Stocks Plunge on 4-decade High in U.S. CPI

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -1.44% at a 1-week low. U.S. stock indexes this morning erased overnight gains and turned sharply lower after a larger-than-expected increase in U.S. June consumer prices reinforced speculation the Fed will continue to hike interest rates aggressively.  The surge in U.S. consumer prices pushed the 10-year T-note yield up +7.4 bp to 3.041%. 

U.S. June CPI rose +9.1% y/y, stronger than expectations of +8.8% y/y and the fastest pace of increase in 41 years.  Jun CPI ex-food & energy eased slightly to 5.9% y/y from 6.0% y/y in May, but was stronger than expectations of 5.7% y/y.

The International Monetary Fund (IMF) cut its U.S. 2022 GDP forecast to 2.3% from last month's estimate of 2.9% and raised its U.S. 2022 jobless rate estimate to 3.7% from 3.2%.

The Euro Stoxx 50 is down -1.78% today.  Concern about global inflation and the energy crisis in Europe weighed on European stocks. Higher energy prices are hurting Europe’s economy and knocked the euro down to a 20-year low against the dollar on Tuesday.  UBS AG predicts if Russia halts gas deliveries to Europe, it would reduce corporate earnings by more than 15% and could push EUR/USD down to 90 cents.  European stocks extended their losses after today’s data showed U.S. June CPI rose more than expected.

Eurozone May industrial production rose +0.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 5 months.

China’s Shanghai Composite Index today recovered from a 2-1/2 week low and closed up by +0.09%. A rally in Taiwan technology stocks helped Chinese stocks erase early losses after authorities in Taiwan pledged to prop up domestic stocks.  Taiwan’s Ministry of Finance said the National Financial Stabilization Fund is authorized to support domestic stocks given uncertainties in the international political and economic situation.   Chinese stocks also found support after today’s trade data showed China June exports posted their largest increase in 5 months.  The Shanghai Composite today initially fell to a 2-1/2 week low on weakness in bank stocks amid property debt concerns as homebuyers are refusing to pay mortgages as property developers drag on construction projects. 

The China June trade surplus rose to a record +$97.94 billion, wider than expectations of $76.80 billion.  June exports rose +17.9% y/y, stronger than expectations of +12.5% y/y and the biggest increase in 5 months.  June imports rose +1.0% y/y, weaker than expectations of +4.0% y/y.

Japan’s Nikkei Stock Index closed up +0.54% today.  Better than expected quarterly earnings from Toho and Takeuchi bolstered market sentiment and were supportive for the overall market today.  Gains in equities were limited as travel stocks declined on concern the resurgence of Covid infections will postpone the planned start for government travel subsidies that were expected to begin July 15.  NHK reported the Japanese government plans to postpone the start of its nationwide tourism incentive program amid a rebound in coronavirus cases.

Pre-Market U.S. Stock Movers

Delta Air Lines (DAL) tumbled more than -3% in pre-market trading after reporting Q2 adjusted EPS of $1.44, well below the consensus of $1.64, and said high operating costs would persist through the rest of the year.

Caesars Entertainment (CZR) and Hasbro (HAS) slid more than -1% in pre-market trading after KeyBanc Capital Markets downgraded the stocks to sector weight from overweight.

Juniper Networks (JNPR) dropped more than -2% in pre-market trading after Piper Sandler cut its recommendation on the underweight from neutral. 

Illumina (ILMN) fell more than -2% in pre-market trading after Barclays cut its recommendation on the stock to underweight from equal-weight.

Southern Copper (SCCO) fell nearly -2% in pre-market trading after Citigroup cut its recommendation on the stock to sell from neutral.

Stitch Fix (SFIX) jumped more than +9% in pre-market trading on signs of insider buying after J William Gurley, a board member and general partner at venture capital firm Benchmark, bought $5.43 million of shares in the company. 

Twitter (TWTR) rose +1% in pre-market trading after it sued Elon Musk over his abandoned $44 billion takeover bid.

Snowflake (SNOW) is up more than +2% in pre-market trading after Baird rated the stock with an outperform rating and a price target of $200.

Today’s U.S. Earnings Reports (7/13/2022)

Delta Air Lines Inc (DAL), Fastenal Co (FAST), Hingham Institution For Saving (HIFS), Legacy Housing Corp (LEGH), National Energy Services Reuni (NESR), National Energy Services Reuni (NESR), Sabra Health Care REIT Inc (SBRA), Washington Federal Inc (WAFD).

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