Stocks Erase Overnight Gains on a Hawkish ECB

Morning Markets

June S&P 500 futures (ESM22) this morning are down -0.27%.  Stock indexes gave up overnight gains and turned lower as global bond yields jumped after the ECB said today it would end asset purchases and begin to raise interest rates.  The 10-year German bund yield jumped to an 8-year high of 1.452%, causing the 10-year T-note yield to climb to a 4-week high of 3.07%.  U.S. stock indexes extended their losses after U.S weekly jobless claims rose more than expected to a 4-1/2 month high.

U.S. stock indexes initially moved higher in overnight trade as Tesla climbed +3% in pre-market trading after UBS raised its recommendation on the stock to buy from neutral.  Also, today’s better-than-expected Chinese trade data for May was supportive of global growth prospects.

U.S. weekly initial unemployment claims rose +27,000 to a 4-1/2 month high of 229,000, showing a weaker labor market than expectations of an increase to 206,000.

The Euro Stoxx 50 index today is down -1.16% at a 2-week low.  European stocks are falling today after the ECB cut its Eurozone growth forecast for this year and raised its inflation forecast.  The ECB also announced plans to end asset purchases in three weeks and begin to raise interest rates in July.  European bond yields jumped on the news and pressured stocks further as the 10-year German bund yield today climbed to an 8-year high of 1.452%.

The ECB cut its 2022 Eurozone GDP estimate to 2.8% from an earlier forecast of 3.7% and raised its 2022 Eurozone inflation forecast to 6.8% from a previous projection of 5.1%.

The ECB announced today that it will end large-scale asset purchases in three weeks and will begin raising the deposit rate by 25 bp in July and again in September by either 25 bp or more if inflation warrants a tougher stance.

ECB President Lagarde said inflation risks are primarily on the upside as wage growth is increasing and price rises become more widespread across sectors.

Asian markets today settled mixed.  China’s Shanghai Composite Index closed down -0.76%, and  Japan’s Nikkei Stock Index closed up +0.04%.  The Shanghai Composite Index today initially climbed to a new 2-month high on better-than-expected Chinese trade data for May.  However, stocks gave up their advance and moved lower on renewed pandemic restrictions after the Chinese government said it would lock down seven districts in Shanghai this weekend after new Covid infections were reported in the city Thursday.

Today’s Chinese trade data shows economic strength that is supportive for global equity markets after China May exports rose +16.9% y/y, stronger than expectations of +8.0% y/y. Also, China May imports rose +4.1% y/y, stronger than expectations of +2.8% y/y.

Japan’s Nikkei Stock Index rallied to a 4-1/2 month high today on global economic optimism after today’s trade data showed China May exports rose more than expected.  However, stocks gave up almost all of their gains after the yen rebounded from a 20-year low against the dollar and moved higher, which undercut exporter stocks.

Japan May machine tool orders rose +23.7% y/y, the nineteenth consecutive month orders have increased.

Pre-Market U.S. Stock Movers

TesIa (TSLA) rose more than +3% in pre-market trading after UBS raised its recommendation on the stock to buy from neutral, saying the company’s outlook is “brighter than ever,” and said the year-to-date retreat in its stock price provides an attractive entry point. 

Oxford Industries (OXM) jumped +5% in pre-market trading after reporting Q1 net sales of $352.6 million, better than the consensus of $326.8 million, and raising guidance on full-year net sales to $1.29 billion-$1.33 billion from an earlier forecast of $1.25 billion-$1.29 billion, stronger than the consensus of $1.24 billion.

Ollie’s Bargain Outlet Holdings (OLLI) climbed more than +3% in pre-market trading after RBC Capital Markets raised its recommendation on the stock to outperform from sector perform.

Carnival (CCL) gained nearly +2% in pre-market trading after Susquehanna Financial initiated coverage of the stock with a recommendation of neutral and a price target of $15.

Signet Jewelers (SIG) rallied +6% in pre-market trading after reporting Q1 sales of $1.84 billion, above the consensus of $1.82 billion. 

Take-Two Interactive Software (TTWO) rose +2% in pre-market trading after JPMorgan Chase raised its recommendation on the stock to overweight from neutral.

Five Below (FIVE) tumbled more than -7% in pre-market trading after reporting Q1 net sales of $639.6 million, weaker than the consensus of $654.3 million, and cut its full-year net sales forecast to $3.04 billion-$3.12 billion from a prior forecast of $3.16 billion-$3.26 billion, below the consensus of $3.21 billion. 

Ball Corp. (BALL) fell more than -2% in pre-market trading after Wells Fargo Securities cut its recommendation on the stock to underweight from equal weight. 

Today’s U.S. Earnings Reports (6/9/2022)

Comtech Telecommunications Cor (CMTL), DocuSign Inc (DOCU), Eros Media World PLC (EMWP), 

FuelCell Energy Inc (FCEL), Hooker Furnishings Corp (HOFT), Rent the Runway Inc (RENT), Signet Jewelers Ltd (SIG), Stitch Fix Inc (SFIX), Uranium Energy Corp (UEC), Vail Resorts Inc (MTN).