Stock Indexes Push Higher as China Eases Covid Restrictions

Morning Markets

September S&P 500 futures (ESU22) this morning are up by +0.36%.  Stocks are climbing today on optimism that Chinese growth will pick up after China eased some pandemic restrictions.  Airlines and casino stocks with exposure to Macau rose in pre-market trading after China cut in half the time that new arrivals must spend in quarantine. 

U.S. stock indexes have carry-over support from a rally in China’s Shanghai Composite to a 3-1/2 month high today.  The action by China to cut its mandatory quarantine period to 10 days from three weeks for inbound travelers should boost economic activity and ease supply-chain turmoil in the country, which is favorable for global growth.  A negative factor for stocks today is higher T-note yields, with the 10-year T-note yield up +4.9 bp to a four-session high of 3.249%

The Euro Stoxx 50 today is up by +0.94% but remains below Monday’s 2-week high.  An improvement in market sentiment is underpinning stocks after China eased its Covid quarantine rules.  The move by China to ease pandemic rules boosted airline stocks, with Deutsche Lufthansa AG up more than +2%.  Also, miners and commodity producers gained on optimism that China’s demand for commodities will improve as its economy reopens.  However, stock gains were limited after gauges of consumer confidence in Germany and France fell more than expected.

ECB President Lagarde said we will allow interest rates to rise "as far as necessary," complementing efforts to stabilize inflation at the 2% target.

ECB Governing Council member Kazaks said, "if we see that the situation has worsened, that inflation is high, and we see negative news in terms of inflation expectations, then in my view, front-loading interest rate hikes would be a reasonable choice."

German Jul GfK consumer confidence fell -1.2 to a record low -27.4 (data from 2005), weaker than expectations of -27.3.

The France Jun consumer confidence indicator fell -3 to a 9-year low of 82, weaker than expectations of 84.

Asian markets today closed higher.  China’s Shanghai Composite Index closed up by +0.89%, and Japan’s Nikkei stock index closed up by +0.66%. 

China’s Shanghai Composite today moved higher for a fourth consecutive session and posted a fresh 3-1/2 month high.  Chinese stocks rallied today on improved optimism in China’s economic outlook after the government moved to cut its mandatory quarantine period to 10 days from three weeks for inbound travelers.  The Covid pandemic in China has improved after no new Covid infections were reported in Beijing and Shanghai Monday for the first time in 4 months.  Stocks also found support after the PBOC today pledged to keep monetary policy supportive to aid the economy's recovery, while signaling that stimulus would likely focus on boosting credit rather than lowering interest rates. 

Japan’s Nikkei stock index climbed to a 2-week high today on improvement in market sentiment after China softened its Covid protocols, easing concerns about global growth.  Japanese stocks also moved higher in anticipation of buying by institutional investors ahead of the quarter and month-end on Thursday. 

Pre-Market U.S. Stock Movers

U.S. bank stocks are broadly higher in pre-market trading after a majority of them announced dividend increases after they passed e Fed’s stress test last week.  Morgan Stanley (MS) is up +3%, and Bank of America (BAC) is up +1%.

Spirit Airlines (SAVE) jumped +5% in pre-market trading after JetBlue boosted its all-cash bid for the company in response to an increased offer from rival Frontier. 

U.S. casino stocks with exposure to Macau are climbing in pre-market trading after China reduced quarantine times for inbound travelers by half.  Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are up more than +5%.  Also, MGM Resorts International (MGM) is up more than +3%, and Caesars Entertainment (CZR) is up more than +1%. 

Microchip Technology (MCHP) climbed +3% in pre-market trading after Stifel raised its recommendation on the stock buy with a price target of $75.

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

Kezar Life Sciences (KZR) surged more than +80% in pre-market trading after reporting “positive results” for its lupus nephritis drug in its phase 2 trial of Zetomipzomib, which Jones Research said “continues to exceed expectations.”

Nike (NKE) slid more than -2% in pre-market trading after it said full-year gross margins would be flat to down 50 basis points due to weak sales in China.

Robinhood Markets (HOOD) fell more than -3% in pre-market trading after Bankman-Fried said “there are no active M&A conversations with Robinhood.” 

State Street (STT) lost-1% in pre-market trading after Deutsche Bank downgraded the stock to hold from buy.

Walgreens Boots Alliance (WBA) dropped more than -2% in pre-market trading after Sky News reported that Walgreens is abandoning the auction of the Boots chain on “torrid conditions in debt-funding markets that were hampering bidders’ ability to table firm offers.” 

Today’s U.S. Earnings Reports (6/28/2022)

AeroVironment Inc (AVAV), Enerpac Tool Group Corp (EPAC), Legacy Housing Corp (LEGH), National Energy Services Reuni (NESR), Progress Software Corp (PRGS), TD SYNNEX Corp (SNX).

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