Daily Markets: June Manufacturing Data Kicks off the Third Quarter

Today’s Big Picture

Asia-Pacific equity markets started the second half of 2023 up across the board as stronger than expected sentiment in Japan and improving Chinese PMI, coupled with U.S. soft landing sentiment, buoyed markets today. Australia’s ASX All Ordinaries gained 0.56%, India’s SENSEX rose 0.75%, Taiwan’s TAIEX advanced 1.00%, China’s Shanghai Composite and South Korea’s KOSPI added 1.31% and 1.49%, respectively and Japan’s Nikkei closed 1.70% higher. Hong Kong’s Hang Seng saw a 2.06% rise today in a broad rally led by Non-Energy Materials, Consumer Services, and Retail Trade names.

European markets are up across the board in midday trading and U.S. futures point to a mixed open as Dow components Visa (V), and Johnson & Johnson (JNJ) are seeing some selling in pre-market activity. Meanwhile, Tesla’s (TSLA) better-than-expected 2Q 2023 deliveries are giving the Nasdaq Composite some lift this morning.

We have a muted start to the second half of the year, but it will be a week filled with fresh economic data ahead of the upcoming June quarter earnings season. Following the strong move in the market during the first six months of 2023, investors are questioning how much farther the market can chug higher. Closing out 2Q 2023, the S&P 500 was valued at 20.2x expected 2023 EPS vs, its 2000-2022 average P/E high of 19.4. Answers to that question will hinge on what the upcoming economic data tells us about the economy, and whether corporate guidance for 2H 2023 comes in better than expected. What we’ve seen in June is further deterioration in the global manufacturing economy, and soon after the market opens, twin reports will give us looks at U.S. manufacturing for the month.

U.S. equity markets close at 1 PM ET today and will be closed tomorrow for the July 4th holiday. Daily Markets will return on Wednesday, July 5.

Data Download

International Economy

The au Jibun Bank Japan Manufacturing PMI was back in contraction territory coming in at 49.8 in June, unrevised from preliminary estimates, and down vs. May’s final reading of 50.6. Output and new orders shrank, with new export orders falling at the steepest pace since February, amid weak demand, especially from mainland China.

The Caixin China General Manufacturing PMI fell to 50.5 in June vs. 50.9 in the prior month but ahead of the expected 50.2 figure. Output growth slowed from May's 11-month high and new orders rose at a softer pace while employment fell for the fourth month in a row. Export sales were broadly unchanged amid a further rise in buying activity.

The HCOB Eurozone Manufacturing PMI was revised downwards to 43.4 in June vs. the preliminary estimate of 43.6, indicating the sharpest deterioration in the sector's health since May 2020. Output experienced the most significant contraction since October 2022 and total new orders declined at the strongest pace in eight months.

The S&P Global/CIPS UK Manufacturing PMI was revised upwards to 46.5 in June compared to the preliminary estimate of 46.2 but was still lower than May's 47.1. Although output contracted for the fourth month in a row, the pace of contraction was slower. New orders experienced the most significant decline since January and employment also decreased for the ninth consecutive month, with the rate of reduction being the sharpest since March.

The International Longshore & Warehouse Union Canada’s Longshore Division announced its labor strike began on Saturday. The Port of Vancouver and Port of Prince Rupert are popular destinations for U.S. trade because these ports are among the major ports of call for goods arriving from Asia. Per port data, approximately 15% of consumer trade going through the Port of Vancouver is headed to or coming from the U.S. while around two-thirds of containerized import volume going to the Port of Prince Rupert are headed to the U.S.

Domestic Economy

At 9:45 AM ET, S&P Global will publish its final June Manufacturing PMI figures, which will be compared and contrasted against ISM’s June Manufacturing Index released at 10 AM ET. Digging into those reports, investors will be looking for clues as to whether the economy will have a soft landing or if a more pronounced contraction is likely. As we’ve come to expect, the reports will also be picked over for indications of inflation pressure and job creation ahead of the June Employment Report later this week.

Also at 10 AM ET, the May Construction Spending report will be published. The stronger-than-expected May Housing Starts data is likely to lift housing construction data while infrastructure spending drives nonresidential construction higher vs. year-ago levels.

