Stocks Fall on Chinese Covid Concerns and Q2 Earnings Caution

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -0.65%.  U.S. stock indexes are lower on renewed concern about Chinese lockdowns, today’s -0.71% sell-off in the Euro-Stoxx 50 index, and caution ahead of the Q2 earnings season that starts this week with reports from major Wall Street banks and other companies such as PepsicCo, Fastenal, Delta, Cintas, and Conagra.

The markets are also nervous ahead of Wednesday’s U.S. June CPI report, which is expected to rise to +8.8% y/y from May’s 40-year high of +8.6%, although the core CPI is expected to ease to +5.7% y/y from May’s 6.0%.  Also, the recent decline in commodity prices and a weaker U.S. economy could mean that inflation has already peaked.

China’s Shanghai Composite Index today fell -1.27% on the Covid resurgence in China and on new fines for tech giants.  Regulatory fines for past alleged transgressions were levied on Alibaba (BABA) and Tencent Holdings (TCEHY).  Also, China Evergrande Group’s bondholders rejected a proposal to extend a debt payment for the troubled property developer.

Japan’s Nikkei Stock Index closed up +1.11% today after the ruling LDP party in Sunday’s election extended its upper house majority.  That will allow Prime Minister Kishida to continue supporting the BOJ’s highly accommodative monetary policy and its attempt to avoid the interest rate hikes being seen in most of the rest of the world.  Japan was shocked late last week when former Japanese Prime Minister Abe was assassinated in the city of Nara while giving a campaign speech.

Pre-Market U.S. Stock Movers

Twitter (TWTR) is down -5% in pre-market trading after Elon Musk on Saturday announced his intent to terminate his takeover bid for the company. Mr. Musk blamed Twitter for not providing sufficient information to proceed with the takeover, but Mr. Musk’s troubles are well-known in getting financing for the deal and justifying the high price he agreed to pay.  Twitter will reportedly sue Musk to force him to complete the $44 billion deal, or at least pay a large breakup fee.  Tesla (TSLA) is up +1.00% in pre-market trading on hopes that Mr. Musk will no longer lean on his Tesla holdings to help finance his ill-fated Twitter offer.

Cryptocurrency stocks are trading lower in pre-market trading, with Bitcoin down -6% this morning, after an MLIV Pulse survey of Wall Street investors said Bitcoin is more likely to fall by half to $10,000 than recover to $30,000.  Coinbase (COIN) is down more than -4%.  Marathon Digital (MARA) and Riot Blockchain (RIOT) are both down more than -6%.

Chinese gambling and tourism stocks are trading lower today after Chinese authorities shut down much of Macau due to a Covid outbreak in the area.  Las Vegas Sands (LVS), Wynn Resorts (WYNN), and MGM Resorts (MGM) are all down more than -3% in pre-market trading.

Fastly (FSLY) is down nearly -6% in pre-market trading after Morgan Stanley cut its recommendation to underweight from equal-weight due to a less favorable risk-reward ratio.

Lululemon (LULU) is down more than -4% and Under Armour (UAA) is down -2.3% in pre-market trading after Jefferies downgraded the stocks.  Nike (NKE) is down -1.3% even though Jefferies reaffirmed its buy rating in Nike and called it “still best-in-class.”

Today’s U.S. Earnings Reports (7/11/2022)

AZZ Inc (AZZ), E2open Parent Holdings Inc (ETWO), Greenbrier Cos Inc/The (GBX), PriceSmart Inc (PSMT), Pure Cycle Corp (PCYO).

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