Stocks Climb on Chinese Stimulus Measures

Morning Markets

September S&P 500 futures (ESU22) this morning are up +0.40% after China stepped up its stimulus measures with 1 trillion yuan ($146 billion) of funding, which is largely focused on infrastructure spending.  Stocks also found support in today’s stronger-than-expected U.S. economic reports.

Stocks are being undercut by today’s climb in the 10-year T-note yield to an 8-week high of 3.126%. T-note yields rose on hawkish comments from Kansas City Fed President George and Atlanta Fed President Bostic, along with the possibility of hawkish comments from the Fed at Friday’s annual Fed symposium at Jackson Hole, Wyoming.

U.S. weekly initial unemployment claims unexpectedly fell -2,000 to 243,000, showing a stronger labor market than expectations of an increase to 252,000.

U.S. Q2 GDP was revised slightly higher to -0.6% (q/q annualized) from the previously reported -0.7%.

Fed comments today were hawkish for Fed policy and bearish for stocks.  Kansas City Fed President George said the Fed has not yet raised interest rates to levels that are weighing on the economy and may have to take them above 4% for a time.  Also, Atlanta Fed President Bostic said if U.S. economic data remains strong and inflation doesn't clearly soften, "then it may make a case for another 75 bp rate hike" at the September FOMC meeting.

The Euro Stoxx 50 today is up +0.21%.  Strength in energy and mining stocks are leading European stocks higher.   Stocks also found support on today’s economic news that showed Germany’s Q2 GDP grew more than originally reported.  Soaring energy costs are limiting gains in stocks, with European nat-gas prices up more than +4% today to a new 5-1/2 month high.  Also, German electricity prices for next year surged +17% to a record 750 euros a megawatt-hour, and French electricity prices jumped +12% to a record 880 euros a megawatt-hour.

The German Aug IFO business climate index fell -0.2 to a 2-year low of 88.5, although that was stronger than expectations of 86.8.

German Q2 GDP was revised upward to +0.1% q/q and +1.8% y/y from the previously reported unchanged q/q and +1.5% y/y.

UBS said the Eurozone is already in a "shallow" recession triggered by surging energy prices that will last through year-end. UBS predicts Eurozone GDP will contract -0.1% (q/q annualized) in Q3 and -0.2% in Q4.

Asian markets today closed higher.  China’s Shanghai Composite index closed up +0.97%, and Japan’s Nikkei index closed up +0.58%. 

China’s Shanghai Composite recovered from a 2-1/2 week low today and finished moderately higher as the government stepped up measures to boost economic growth and announced 1 trillion yuan ($146 billion) of funding largely focused on infrastructure spending.  Also, short-covering in stocks emerged ahead of Fed Chair Powell’s speech Friday at the Fed’s annual symposium at Jackson Hole, Wyoming. 

Japanese stocks posted moderate gains and garnered carry-over support from a rally in Chinese stocks after China announced additional stimulus measures.  Railway stocks and bus operators rallied today after Kyodo reported that the Japanese government is considering lowering property taxes for Japan railway companies and bus operators who have been struggling with falling ridership due to pandemic restrictions.

Japan July PPI services prices rose +2.1% y/y, unchanged from June and weaker than expectations of an increase of +2.2% y/y.

Pre-Market U.S. Stock Movers

Tesla (TSLA) is up more than +2% in pre-market trading as the company’s 3-for-1 stock split takes effect today.   

Snowflake (SNOW) surged more than +17% in pre-market trading after reporting Q2 revenue of $497.2 million, above the consensus of $467.9 million, and raised its full-year product revenue estimate to $1.91 billion-$1.92 billion from a previous estimate of $1.89 billion-$1.90 billion. 

NetApp (NTAP) rose +4% in pre-market trading after reporting Q1 adjusted EPS of $1.20, stronger than the consensus of $1.10, and forecasts Q2 adjusted EPS of $1.28-$1.38, the midpoint above the consensus of $1.32.

Autodesk (ADSK) climbed +5% in pre-market trading after reporting Q2 net revenue of $1.24 billion, better than the consensus of $1.22 billion, and raised its full-year net revenue estimate to $4.99 billion to $5.04 billion from a prior estimate of $4.96 billion to $5.06 billion.

Freyr Battery (FREY) surged more than +13% in pre-market trading after Goldman Sachs raised its recommendation on the stock to buy from neutral.

Nvidia (NVDA) fell more than -4% in pre-market trading after forecasting Q3 revenue of $5.9 billion, plus or minus 2%, weaker than the consensus of $6.92 billion, saying they expect Q3 gaming and professional visualization revenue to decline sequentially.

Salesforce (CRM) dropped more than -6% in pre-market trading after cutting its 2023 revenue forecast to $30.9 billion-$31.0 billion from a prior forecast of $31.7 billion-$31.8 billion, weaker than the consensus of $31.74 billion.

Dollar Tree (DLTR) tumbled -8% in pre-market trading after reporting Q2 net sales of $6.77 billion, below the consensus of $6.79 billion, and cut its 2012 EPS forecast to $7.10-$7.40 from a prior estimate of $7.80-$8.20, well below the consensus of $8.17.

Peloton Interactive (PTON) sank -16% in pre-market trading after reporting Q4 revenue of $678.7 million, below the consensus of $685.9 million, and forecasting Q1 revenue of $625 million-$650 million, well below the consensus of $772 million.   

Today’s U.S. Earnings Reports (8/25/2022)

Dollar General Corp (DG), Dollar Tree Inc (DLTR), Ulta Beauty Inc (ULTA).

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