up more than +7%, and Enphase Energy (ENPH) is up more than +4%.

Cryptocurrency-related stocks are moving higher in pre-market trading, with Bitcoin up more than +5%.  Riot Blockchain (RIOT) is up more than +7%, Coinbase Global (COIN) is up more than +6%, and Marathon Digital (MARA) and Bit Digital (BTBT) are up more than +5%. 

Spotify (SPOT) jumped more than +4% in pre-market trading after Raymond James upgraded the stock to outperform from market perform. 

Regeneron Pharmaceuticals (REGN) slid -1% in pre-market trading after Jeffries initiated coverage of the stock with an underperform rating, citing competitive concerns.

Red Robin Gourmet Burgers (RRGB) tumbled -8% in pre-market trading when it was announced after the close of trading last Friday that the company would be removed from the S&P Smallcap 600 Index on June 21. 

Today’s U.S. Earnings Reports (6/6/2022)

Coupa Software Inc (COUP), HealthEquity Inc (HQY), Republic First Bancorp Inc (FRBK), Science Applications Internati (SAIC).