Stock Indexes Slightly Lower as U.S. Q1 GDP Contracts More Than Expected

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -0.07%.  Stock indexes recovered most of their overnight losses today in hopes that the pace of inflation throughout the world may be starting to ease.  German consumer prices in June unexpectedly eased, which knocked German bund yields and T-note yields lower and helped European stocks recover from early losses. U.S. stock indexes maintained modest losses after this morning’s data showed U.S. Q1 GDP contracted more than expected.

U.S. stock indexes initially posted modest losses in overnight trading on negative carry-over from a -1.4% fall in China’s Shanghai Composite Stock Index after Chinese President Xi Jinping vowed to maintain his country’s strict Covid zero policy.  Also, hawkish comments overnight from Cleveland Fed President Mester weighed on stocks when she said she wants to see the fed funds rate reach 3.0% to 3.5% this year and "a little bit above 4% next year" to rein in price pressures even if that tips the economy into recession.

U.S. Q1 GDP fell -1.6% (q/q annualized), weaker than expectations of -1.5% and the steepest pace of contraction since Q2 of 2020.  Q1 personal consumption rose +1.8%, weaker than expectations of +3.1%.  Also, the Q1 core PCE deflator rose +5.2% q/q,  stronger than expectations of +5.1% q/q.

Cleveland Fed President Mester said central bankers must not be complacent about increases in long-term inflation expectations and should be "resolute and intentional" in taking actions to bring inflation down.  She added that she wants to see the funds rate reach 3.0% to 3.5% this year and "a little bit above 4% next year" to rein in price pressures even if that tips the economy into recession.

The Euro Stoxx 50 today is down by -0.68%.  A fall in Eurozone Jun economic confidence to a 15-month low undercut European stocks today, as well as a negative carry-over from a -1.4% fall in Chinese stocks after Chinese President Xi Jinping said his country is committed to its zero-tolerance approach to Covid outbreaks.  However, European stocks rebounded from their worst levels today after German June consumer prices unexpectedly eased from May’s record pace. 

Eurozone Jun economic confidence fell -1.0 to a 15-month low of 104.0,  although stronger than expectations of 103.0.

Eurozone May M3 money supply rose +5.6% y/y, weaker than expectations of +5.8% y/y and the slowest pace of growth in 2 years.

German Jun CPI (EU harmonized) fell -0.1% m/m and rose +8.2% y/y, weaker than expectations of +0.4% m/m and +8.8% y/y.

Asian markets today closed lower.  China’s Shanghai Composite Index closed down by -1.40%, and Japan’s Nikkei stock index closed down by -0.91%. 

China’s Shanghai Composite today fell back from a new 3-1/2 month high and closed moderately lower.  Chinese consumer stocks tumbled today after President Xi Jinping reiterated his firm stance on China’s Covid zero policy. Also, Chinese technology stocks fell on concern that monetary tightening in much of the world to fight inflation will cause a global economic slowdown.  In addition, Chinese electric vehicle makers fell after Nio tumbled -8% following a negative report on the company’s business practices.

Japan’s Nikkei stock index fell moderately today on negative carry-over from a fall in U.S. stocks Tuesday on recession fears after U.S. June consumer confidence fell more than expected to a 16-month low.  Also, weaker than expected Japanese economic data today on Japan's June consumer confidence and May retail sales weighed on equity prices.

The Japan Jun consumer confidence index unexpectedly fell -2.0 to a 17-month low of 32.1, weaker than expectations of an increase to 34.8. 

Japan May retail sales rose +0.6% m/m, weaker than expectations of +1.0% m/m.

Pre-Market U.S. Stock Movers

Carnival (CCL) tumbled -8% in pre-market trading after Morgan Stanley warned that the company could lose all of its value in the event of another demand shock.  Other cruise line operators also fell on the news, with Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) down more than -4%.

Nio (NIO) dropped more than -8% in pre-market trading after Grizzly Research published a report alleging the company used battery sales to a related party to inflate revenue and boost net margins.  Nio rejected the claims. 

Upstart Holdings (UPST) sank -9% in pre-market trading after Morgan Stanley downgraded the company to underweight from equal-weight amid rising cyclical headwinds. 

Accenture (ACN) fell more than -1% in pre-market trading after Exane BNP Paribas cut its recommendation on the stock to neutral from outperform.

Tesla (TSLA) slid more than -1% in pre-market trading after it laid off 200 autopilot workers and shuttered a facility in California. 

Altria (MO) dropped more than -3% in pre-market trading after Barclays cut its recommendation on the stock to underweight from equal weight.

Ormat Technologies (ORA) climbed +5% in pre-market trading when it was announced that the company would be included in the S&P Midcap 400 Index on July 5. 

Pinterest (PINS) rose more than +3% in pre-market trading after it was announced that CEO Silberman would hand his job to Bill Ready, a former Google and PayPay veteran, in a sign the social-media company will focus on e-commerce. 

Oracle (ORCL) gained more than+1% in pre-market trading after Exane BNP Paribas raised its recommendation on the stock to outperform from neutral.

Beyond Air (XAIR) surged +16% in pre-market trading after the company’s LungFit PH received FDA approval to treat term and near-term neonates with hypoxic respiratory failure. 

Today’s U.S. Earnings Reports (6/29/2022)

General Mills Inc (GIS), McCormick & Co Inc/MD (MKC), MSC Industrial Direct Co Inc (MSM), Paychex Inc (PAYX).

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