What you need to know…
U.S. stocks this morning are moderately lower. An -8% slump in Disney is weighing on the overall market after it lost subscribers to its streaming service. Also, concerns about the health of U.S. regional banks are limiting gains in the overall market. PacWest Bancorp is down more than -19% and dragged regional bank stocks lower after it said deposits fell -9.5% last week.
A decline in bond yields is positive for stocks after U.S. weekly initial unemployment claims rose more than expected to a 1-1/2 year high, and April producer prices eased to a 2-year low. The weakness in the labor market and falling price pressures are dovish for Fed policy.
U.S. weekly initial unemployment claims rose +22,000 to a 1-1/2 year high of 264,000, showing a weaker labor market than expectations of 245,000.
The U.S. Apr final-demand PPI eased to a 2-year low of +2.3% y/y from +2.7% in March, weaker than expectations of +2.5% y/y. The Apr PPI ex-food and energy eased to a 2-year low of +3.2% y/y from +3.4% y/y in March, weaker than expectations of +3.3% y/y.
The Bank of England (BOE), as expected, raised its official bank rate by +25 bp to 4.50% and said inflation persistence would require further tightening. BOE Governor Bailey said, "Inflation remains too high," and the BOE "has to stay the course" to cut CPI to 2%.
U.S. debt ceiling talks Tuesday yielded little results, but White House officials and Republican leaders pledged additional negotiations. On Friday, President Biden will meet again with congressional leaders, including House Speaker McCarthy. Treasury Secretary Yellen said that the Treasury Department may run out of cash to pay its bills as soon as June 1 unless the debt ceiling is raised.
Global bond yields are lower. The 10-year T-note yield is down -6.0 bp at 3.382%. The 10-year German bund yield is down -6.6 bp at 2.221%, and the UK 10-year gilt yield is down -8.6 bp at 3.713%.
On the bearish side for stocks, Walt Disney is down more than -8% after reporting fewer-than-expected Disney+ subscribers in Q2 and predicted the loss for streaming would increase by $100 million this quarter. Also, PerkinElmer is down more than -8% after cutting guidance on full-year adjusted EPS. Freeport McMoRan is down more than -4% on weakness in mining stocks after copper prices tumbled to a 5-1/2 month low and silver prices dropped to a 5-week low.
On the bullish side, Alphabet is up more than +4% after it unveiled its latest artificial intelligence tools and launched the hardware at its annual developer conference. Also, Steris Plc is up more than +9% after reporting Q4 revenue above consensus. Unity Software is up more than +8% after reporting Q1 revenue stronger than consensus and raising guidance on the lower end of its full-year revenue forecast.
Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.23%. China’s Shanghai Composite closed down -0.29%, and Japan’s Nikkei Stock Index closed up +0.02%.
Today’s stock movers…
Regional bank stocks are under pressure, with PacWest Bancorp (PACW) down more than -19% after it said deposits fell -9.5% last week. Also, Comerica (CMA) is down more than -5%, and Fifth Third Bancorp (FITB) is down more than -4%. In addition, Lincoln National (LNC), Truist Financial (TFC), and Zions Bancorp (ZION) are down more than -3%.
Walt Disney (DIS) is down more than -8% to lead losers in the S&P 500 and Dow Jones Industrials after reporting 158.8 million Disney+ subscribers in Q2, below the consensus of 163.1 million, and predicted the loss for streaming would increase by $100 million this quarter. Other streaming stocks also fell on the news. Warner Bros Discovery (WBD) is down more than -4% to lead losers in the Nasdaq 100, and Paramount Global (PARA) is down more than -3%.
PerkinElmer (PKI) is down more than -8% after cutting guidance on full-year adjusted EPS to $4.85-$5.05 from $5.05, below the consensus of $5.08.
Freeport McMoRan (FCX) is down more than -4% on weakness in mining stocks after copper prices tumbled to a 5-1/2 month low and silver prices dropped to a 5-week low.
Pfizer (PFE) is down more than -2% after Daiwa Securities downgraded the stock to neutral from outperform.
