Stocks Modestly Lower Ahead of Fed Chair Powell’s Comments

Morning Markets

September S&P 500 futures (ESU22) this morning are down -0.24% on long liquidation and position squaring ahead of this morning’s comments from Fed Chair Powell.  The 10-year T-note yield is up +3.2 bp to 3.058% this morning ahead of the Fed Chair’s comments.  Stock index futures recovered from their worst levels as inflation concerns eased after this morning’s economic news showed the U.S. July PCE core deflator, the Fed’s preferred measure of inflation, rose less than expected. 

Stocks are being undercut on concern that Fed Chair Powell this morning will restate the Fed’s resolve to keep raising interest rates to fight inflation when he speaks at the Fed’s annual Fed symposium at Jackson Hole, Wyoming.  Fed officials gathering for the conference have stepped up their hawkish rhetoric this week, pushing back on expectations of tempered tightening.

U.S-listed Chinese stocks may rally today after China and the U.S. reached a preliminary agreement to allow U.S. officials to review audit documents of Chinese businesses to prevent the Chinese firms from being delisted on U.S. exchanges.   As part of the deal, China will allow U.S. Public Company Accounting Oversight Board Inspectors to access audit work papers and personnel.

U.S. July personal spending rose +0.1% m/m, weaker than expectations of +0.5% m/m.  July personal income rose +0.2% m/m, weaker than expectations of +0.6% m/m.

The U.S. July PCE core deflator rose +0.1% m/m and +4.6% y/y, a smaller increase than expectations of +0.2% m/m and +4.7% y/y.

Atlanta Fed President Bostic said inflation data shows the economy responding to Fed policy, and he's leaning toward a 50 bp rate hike at the September FOMC meeting.

The Euro Stoxx 50 today is down -0.05%.  European stocks today are slightly lower on concern surging power costs will boost inflation and disrupt factory output.  German electricity prices for next year rose today to a record 840 euros a megawatt-hour, and French electricity prices jumped to a record 1,022 euros a megawatt-hour.  Today’s economic news also undercut stocks after a gauge of German consumer confidence fell more than expected to a record low.  Losses in stocks were limited ahead of this morning’s comments from Fed Chair Powell.

Eurozone July M3 money supply rose +5.5% y/y, right on expectations on the slowest pace of increase in 2-1/2 years.

German Sep GfK consumer confidence fell -5.6 to a record low -36.5, weaker than expectations of -32.0.

Asian markets today settled mixed.  China’s Shanghai Composite index closed down -0.31%, and Japan’s Nikkei index closed up +0.57%. 

China’s Shanghai Composite closed with modest losses today, led by weakness in property stocks on long liquidation pressures after their sharp rally this week.   Losses in the overall market were limited by strength in technology stocks on news that talks between the U.S. and China to avoid delisting of Chinese companies on U.S. exchanges had made some progress. 

The U.S. Securities and Exchange Commission (SEC) said the U.S. and China had reached a preliminary agreement to allow U.S. officials to review audit documents of Chinese businesses, the first step toward avoiding the delisting of some 200 Chinese companies from U.S. exchanges.

Japanese stocks posted moderate gains on strength in defense stocks. Defense stocks rallied after a Defense Ministry budget request for fiscal 2023 shows Prime Minister Kishida’s ruling party is looking to double defense spending over five years from this year’s 5.4 trillion yen ($39.5 billion).  Also, short covering ahead of Fed Chair Powell’s comments today from Jackson Hole, Wyoming, pushed stocks higher. 

Pre-Market U.S. Stock Movers

Dell Technologies (DELL) dropped more than -4% in pre-market trading after the company forecast Q3 revenue of $23.8 billion-$25.0 billion, weaker than the consensus of $26.4 billion, and COO Whitten said Dell “observed more cautious consumer behavior as the quarter progressed.”   

Affirm (AFRM) sank -13% in pre-market trading after forecasting 2023 revenue of $1.63 billion-$1.73 billion, well below the consensus of $1.91 billion.

Marvell Technology (MRVL) fell more than -1% in pre-market trading after forecasting Q2 net revenue of $1.51 billion-$1.61 billion, the midpoint below the consensus of $1.58 billion. 

Seagen (SGEN) tumbled more than -6% in pre-market trading after Merck’s talks to acquire the company have stalled as both companies have failed to agree on a price. 

The Gap (GPS) jumped +8% in pre-market trading after reporting an unexpected Q2 profit of 8 cents EPS, better than the consensus of a loss of -6.8 cents EPS.

Workday (WDAY) rallied more than +10-% in pre-market trading after reporting Q2 revenue of $1.54 billion, stronger than the consensus of $1.52 billion, and forecast 2023 subscription revenue of $5.54 billion-$5.56 billion, above the consensus of $5.54 billion.

Ulta Beauty (ULTA) rose +3% in pre-market trading after reporting Q2 net sales of $2.30 billion, better than the consensus of $2.21 billion, and raising its full-year net sales forecast to $9.65 billion-$9.75 billion from a prior forecast of $9.35 billion-$9.55 billion, stronger than the consensus of $9.63 billion.

Farfetch (FTCH) surged +15% in pre-market trading after reporting Q2 revenue of $579.3 million, above the consensus of $557.8 million. 

Everbridge (EVBG) jumped +11% in pre-market trading after it said it is exploring strategic options for the company, including a sale. 

Today’s U.S. Earnings Reports (8/26/2022)

Aura Biosciences Inc (AURA), Ermenegildo Zegna NV (ZGN), Latch Inc (LTCH), Ubiquiti Inc (UI).

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