Stocks Mildly Higher Despite European 50 bp Rate Hike

Morning Markets

September S&P 500 futures (ESU22) this morning recovered from overnight losses and are up by +0.33%.  Positive Q2 earnings results from Tesla, CSX, and Alcoa are giving stock indexes a boost this morning.  Stocks are also climbing as Russia resumed gas exports to Europe, which eased concerns that a halt to natural gas exports to Europe will send the region into recession. 

Stocks are moving higher despite the action by the European Central Bank (ECB) today to raise interest rates by 50 bp, more than expectations of 25 bp.  Gains in stock indexes were limited after U.S. weekly jobless claims unexpectedly rose to an 8-month high and after the July Philadelphia Fed business outlook survey unexpectedly fell to a 2-year low.

U.S. weekly initial unemployment claims unexpectedly rose +7,000 to an 8-month high of 251,000, showing a weaker labor market than expectations of a decline to 240,000.

The U.S. July Philadelphia Fed business outlook survey unexpectedly fell -9.0 to -12.3, weaker than expectations of an increase to 0.8 and the steepest pace of contraction in 2 years.

The Euro Stoxx 50 is up +0.32% today at a 1-1/4 month high.  The Euro Stoxx 50 whipsawed higher today after the ECB raised interest rates by 50 bp, a bigger increase than expectations of a 25 bp rate hike.  The markets are hoping that the larger-than-expected rate hike by the ECB will ease inflation pressures. 

European stocks also rallied on reduced concerns about a European energy crisis as Russia resumed gas exports to Europe through the Nord Stream line after it was shut for maintenance. Gas shipments returned to 40% of capacity, the same level as before flows were halted for 10 days of planned maintenance. 

Political turmoil in Italy is bearish for European stocks and EUR/USD after Italian Prime Minister Draghi resigned today.  Italian President Mattarella accepted the resignation and will meet with leaders of parliament to agree on the next steps, which will likely include snap elections in Italy as early as October.

The ECB raised its deposit facility rate by 50 bp to 0%, a bigger increase than expectations of a 25 bp hike.  The ECB also raised its main refinancing rate by 50 bp to 0.5%, more than expectations of a 25 bp rate increase.

The ECB said "further normalization of interest rates will be appropriate" and that it will decide on further interest rate hikes "meeting-by-meeting."

China’s Shanghai Composite Index today closed down by -0.99%.  Concern about slowing growth weighed on Chinese stocks today after the Asian Development Bank cut its China 2022 GDP forecast to 4.6% from a prior estimate of 5.2%, citing China’s Covid Zero policy that is keeping lockdowns in place and creating ripple effects on regional supply chains and economic development.

Japan’s Nikkei Stock Index climbed to a 1-1/4 month high today and closed up by +0.44%.  Japanese stocks edged higher today after the BOJ kept its monetary policy unchanged as expected.  Also, stronger than expected trade data was supportive for stocks after Japan Jun exports rose +19.4% y/y, stronger than expectations of +17.0% y/y and the biggest increase in 7 months.  Japanese stocks fell back from their best levels after the BOJ cut its Japan 2022 GDP forecast to 2.4% from a previous forecast of 2.9% and raised its 2022 core CPI forecast to 2.3% from a previous forecast of 1.9%.

The BOJ, as expected, maintained its policy balance rate at -0.1% and kept its 10-year JGB yield target at about 0%.

BOJ Governor Kuroda said, "we have no intention at all of raising interest rates under the yield curve control framework.  We also have zero intention of expanding the 0.25% range on either side of the yield target. Right now, we need to continue to tenaciously pursue monetary easing."

Pre-Market U.S. Stock Movers

Alcoa (AA) jumped +4% in pre-market trading after reporting Q2 adjusted Ebitda of $013 million, above the consensus of $908.7, and announced an additional $500 million authorization for future stock repurchases.

CSX (CSX) rose +4% in pre-market trading after reporting Q2 revenue of $3.82 billion, stronger than the consensus of $3.66 billion. 

Tesla (TSLA) climbed more than +2% in pre-market trading after reporting Q2 adjusted EPS of $2.27, better than the consensus of $1.83. 

Las Vegas Sands (LVS) gained +4% in pre-market trading after reporting Q2 net revenue of $1.05 billion, better than the consensus of $970.6 million.

Danaher (DHR) rose nearly +4% in pre-market trading after reporting Q2 sales of $7.75 billion, well above the consensus of $7.32 billion.

Palantir (PLTR) moved up more than +2% in pre-market trading after Raymond James initiated coverage of the stock with a recommendation of strong buy with a price target of $20. 

Airline stocks are lower in pre-market trading, with United Airlines Holdings (UAL) dropping -7% after it reported Q2 adjusted EPS of $1.43, well below the consensus of $1.88, and said it is limiting flights for the rest of this year and curtailing growth plans in 2023 due to labor shortages and traffic control issues.  Delta Air Lines (DAL) is down more than -3%, and American Airlines Group (AAL) is down more than -2%. 

Homebuilders are weaker in pre-market trading after D.R. Horton cut its full-year revenue guidance to $33.8 billion-$34.6 billion from a prior estimate of $35.3 billion-$36.1 billion and said it sees homes closed at 83,000-85,000, weaker than the consensus of 87,839.  DR Horton (DHI), Lennar (LEN), and PulteGroup (PHM) are all down nearly -2%.   

Carnival (CCL) tumbled more than -10% in pre-market trading after launching a $1 billion share offering.  Other cruise line operators declined as well, with Norwegian Cruise Line Holdings (NCLH) down more than -6% and Royal Caribbean Cruises (RCL) down more than -5%. 

AT&T (T) slid more than -2% in pre-market trading after it lowered its 2022 free cash flow forecast to $14 billion from $16 billion due to higher spending on phone promotions and network gear.

Allstate (ALL) dropped more than -3% in pre-market trading after it reported Q2 catastrophe losses of $1.11 billion pretax.

Cryptocurrency-exposed stocks are falling in pre-market trading, with Bitcoin down more than -2% after Tesla disclosed it had sold the majority of its Bitcoin holdings during Q2. Marathon Digital (MARA) is down more than -5%, and Riot Blockchain (RIOT), Coinbase Global (COIN), and MicroStrategy (MSTR) are down more than -4%.   

Today’s U.S. Earnings Reports (7/21/2022)

Alaska Air Group Inc (ALK), American Airlines Group Inc (AAL), AT&T Inc (T), Capital One Financial Corp (COF), Danaher Corp (DHR), Domino's Pizza Inc (DPZ), Dover Corp (DOV), Dow Inc (DOW), DR Horton Inc (DHI), Fifth Third Bancorp (FITB), Freeport-McMoRan Inc (FCX), Huntington Bancshares Inc/OH (HBAN), Interpublic Group of Cos Inc/T (IPG), Intuitive Surgical Inc (ISRG), IQVIA Holdings Inc (IQV), KeyCorp (KEY), Marsh & McLennan Cos Inc (MMC), Nucor Corp (NUE), Philip Morris International In (PM), Pool Corp (POOL), PPG Industries Inc (PPG), Quest Diagnostics Inc (DGX), Robert Half International Inc (RHI), Seagate Technology Holdings PL (STX), Snap-on Inc (SNA), SVB Financial Group (SIVB), Tractor Supply Co (TSCO), Travelers Cos Inc/The (TRV), Union Pacific Corp (UNP), W R Berkley Corp (WRB).

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