Stocks Climb Ahead of FOMC as T-Note Yields Fall

Morning Markets

June S&P 500 futures (ESM22) this morning are up by +0.78%.  A decline in T-note yields today has sparked short-covering in stock index futures.  The 10-year T-note yield is down -11.1 bp at 3.362% on positive carry-over from a rally in European government bonds.

European bond yields fell after the ECB announced today after an emergency meeting that it will accelerate work on a new tool to combat unwarranted jumps in European bond yields. The ECB said it is studying whether to use the reinvestment of bond purchases conducted under the now-halted pandemic emergency purchase program (PEPP) to slow soaring bond yields.  Stock indexes remained moderately higher despite this morning’s economic data, which was weaker than expected.

The markets fully expect the FOMC to raise the target on the fed funds range by 50 bp after its two-day policy meeting ends this afternoon.  However, expectations are building for a 75 bp Fed rate hike today after a Wall Street Journal report Tuesday suggested the Fed may raise rates as much as 75 bp.  In addition, JPMorgan Chase said that even a full percentage point (100 bp) increase Wednesday is a possibility.

U.S. May retail sales unexpectedly fell -0.3% m/m, weaker than expectations of +0.1% m/m.  May retail sales ex-autos rose +0.5% m/m, weaker than expectations of +0.7% m/m.

The U.S. Jun Empire manufacturing survey general business conditions index rose +10.4 to -1.2, weaker than expectations for a rise to 2.3.

The U.S. May import price index ex-petroleum unexpectedly fell -0.1% m/m, weaker than expectations of +0.6% m/m and the first decline in 19 months.

The Euro Stoxx 50 today is up by +1.27%.  A decline in European government bond yields today sparked a rally in interest-rate sensitive stocks such as financials and technology to lead the overall market higher. Bond yields fell after the ECB announced an emergency meeting today "to discuss current market conditions."  After today’s meeting, the Governing Council said it would apply flexibility in reinvesting redemptions coming due in its pandemic portfolio and will accelerate work on a new tool to combat unwarranted jumps in European bond yields.  The 10-year German bund yield fell back from today’s 8-year high of 1.772% on the news and is down -11.5 bp at 1.642%. 

ECB Executive Board member Schnabel said the ECB won't tolerate "changes in financing conditions that go beyond fundamental factors and that threaten monetary-policy transmission."

Eurozone May industrial production rose +0.4% m/m, weaker than expectations of +0.5% m/m.

Asian markets today settled mixed.  China’s Shanghai Composite Index rallied to a 3-1/4 month high and closed up by +0.50%. Japan’s Nikkei stock index fell to a 3-1/2 week low and closed down by -1.14%. 

Chinese stocks today moved higher on better-than-expected economic data.  China May industrial production unexpectedly rose +0.7% y/y, stronger than expectations of -0.9% y/y.  Also, China May retail sales fell -6.7% y/y, a smaller decline than expectations of -7.1% y/y.  Stock prices fell back from their best levels after the PBOC today refrained from cutting its 1-year medium-term lending facility rate.  Also, elevated Covid cases in China may keep the country from fully reopening after Beijing reported more than 50 Covid cases for the fifth day in a row, and Shanghai said it will arrange a round of mass Covid testing every weekend until the end of July.  

Japanese stocks fell back today ahead of today’s Fed decision and Friday’s interest rate decision from the BOJ.  A sharp sell-off in Japanese government bonds also weighed on stocks after the 10-year Japan JGB bond yield jumped to a 6-1/2 year high today at 0.308%, well above the 0.25% upper target range the BOJ has targeted.  Bond yields fell back from their highs after the BOJ announced unlimited purchases of cheapest-to-deliver 10-year bonds for Thursday and Friday.  The BOJ is attempting to keep the 10-year JGB bond yield from climbing above the upper end of its 0.25% target range. 

Today’s Japanese economic data was mixed for stocks.  On the positive side, Japan Apr core machine orders unexpectedly rose +10.8% m/m, stronger than expectations of -1.3% m/m and the largest increase in 1-1/2 years. Conversely, the Japan Apr tertiary industry index rose +0.7% m/m, weaker than expectations of +0.8% m/m.

Pre-Market U.S. Stock Movers

Hertz Global Holdings (HTZ) rallied +7% in pre-market trading after the company announced a new $2 billion share repurchase program.

Snowflake (SNOW) climbed more than +3% in pre-market trading after Canaccord Genuity raised its recommendation on the stock to buy from hold.

Spotify (SPOT) rose more than +2% in pre-market trading after Wells Fargo raised its recommendation on the stock to equal-weight from underweight.

U.S.-listed Chinese stocks are climbing in pre-market trading after the Shanghai Composite rallied to a 3-1/4 month high, showing improved sentiment toward Chinese stocks.  Baidu (BIDU) is up more than +3%, and Pinduoduo (PDD), Alibaba Group Holding (BABA), and JD.com (JD) are up more than +2%. 

Moderna (MRNA) gained more than +1% in pre-market trading after an FDA panel gave a unanimous verdict in favor of the company’s Covid vaccine for children.”

Robinhood Markets (HOOD) dropped more than -2% in pre-market trading after Atlantic Equities LLP cut its recommendation on the stock to underweight from neutral. 

Cryptocurrency-related stocks are falling in pre-market trading, with the price of Bitcoin down more than -4% at a 1-1/2 year low.  MicroStrategy (MSTR), Marathon Digital Holdings (MARA), and Riot Blockchain (RIOT) are down more than -7%, and Coinbase Global (COIN) is down more than -6%.

Today’s U.S. Earnings Reports (6/15/2022)

Angion Biomedica Corp (ANGN), Brooklyn ImmunoTherapeutics In (BTX), H&R Block Inc (HRB), 

Ideanomics Inc (IDEX), John Wiley & Sons Inc (WLY), National Energy Services Reuni (NESR), Quotient Ltd (QTNT).