Daily Markets: Traders Hoping for Goldilocks Outcome with Services Data

Today’s Big Picture

Asia-Pacific equity markets finished the day predominantly lower led by declines in Japan’s Nikkei, India’s Sensex, and Hong Kong’s Hang Seng. Australia’s ASX All Ordinaries and South Korea’s Kospi also closed the day’s trading down 0.4% and 0.6%, respectively. By comparison, China’s Shanghai Composite gained 0.6% on the day. European markets are lower in midday trading ahead of the Bank of England’s interest rate decision. U.S. equity futures point to a weak open as investors and traders continue to digest the recent credit downgrade by Fitch Ratings.

Following the July Manufacturing PMI data earlier this week and yesterday’s hotter-than-expected July ADP Employment Report, soon after the stock market opens investors will be digging into the back-to-back views on the U.S. services economy in July. While the manufacturing sector has been contracting over the last several months, the services economy has continued to grow, arguably carrying the U.S. economy. With the market increasingly banking on a soft-landing scenario for the economy, market watchers will be looking for a Goldilocks set of data when it comes to the speed of the services sector and its inflation pressures. Data that is too hot could rekindle thoughts the Fed may have one more rate hike to go, while a miss in the data may lead to pushback about the soft-landing narrative.

Data Download

International Economy

The au Jibun Bank Japan Services PMI was at 53.8 in July compared with a flash print of 53.9 and a final 54.0 in June. While marking the 11th straight month of growth in the services sector, the latest result was the lowest since January with new orders growing the least in six months.

The Caixin China General Services PMI unexpectedly rose to 54.1 in July from June’s five-month low of 53.9, exceeding forecasts of 52.5. The reading pointed to the seventh straight month of expansion in services activity with an accelerated rise in new orders despite foreign demand expanding at the slowest in six months.

The HCOB Eurozone Services PMI was revised lower to 50.9 in July from a preliminary of 51.1, and 52 in June, pointing to near stalling of activity levels in the services sector. Per the report, there was a renewed reduction in new business intakes, marking the first contraction in demand for Eurozone services since the end of last year. Rates of input cost and output price inflation were fractionally weaker than seen in June.

The S&P Global/CIPS UK Services PMI was confirmed at 51.5 in July, down from 53.7 in June, to signal the third consecutive month of slowing activity. The overall rate of input price inflation edged up since June and remained historically elevated, largely driven by higher wages. On a positive note, output charge inflation eased to its lowest since March, with some firms citing discounting due to competition for new work and others noting lower fuel costs.

Producer prices in the Euro Area fell 0.4% MoM in June, the sixth consecutive period of decline and compared with market expectations of a 0.2% fall. Excluding the impact of energy, producer prices showed a decrease of 0.3% in June, following an upwardly revised 0.5% fall in May. On a YoY basis, producer prices in the Euro Area declined by 3.4% in June 2023, following an upwardly revised 1.6% fall in May and compared to market expectations of a 3.1% drop. The decline in July was fueled primarily by the drop in energy prices.

The Bank of England is expected to raise interest rates to a 15-year high of 5.25% from 5% today as inflation remains the highest among the world's major economies.

Domestic Economy

In addition to the back-to-back looks at the Services sector in July, we have several other pieces of economic data being released this morning. At 7:30 AM ET, the July Challenger Job Cuts Report will be published, followed by 2Q 2023 Unit Labor Costs and Nonfarm Productivity data at 8:30 AM ET. Unit Labor Costs are expected to fall to 2.6% from 4.2% the prior quarter, while Nonfarm productivity is expected to bounce back to +2.0% in 2Q 2023 vs. -2.1% in the prior quarter.

Also, at 8:30 AM ET, the latest weekly Initial & Continuing Jobless Claims will be reported, and initial claims are forecasted to tick up to 227,000 vs. 221,000 in last week’s report.

In addition to ISM’s Non-Manufacturing Index being published at 10 AM ET, we have June Factory Orders data, which Wall Street sees rising to 2.2% compared to 0.3% in May. Rounding out the day’s set of data, weekly natural gas inventory data from the Energy Information Administration will be published at 10:30 AM ET.

Markets

Yesterday saw markets take a more pronounced step back as the back half of this earnings season continued the trend of companies meeting or beating estimates but then lowering guidance. While few believe the U.S. is one step closer to default, the ratings downgrade from AAA to AA+ weighed on markets as well. The Dow declined 0.98%, both the Russell 2000 and the S&P 500 dropped just under 1.40%, and the Nasdaq Composite closed 2.17% lower. Technology took the largest hit, down 2.47% spurred on by a 1.55% decline in Apple (AAPL) and a 2.63% drop in Microsoft (MSFT). Communications Services (-1.88%) and Consumer Discretionary (-1.79%) piled on as all but three holdings in the Communications Services Select Sector SPDR Fund (XLC) traded off, and heavyweights Tesla (TSLA) and Amazon (AMZN) both fell close to 2.70%. In individual names, Generac Holdings plummeted over 24% after reporting a poor quarter and taking down guidance.