Steris Plc (STE) is up more than +9% to lead gainers in the S&P 500 after reporting Q4 revenue of $1.38 billion, stronger than the consensus of $1.27 billion.
Unity Software (U) is up more than +11% after reporting Q1 revenue of $500.4 million, stronger than the consensus of $477.7 million, and raised guidance on the lower end of its full-year revenue forecast to $2.08 billion-$2.20 billion from a previous estimate of $2.05 billion-$2.20 billion, the midpoint above the consensus of $2.11 billion.
AppLovin (APP) is up more than +25% after forecasting Q2 revenue of $710 million-$730 million, well above the consensus of $694 million.
Tapestry (TPR) is up more than +7% after raising its full-year revenue forecast to $6.7 billion from a prior estimate of $6.6 billion, better than the consensus of $6.63 billion.
JD.com (JD) is up more than +6% to lead gainers in the Nasdaq 100 after reporting Q1 net revenue of 242.96 billion yuan, above the consensus of 240.49 billion yuan.
Alphabet (GOOGL) is up more than +4% after it unveiled its latest artificial intelligence tools and launched the hardware at its annual developer conference.
Axon Enterprise (AXON) is up more than +4% after JPMorgan Chase upgraded the stock to overweight from neutral.
Across the markets…
June 10-year T-notes (ZNM23) today are up +12 ticks, and the 10-year T-note yield is down -6.0 bp at 3.382%. Jun T-notes this morning are moderately higher after today’s U.S economic reports showed an easing of producer prices and weakness in the labor market after weekly jobless claims jumped to a 1-1/2 year high. In addition, a decline in inflation expectations is supportive for T-notes after the 10-year breakeven inflation rate dropped to a 7-week low today of 2.155%. Supply pressures may limit further gains in T-notes before the conclusion of the May quarterly refunding today as the Treasury will auction $21 billion of 30-year T-bonds this afternoon.
The dollar index (DXY00) today is up +0.45% at a 1-week high. Weakness in stocks today has boosted liquidity demand for the dollar. The dollar is also climbing on safe-haven demand from the turmoil in the banking sector as PacWest Bancorp plunged when it said deposits fell last week.
EUR/USD (^EURUSD) today is up by -0.71% and dropped to a 1-month low. A rally in the dollar today is undercutting the euro. Also, concerns that the Eurozone economy will deteriorate as the ECB continues to raise interest rates are weighing on the euro after the ECB’s monthly survey showed consumer expectations for Eurozone inflation "rose significantly in March.
The ECB said consumer expectations for Eurozone inflation "rose significantly in March. Expectations for inflation in the next 12 months increased to 5.0% from 4.6% in February, and inflation expectations for three years ahead climbed to 2.9% from 2.4% in February.
USD/JPY (^USDJPY) today is down by -0.04%. The yen today is slightly higher on weakness in T-note yields. Also, the ongoing U.S. banking turmoil and impasse in the U.S. debt ceiling have boosted the safe-haven demand for the yen. Gains in the yen were limited after the 10-year JGB bond yield fell to a 1-week low today at 0.393%, weakening the yen’s interest rate differentials.
Today’s Japanese economic news was bullish for the yen after the Japan Apr eco watchers survey outlook rose +1.6 to a 1-1/2 year high of 55.7, stronger than expectations of 55.1.
June gold (GCM3) this morning is down -17.9 (-0.8%), and July silver (SIN23) is down -1.183 (-4.61%). Precious metals prices this morning are moving lower, with silver falling sharply to a 5-week low. A rally in the dollar index to a 1-week high today is bearish for metals. Also, a decline in inflation expectations has curbed demand for precious metals as an inflation hedge after the 10-year breakeven inflation rate tumbled t a 7-week low today.
Silver prices are being hammered by industrial metals demand concerns after today’s Chinese economic news showed a weaker Chinese economy. However, on the positive side, concern about the health of the U.S. banking system and the U.S. debt limit impasse has boosted safe-haven demand for precious metals. That has led to strong fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 5-month high on Wednesday.On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.