Markets

Daily Markets: Equities Look for Direction on a Light Data Summer Friday

Traders - Michael Nagle / Bloomberg
Credit: Michael Nagle / Bloomberg

Today’s Big Picture

Equity indices in Asia finished the day mostly higher led by the 0.9% gain in Hong Kong’s Hang Seng and 0.5% rise in India’s Sensex. China’s Shanghai Composite was flat on the day, while Japan’s Nikkei dipped 0.2%. By mid-day trading, European equity indices were mostly lower and U.S. futures point to a mixed market open later this morning.

Ahead of the usual summer Friday trading fade this afternoon, U.S. equity indices are flirting with their respective highs. Investors will be looking for direction following the Fed’s monetary policy and economic projection update. The data they will be looking for, however, isn’t likely to materialize until next week’s economic and earnings reports, both of which will set the table for the upcoming June quarter earnings season.

Data Download

International Economy

Japan’s Inflation rate rose to just barely deflationary at -0.1% YoY in May from -0.4% in April. The Bank of Japan decided to keep its key short-term interest rate unchanged at -0.1% and the 10-year government bond yield at around 0%, as was expected.

Germany’s Producer Price Index in May rose 7.2% YoY after rising 5.2% in April, coming in much hotter than the expected increase of 6.4%.

Retail Sales in the UK rose 24.6% YoY in May, down from the 42.4% YoY gain posted in April and slower than the expected 29.0% increase for the month.

After surging 74.5% YoY in March, Italy’s Construction Output rose 60.2% YoY in April which brought construction output up 46.6% YTD in 2021 vs. 2020.

Singapore’s government said it will further ease Covid-related restrictions next week, but at a slower pace than previously announced as local infections have not declined significantly.

The European Union recommended its member states lift the ban on nonessential travel for visitors from the U.S. The recommendation is nonbinding, and each member state can decide what regulations, including quarantines, to impose on visitors.

Domestic Economy

Initial jobless claims unexpectedly rose by 36k to 412k versus expectations for the streak of consecutive declines to continue for the seventh week, falling 16k. Not only was this an unexpected reversal, but this was the biggest one-week increase since the last week of March. Continuing claims also came in higher than expected, rising to 3.518 million versus expectations for a decline to 3.43 million from last month’s 3.517 million.

Yesterday’s Philly Fed Manufacturing index fell for the second consecutive month, dropping to 30.7 for June from 31.5 in May, a bigger drop than the expected decline to 31.0. Manufacturing continued to grow in the regions with New Orders and Shipments remaining elevated. Prices Index for both paid and received rose.

The average rate on a 30-year fixed mortgage rose to the highest level since mid-April at 3.25% in reaction to comments made on Wednesday by Federal Reserve Chair Powell and indications that the Fed believes two rate hikes are possible in 2023, which is earlier than previously anticipated.

Bloomberg reports moderate Democrats are still working on the details of a bipartisan infrastructure plan and balked at a separate proposal for a $6 trillion follow-up as too costly.

Later today we will get the usual weekly Baker Hughes Oil Rig Count report.

Markets

So much for the inflation story. If investors are truly concerned with the Fed raising rates, high growth should get hit, and value preferred. After two days to digest the Fed’s latest decision, the opposite happened. The tech-heavy Nasdaq Composite & Nasdaq 100 closed in the green, up 0.9% and 1.3% respectively, while the rest of the major indices closed in negative territory again. The Dow fell 0.6%, the Russell 2000 lost 0.2%, and the S&P 500 closed just barely in the red. To emphasize the lack of long-term inflation fears, the 10-year Treasury yield dropped 6 basis points Thursday to 1.509% while the 2-year rose to 0.21%, its highest in over a year as we’ve seen a profound flattening of the yield curve, the most violent one the market has witnessed since 2014.

Stocks to Watch

Adobe (ADBE) reported stronger than expected top and bottom-line results for its May quarter. The company’s Digital Media revenue rose 25% YoY to $2.79 billion with the segment’s Annualized Recurring Revenue up $518 million QoQ to $11.21 billion exiting the quarter. Digital Experience revenue was $938 million, up 21% YoY. Adobe guided its current quarter to EPS of ~$3.00 vs. $2.90 S&P consensus with Digital Media revenue up ~22% YoY, Digital Media annualized recurring revenue of ~$440 million, Digital Experience revenue up ~21%, and Digital Experience subscription revenue up ~25%.

Shares of genetic testing company 23andMe (ME) jumped more than 20% higher on their first day as a public company following a SPAC merger with Richard Branson's VG Acquisition Corp.

Reflecting higher steel prices and strong demand for flat-rolled steel, US Steel (X) issued upside EPS guidance for the current quarter of $3.08 vs. the $2.67 consensus forecast. The company went on to say, “These market fundamentals are showing no signs of slowing down and have us increasingly confident of another strong year in 2022."

CAI International (CAI) announced that it has entered into a definitive agreement to be acquired by Mitsubishi HC Capital Inc. Under the terms of the merger agreement with MHC, MHC will acquire all of CAI's outstanding and fully diluted common stock in an all-cash transaction for $56.00 per share

Amazon’s (AMZN) Amazon Web Services agreed with Ferrari S.p.A. (RACE) to become their Official Cloud, Machine Learning, and Artificial Intelligence Provider.

atai Life Sciences (ATAI), a clinical-stage biopharmaceutical company aiming to transform the treatment of mental health disorders using unconventional approaches including psychedelic compounds, priced its upsized IPO of 15 million shares at $15 per share. Shares are expected to begin trading later today on Nasdaq.

After today’s market close, there are no companies expected to report their quarterly results. Why? Because it is Friday! Those looking to get a jump on next week's reports should visit Nasdaq’s earnings calendar page.

On the Horizon

  • June 21: Chicago Fed National Activity Index
  • June 22: Existing Home Sales, Weekly API Crude Oil Stock
  • June 23: Current Account, Markit Manufacturing & Service PMI, New Home Sales, EIA Energy Stock
  • June 24: Durable Goods Orders, Wholesale Inventories, Weekly Jobless Claims, GDP Price Index Q1, Goods Trade Balance, Corporate Profits Q1
  • June 25: Personal Income & Spending, PCE Price Index, Michigan Consumer Sentiment

Thought for the Day

“Everything you say should be true but not everything true should be said.” ~ Voltaire

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

Read Chris's Bio

Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

Read Lenore's Bio

Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

Read Mark's Bio