Stocks Fall as U.S. Q2 Bank Earnings Disappoint

Morning Markets

September S&P 500 futures (ESU22) this morning are down by -1.26% at a 2-week low. U.S. stock indexes this morning are falling as the Q2 corporate quarterly earnings season begins.  U.S. bank stocks are falling in pre-market trading to lead the overall market lower after both JPMorgan Chase and Morgan Stanley reported weaker-than-expected Q2 earnings.  JPMorgan also said it was temporarily suspending its share buyback program.

U.S. stock indexes maintained moderate losses after U.S. weekly jobless claims unexpectedly rose to an 8-month high, and after U.S. June producer prices rose more than expected. The stronger-than-expected increase in producer prices pushed the 10-year T-note yield today up +4.6 bp to 2.980%. 

U.S. weekly initial unemployment claims unexpected rose +9,000 to an 8-month high of 244,000, showing a weaker labor market than expectations of unchanged at 235,000.

The U.S. June final-demand PPI rose +1.1% m/m and +11.3% y/y, higher than expectations of +0.8% m/m and +10.7% y/y.  Jun PPI ex-food & energy rose +8.2% y/y, right on expectations and easing from the +8.5% y/y increase in May.

Wednesday night, Cleveland Fed President Mester said the Fed should raise rates by at least 75 bp at the July FOMC meeting as "the June inflation report certainly suggests that there's no reason to say that a smaller rate increase is appropriate."

The Euro Stoxx 50 is down -1.44% today at a 1-week low.  European bank stocks are falling and leading the overall market lower on negative carry-over from a slide in U.S. bank stocks in pre-market trading after JPMorgan Chase and Morgan Stanley reported weaker-than-expected Q2 quarterly earnings. Also, Ericsson AB tumbled more than -8% after it reported weaker-than-expected Q2 quarterly earnings, citing rising costs. 

European stocks are also under pressure after the European Commission cut its 2022 Eurozone GDP forecast to +2.6% from a May forecast of +2.7% and raised its 2022 Eurozone inflation estimate to +7.6%, up from a May forecast of +6.1%.

The German Jun wholesale price index rose +21.2% y/y, easing further from April's record high of +23.8% y/y.

China’s Shanghai Composite Index today fell to a 3-week low and closed down by -0.08%.  A slump in Chinese bank stocks and property developers led the overall market lower today as recent data show that home buyers across the country are refusing to make mortgage payments due to delayed construction projects. According to researcher China Real Estate Information Corp, home buyers stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday.  A rally in Taiwan technology stocks helped Chinese stocks recover most of their losses after Taiwan Semiconductor Manufacturing rallied after it raised its outlook. 

Japan’s Nikkei Stock Index closed up +0.62% today.  Strength in exporters led the overall market higher today after the Japanese yen tumbled to a new 24-year low against the dollar.  The weaker yen boosts the earnings prospects of exporters.  Gains in stocks were limited by Covid concerns as Tokyo raised its Covid infection alert to its highest level after it reported 16,878 new Covid infections Wednesday, up more than +400% from July 1.

Japan May industrial production was revised downward to -7.5% m/m from the previously reported -7.2% m/m, the steepest pace of decline in 2 years.

Pre-Market U.S. Stock Movers

Bank stocks are falling in pre-market trading after both JPMorgan Chase and Morgan Stanley reported weaker-than-expected Q2 earnings.  JPMorgan also said it was temporarily suspending its share buyback program. JPMorgan Chase (JPM) is down more than -5%.  Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) are down more than -2%, and Morgan Stanley (MS) is down more than -1%. 

Dollar General (DG) slid more than -2% in pre-market trading after Citigroup downgraded the stock to neutral from buy.

A. O. Smith (AOS) dropped more than -3% in pre-market trading after Baird cut its recommendation on the stock to neutral from outperform. 

Cisco Systems (CSCO) fell more than -2% in pre-market trading after JPMorgan Chase cut its recommendation on the stock to neutral from overweight.

Juniper Networks (JNPR) gained more than +1% in pre-market trading after JPMorgan Chase raised its recommendation on the stock to overweight from neutral.

Centene (CNC) rose nearly +1% in pre-market trading after Jeffries raised its recommendation on the stock to buy from hold with a price target of $115. 

CDW Corp (CDW) climbed more than +1% in pre-market trading after JPMorgan Chase raised its recommendation on the stock to overweight from neutral.

Today’s U.S. Earnings Reports (7/14/2022)

Cintas Corp (CTAS), Conagra Brands Inc (CAG), First Republic Bank/CA (FRC), JPMorgan Chase & Co (JPM), Morgan Stanley (MS).

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