Stocks Mildly Higher as Inflation Optimism Prevails

Morning Markets

September S&P 500 futures (ESU22) this morning are up +0.40%.  Bullish factors include this morning’s +6.5 tick rise in Sep 10-year T-note futures and this week’s less hawkish view of Fed policy after the favorable CPI and PPI reports.

The University of Michigan, this morning at 10 am ET, will release its preliminary-Aug U.S. consumer sentiment index.  The market consensus is for a +1.0 point increase to 52.5.  U.S. consumer sentiment remains near record lows, with the index in July rebounding +1.5 points higher from June’s record low of 50.0 (data since 1978). Consumers are worried about inflation, high gasoline prices, rising interest rates, and a weakening labor market if the economy continues to slide.

San Francisco Fed President Mary Daly said in an interview late Thursday that her base case is for a +50 bp rate hike at the Sep 20-21 FOMC meeting but that she has an “open mind” about whether a larger rate hike might be necessary.  She said the July inflation figures are “significant in that they are saying that we’re seeing some improvement, but they’re not victory.” 

This week’s favorable CPI and PPI reports caused the markets to scale back expectations for a +75 bp rate hike at the Sep 20-21 FOMC meeting to about 50-50 versus the previous view of a very strong chance.  The July CPI on Wednesday fell by -0.6 points to +8.5% y/y from June’s 40-year peak of +9.1%. The July core CPI was unchanged from June at +5.9% y/y and remained -0.6 points below the 40-year peak of +6.5% y/y posted earlier this year in March. 

The U.S. House of Representatives today returned from its recess and is expected to pass the Inflation Reduction Act that the Senate passed this past Sunday.  The bill contains $430 billion of spending on climate and healthcare, and also cuts the U.S. budget deficit. 

Sep WTI crude oil prices this morning are down -1.6%, giving back part of the sharp rallies of +2.62% seen on Thursday and +1.58% on Wednesday.  Oil prices are lower after Iran said that the EU proposal to revive the Iran nuclear deal could be “acceptable” under certain conditions.  A revived nuclear deal would result in reduced sanctions that allow Iran to restart its oil exports.

The Euro Stoxx 50 today is up +0.24%.  China’s Shanghai Composite index today closed down -0.15%. Japan’s Nikkei index today closed up +2.62% after Thursday’s holiday.

Pre-Market U.S. Stock Movers

U.S.-listed stocks are trading lower in pre-market trading after the overnight news that five of China’s state-owned companies will delist from the U.S. markets.  Those companies are trading mostly lower this morning in pre-market trading, with China Life Insurance (LFC) down -2.5%, PetroChina (PTR) down -1.2%, and China Petroleum & Chemical Corp (BABA) (SNP) down -3.1%.  However, Sinopec Shanghai Petrochemical Co (SHI) is up +0.1% in pre-market trading.  Aluminum Corp of China (ACH) has not yet traded this morning.

That delisting news indicates that China is not giving in to U.S. demand for audits and that negotiations may be deadlocked.  However, it is also possible that the delisting of China’s sensitive state-owned companies might make it easier for China to agree to an audit deal once its state-owned companies are out of the picture.  U.S. law currently requires U.S.-listed Chinese companies to provide the audit information that the U.S. is demanding or the companies will be delisted in 2024.  There are reports that China may segment its companies according to the sensitivity of the information that they handle, allowing less-sensitive companies to perhaps meet the U.S. audit demands and remain listed in the U.S.

Other closely-watched U.S.-listed Chinese companies are trading lower on today’s state-company delisting news.  Alibaba (BABA) is down -3.1% in pre-market trading, Pinduoduo (PDD) is down -4.5%, Baidu (BIDU) is down -2.3%, JD.com (JD) is down -3.0%, and Bilibili (BILI) is down -3.5%.

Bitcoin (^BTCUSD) this morning is down -2.2%, but crypto stocks are mixed in pre-market trading.  Most crypto stocks on Thursday rallied due to bitcoin’s +1.30% gain, except for Coinbase (COIN), which closed the day down -10.95%.  In pre-market trading this morning, Coinbase (COIN) is up +0.8%, Marathon Digital (MARA) is down -2.4%, and Riot Blockchain (RIOT) is up +3.3%.

Oil company stocks are mixed despite today’s -1.3% sell-off in Sep WTI crude oil futures.  ConocoPhillips (COP) is down -0.5% in pre-market trading, and Occidental Petroleum (OXY) is down -0.8%. However, Exxon Mobil (XOM) is up +1.5% in pre-market trading, and Marathon Oil (MRO) is up +6.0%, adding to Thursday’s +7.0% rally.

Today’s U.S. Earnings Reports (8/12/2022)

Broadridge Financial Solutions (BR).

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