The American Automobile Association forecast that 4.17 million Americans will fly to their destinations for the Independence Day weekend, up 11.2% from 2022 and 6.6% from 2019, setting a new record. Between June 29-July 5, the Transportation Security Administration expects to screen ~17.7 million travelers from June 29 through July 5.

Markets

Friday saw equities close the quarter on a positive note as speculation regarding a soft landing came into focus as inflation figures continued to moderate, and we saw June Michigan Sentiment come in slightly above consensus at 64.4. Sectors were all positive, with Technology taking the lead as it has throughout the quarter posting a 1.59% gain followed by Consumer Discretionary (1.27%). On a relative basis, Real Estate underperformed, rising 0.51%, but we saw Utilities rally 1.11% after a few lagging days. The Russell 2000 gained 0.38%, the Dow rose 0.84%, the S&P 500 added 1.23% and the Nasdaq Composite closed 1.45% higher. Shares of Nike (NKE) were bid down 2.65% after the company announced mixed quarterly results as the company beat revenue estimates but saw increased input prices force an overall earnings miss.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 3.80%
• S&P 500: 15.91%
• Nasdaq Composite: 31.73%
• Russell 2000: 7.24%
• Bitcoin (BTC-USD): 83.57%
• Ether (ETH-USD): 61.28%

Stocks to Watch

In today’s likely quiet start to July and 3Q 2023, there are no companies expected to report their quarterly results before equities start today’s shortened trading session. We suggest readers be on guard for companies that aim to take advantage of today’s trading and tomorrow’s holiday to issue negative earnings pre-announcements for the June quarter earnings season.

Following the results of the Fed’s latest stress tests, several banks, including JPMorgan Chase (JPM), Morgan Stanley (MS), BNY Mellon (BK), Wells Fargo (WFC), and others raised their dividends.

Tesla reported a new record of more than 466,140 vehicle deliveries during 2Q 2023, beating estimates for 445,000 units, and produced nearly 479,700 during the period. On a YoY basis, Tesla’s deliveries increased 83% and rose 10% vs. 1Q 2023. Li Auto (LI), XPeng (XPEV), and Nio (NIO) also reported strong year-over-year delivery increases for June.

Nokia (NOK) signed a long-term agreement with Apple (AAPL) for patent licensing that covers Nokia's fundamental inventions in 5G and other areas. Nokia will receive undisclosed payments from Apple for a multi-year period, replacing the existing deal that was set to expire at the end of the year.

Reports indicate Apple is cutting its production forecast for Vision Pro as manufacturers are struggling to get a grasp of the novel design of the mixed-reality headset.

The Macau Gaming Inspection and Coordination Bureau reported gross gaming revenue in the gambling region rose 514% YoY in June to $15.21B patacas ($307 million). That figure missed the consensus estimate that called for a 530% YoY increase and was 2.3% lower compared to May. That MoM drop has called into question the Macau recovery and weighed on shares of gaming companies like MGM Resorts (MGM), Wynn Resorts (WYNN), and Las Vegas Sands (LVS).

After Today’s Market Close

No companies are expected to report their quarterly results after equities stop trading. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Tuesday, July 4

• Korea: Consumer Price Index – June
• Germany: Imports/Export - May
• US: Equity markets closed for the July 4^th holiday

Wednesday, July 5

• Japan: Services PMI – June
• China: Caixin Services PMI – June
• Eurozone: Services PMI – June
• UK: Services PMI - June
• US: Weekly MBA Mortgage Applications
• US: ADP Employment Change Report – June
• US: Factory Orders – May

Thursday, July 6

• Eurozone: Retail Sales - May
• US: Challenger Job Cuts Report – June
• US: Weekly Initial & Continuing Jobless Claims
• US: S&P Global Services PMI (Final) – June
• US: ISM Non-Manufacturing Index – June
• US: Jolts Job Openings Report – May
• US: Weekly EIA Natural Gas Inventories
• US: Weekly EIA Crude Oil Inventories

Friday, July 7

• US: Employment Report – June

Thought for the Day

“Those who expect to reap the blessings of freedom, must, like men, undergo the fatigue of supporting it.” ~ Thomas Paine

Disclosures

• Apple (AAPL), Nike (NKE) are constituents of the Tematica Research Thematic Dividend All-Stars Index

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

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