Stocks Mixed on Chinese Economic Concerns and a Rally in Cisco

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.14%. 

Stocks this morning are mixed.  Global economic concerns and uneven U.S. economic data are undercutting stocks.  Concerns that a slowdown in China’s economy will undercut global growth is weighing on stocks today after Nomura joined Goldman Sachs in cutting its China 2022 GDP forecast.  In addition, U.S. economic data was mixed after July existing home sales fell more than expected to a 2-year low, while the Aug Philadelphia Fed business outlook survey rose more than expected to a 4-month high. 

A more than +6% jump in Cisco Systems today is pushing the Nasdaq 100 into positive territory and limiting losses in the overall market after it issued an upbeat sales forecast.  Also, a decline in T-note yields is supportive for stocks, with the 10-year T-note yield down -5.1 bp today to 2.846%.

U.S. weekly initial unemployment claims unexpectedly fell -2,000 to 250,000, showing a stronger labor market than expectations of an increase to 264,000.

The U.S Aug Philadelphia Fed business outlook survey rose +18.5 to a 4-month high of 6.2, stronger than expectations of -5.0.

U.S. July existing home sales fell -5.9% m/m to a 2-year low of 4.81 million, weaker than expectations of 4.86 million.

Comments today from San Francisco Fed President Daly were hawkish for Fed policy and bearish for stocks when she said the FOMC "might need to go above" a neutral rate of +3% to cool inflation that is too high and that either a 50 bp or 75 bp rate hike at the September FOMC meeting was reasonable. 

Today’s stock movers…

Walgreens Boots Alliance (WBA) is down more than -5% today to lead losers in the S&P 500 and Dow Jones Industrials after Walgreens, Walmart, and CVS Health Corp were ordered to pay $650 million over their failure to properly monitor opioid prescriptions in Ohio.   CVS Health Corp (CVS) is down more than -1%, and Walmart (WMT) is down -0.4%.  

United Rentals (URI) is down more than -4% today after Bernstein downgraded the stock to underperform from market perform. 

Verizon Communications (VZ) is down more than -2% today after MoffettNathanson cut its recommendation on the stock to underperform from market perform.

U.S-listed Chinese stocks are falling today on economic concerns after Nomura cut its China 2022 GDP forecast to 2.8% from 3.3%, a day after Goldman Sachs cut its China 2022 GDP forecast to 3.0% from 3.3%.  NetEase (NTES) is down more than -5% to lead losers in the Nasdaq 100.  Also, Baidu (BIDU) and JD.com (JD) are down more than -3%, and Pinduoduo (PDD) is down more than -2%. 

Cisco Systems (CSCO) is up more than +6% today to lead gainers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after reporting Q4 revenue of $13.10 billion, above the consensus of $12.73 billion, and forecast 2023 revenue will increase +4% to +6%, stronger than the consensus of +3.3%. 

Keysight (KEYS) is up more than +5% today after reporting Q3 adjusted revenue of $1.41 billion, stronger than the consensus of $1.35 billion, and forecast Q4 revenue of $1.38 billion-$1.40 billion, above the consensus of $1.38 billion.

Energy stocks and energy service providers are climbing today, with the price of WTI crude oil up more than +2%.  Devon Energy (DVN) is up more than +4%.  Also, Haliburton (HAL) and Valero Energy (VLO) are up more than +3%.  In addition, Marathon Oil (MRO), ConocoPhillips (COP), Occidental Petroleum (OXY), Schlumberger (SLB), and Baker Hughes (BKR) are up more than +2%.

Across the markets…

Sep 10-year T-notes (ZNU22) today are up +8 ticks, and the 10-year T-note yield is down -5.1 bp at 2.846%. Sep T-notes have carry-over support from Wednesday afternoon’s minutes of the July 26-27 FOMC meeting, where Fed officials said, “it likely would become appropriate at some point to slow the pace of policy rate increases.”  Gains in T-notes were limited on this morning’s stronger-than-expected U.S economic data and from hawkish comments from San Francisco Fed President Daly, who said the FOMC "might need to go above" a neutral rate of +3% to cool inflation that is too high,

The dollar index (DXY00) today is up by +0.31% and posted a 3-week high. This morning’s better-than-expected U.S. economic data on weekly jobless claims and the Aug Philadelphia Fed manufacturing survey was bullish for the dollar.  Lower T-note yields this morning are limiting the upside in the dollar. 

EUR/USD (^EURUSD) today is down -0.49% and matched its 3-week low. Weak Eurozone economic data today is weighing on the euro after Eurozone June construction output posted its biggest decline in 11 months.  Also, concern that the ongoing energy crisis in Europe will throw the Eurozone economy into recession is bearish for EUR/USD.  Nat-gas prices are about ten times higher than they usually are for this time of year and are hurting commodity-reliant industries that are bucking under soaring energy costs. The euro is weaker today despite hawkish ECB comments.

Eurozone June construction output fell -1.3% m/m, the biggest decline in 11 months.

Comments from ECB Executive Board member Schnabel signal she favors at least another 50 bp rate hike by the ECB in September when she said the inflation outlook hasn't improved since the ECB raised interest rates by 50 bp in July.  For September's ECB meeting, "any decision is going to be taken on the basis of incoming data.   If I look at the recent data, I would say that the concerns we had in July have not been alleviated."

ECB Governing Council member Kazaks said, "inflation at the moment is too high, and the ECB will continue to hike rates to slow inflation."

USD/JPY (^USDJPY) today is down -0.02%.  Weaker T-note yields are giving the yen a boost today.  Also, weakness in Japanese stocks today spurred safe-haven demand for the yen after Japan’s Nikkei Stock Index fell -0.96%.

October gold (GCV22) is up +2.1 (+0.12%), and September silver (SIU22) is up +0.029 (+0.15%).  Precious metals this morning are slightly higher.  Gold is finding carry-over support from Wednesday’s minutes of the July 26-27 FOMC meeting, where Fed officials saw the need to dial back rate hikes at some point.  Lower T-note yields today are also supportive of gold prices.  Gains in metals are limited due to dollar strength as the dollar index rose to a 3-week high today.  In addition, the ongoing liquidation of long gold positions by funds is bearish for gold prices after long gold positions in ETFs fell to a 5-1/2 month low Wednesday.

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