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

• Dow Jones Industrial Average: 6.44%
• S&P 500: 17.55%
• Nasdaq Composite: 33.51%
• Russell 2000: 11.67%
• Bitcoin (BTC-USD): 75.68%
• Ether (ETH-USD): 53.40%

Stocks to Watch

Before U.S. equity markets begin trading today, Anheuser-Busch InBev (BUD), Canada Goose (GOOS), Cummins (CMI), Edgewell Personal Care (EPC), Hasbro (HAS), InterDigital (IDCC), Kellogg (K), Papa John's (PZZA), Physicians Realty Trust (DOC), Portillo's (PTLO), Shake Shack (SHAK), and Vulcan Materials (VMC) are expected to report their quarterly results.

PayPal (PYPL) met estimates in its latest quarterly and held previous guidance steady. However, active account declines for the second quarter in a row coupled with the sale of European “Buy Now Pay Later” loans pushing net cash from operating activities negative saw traders hitting the sell button, driving shares down over 7% in after-hours trading. The company notes that branded, or white-labeled, checkout volumes grew in the latest quarter and are expected to increase through the back half of the year.

Shopify (SHOP) reported a 31% increase in revenues to $1.7 billion as compared to the same period last year, beating estimates of $1.62 billion. The company offered revenue guidance of a low-twenties percent growth rate on a year-over-year basis.

Qualcomm (QCOM) shares were under pressure last night despite the company delivering an EPS beat for its June quarter on revenue that fell 22.2% YoY to $8.5 billion, matching the consensus forecast. Weighing on its shares was the company’s guidance for the current quarter that calls for EPS $1.80-$2.00 vs. the $1.92 consensus on revenue of $8.1-$8.9 billion vs the $8.74 billion consensus. Underlying that guidance is Qualcomm’s view that calendar 2023 handset units will be down at least a high single-digit percentage relative to calendar 2022 “reflecting the macroeconomic environment and a slower recovery in China.” The company also sees high inventory levels will be a headwind for the rest of the calendar year.

DoorDash (DASH) beat revenue estimates, posting a 32% rise to $2.13 billion as compared to the $2.06 billion consensus but came up short on the bottom line, reporting a per-share loss of $0.44, $0.03 lower than estimates. Total Orders were reported to have increased 25% YoY to 532 million. The company raised EBITDA guidance to $750 million to $1.05 billion from the previously released $600-$900 million.

After beating June quarter expectations, digital marketplace Upwork (UPWK) lifted its 2023 revenue guidance to $665-$675 million from $655-$670 million and its non-GAAP diluted EPS to $0.36-$0.39 from $0.24-$0.28.

Costco Wholesale (COST) reported net sales of $17.60 billion for the retail month of July, up 4.5% YoY. Comps sales adjusted to exclude the impact of gas prices and foreign exchange rose 5.0% during July with the U.S. up 4.5%, Canada up +6.7%, and Other International up +5.7%. Costco’s e-commerce sales rose 4.0% during July.

India said it will impose a licensing requirement for imports of laptops, tablets, and personal computers with immediate effect, a move that could hit the likes of Apple (AAPL), Dell (DELL), Samsung (SSNLF), and others, forcing them to boost local manufacturing.

IPOs

Near-term the calendar for such activity looks rather thin. Readers looking to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Amazon (AMZN), Apple (AAPL), Block (SQ), Cloudflare (NET), Dropbox (DBX), Fortinet (FTNT), Motorola Solutions (MSI), Post (POST), Synaptics (SYNA), and WW (WW) are slated 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

Friday, August 4

• Germany: Factory Orders – June
• Eurozone: Retail Sales - June
• US: Employment Report – July

Thought for the Day

“Don’t let us forget that the causes of human actions are usually immeasurably more complex and varied than our subsequent explanations of them.“ ~ Fyodor Dostoevsky

Disclosures

• Cloudflare (NET), Fortinet (FTNT) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Shopify (SHOP), Block (SQ), PayPal (PYPL), Qualcomm (QCOM) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Costco Wholesale (COST) is a constituent of the Tematica BITA Big Spenders & Savers Index
• Apple (AAPL), Microsoft (MSFT) 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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Stocks Economy Earnings Central Banks