U.S. Stocks Retreat on Strong U.S Payroll Report

Morning Markets

September S&P 500 futures (ESU22) this morning are down -0.72%.  Stock indexes are retreating this morning as the stronger-than-expected U.S. July payrolls report bolsters the outlook for the Fed to raise interest rates by at least another 75 bp at the September FOMC meeting.  In addition, higher T-note yields are undercutting stocks as the 10-year T-note yield jumped +11.5 bp to 2.803% on strength in U.S. payrolls and continued wage pressures.

Fresh tensions with China also weighed on U.S. stocks.  Today, China escalated tensions with Taiwan as it continued its provocative military drills and sent warships and aircraft across the Taiwan Strait's median line. China also cut off defense talks with the U.S. in retaliation for House Speaker Pelosi's visit to Taiwan.

U.S. July nonfarm payrolls rose +528,000, stronger than expectations of +250,000 and the biggest increase in 5 months.  The July unemployment rate fell -0.1 to 3.5%, matching a five-decade low and showing a stronger labor market than expectations of unchanged at 3.6%.

U.S. July average hourly earnings rose +0.5% m/m and +5.2% y/y, stronger than expectations of +0.3% m/m and +4.9% y/y.

The Euro Stoxx 50 is down -0.24%.  European stocks are under pressure today after Bank of America cut its view on European equities to negative, saying their micro projections point to a 10% downside for the stocks by the end of the year.  Data fund flow show European equity funds had outflows of $3 billion this week, their 25th consecutive week of redemptions. 

Eurozone economic data today was supportive of stocks.  German June industrial production unexpectedly rose +0.4% m/m, stronger than expectations of -0.3% m/m.  Also, French June industrial production unexpectedly rose +1.4% m/m, stronger than expectations of -0.3% m/m and the biggest increase in 5 months.

China’s Shanghai Composite closed up +1.19% today.  Chinese technology stocks led the overall market higher as better-than-expected quarterly earnings from Alibaba Group Holding improved market sentiment. 

Japan’s Nikkei Stock Index climbed to an 8-week high and closed up +0.87%.  Defense stocks rallied in Japan today to lead the overall market higher after China fired missiles over Taiwan and into Japanese territorial waters. Also, stronger-than-expected quarterly earnings results today from Kikkoman and Hoya helped lift the overall market. 

Japan June household spending rose +3.5% y/y, stronger than expectations of +1.5% y/y and the biggest increase in 5 months.

The Japan June leading index CI fell -0.6 to a 4-month low of 100.6.

Pre-Market U.S. Stock Movers

Warner Bros Discovery (WBD) tumbled -11% in pre-market trading after reporting Q2 revenue of $9.83 billion, well below the consensus of $11.91 billion.   

Block (SQ) dropped more than -6% in pre-market trading after reporting Q2 transaction-based volume of $1.48 billion, weaker than the consensus of $1.51 billion.

Twilio (TWLO) sank nearly -8% in pre-market trading after forecasting Q3 revenue of $965 million-$975 million, weaker than the consensus of $975.6 million.

Zillow (ZG) fell nearly -4% in pre-market trading after RBC Capital Markets cut its price target on the stock to $42 from $46 on the company’s weak outlook for Q3. 

Cloudflare (NET) surged more than +20% in pre-market trading after reporting Q2 revenue of $234.5 million, above the consensus of $227.2 million, and raised its full-year revenue forecast to $968 million-$972 million from a prior estimate of $955 million-$959 million, stronger than the consensus of $959 million. 

DoorDash (DASH) jumped more than +12% in pre-market trading after reporting Q2 revenue of $1.61 billion, well above the consensus of $1.52 billion.

Lyft (LYFT) rallied more than +9% in pre-market trading after reporting Q2 adjusted Ebitda of $79.1 million, much stronger than the consensus of $18.1 million.

Carvana (CVNA) climbed nearly +8% in pre-market trading after reporting Q2 revenue of $3.88 billion, while below the consensus of $3.98 billion, was better than the whisper number of $3.75 billion.

Solar stocks are climbing in pre-market trading after Barclays started coverage of the solar power sector with a positive view, saying the sector “is as attractive as it’s ever been.”  Array Technologies (ARRY) is up more than +6%, Sunrun (RUN) and First Solar (FSLR) are up more than +4%, and Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) are up more than +2%.   

Today’s U.S. Earnings Reports (8/5/2022)

Consolidated Edison Inc (ED), DENTSPLY SIRONA Inc (XRAY), Trimble Inc (TRMB), Western Digital Corp (WDC), Westinghouse Air Brake Technol (WAB).

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