Disappointing Chinese GDP Data May Generate Early Selling Pressure

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to move to the downside after ending the previous session little changed.

A report from China’s National Bureau of Statistics showing Chinese GDP growth slowed by more than expected in the second quarter may lead to renewed concerns about the global economic outlook.

The report showed Chinese GDP grew 7.9 percent year-on-year in the second quarter, shy of expectations for a gain of 8.1 percent and down sharply from 18.3 percent in the three months prior.

Indications some central banks around the world are considering tightening monetary policy much sooner than the Federal Reserve may add to worries about the global economy.

The downward momentum on Wall Street also comes traders continue to digest the latest earnings news, including quarterly results from Morgan Stanley (MS).

Morgan Stanley is moving lower in pre-market trading despite reporting better second quarter results that exceeded analyst estimates.

The drop by Morgan Stanley mirrors the performance by other big-name companies that have reported better than expected results, leading to speculation the upbeat earnings news has already been priced into the markets.

A slew of U.S. economic data was also released this morning, including a report from the Labor Department showing first-time claims for unemployment benefits decreased in line with economist estimates in the week ended July 10th.

Following the pullback seen during trading on Tuesday, stocks showed a lack of direction over the course of the trading day on Wednesday. The major averages spent the day bouncing back and forth across the unchanged line.

Eventually, the major averages ended the day little changed. While the Nasdaq edged down 32.70 points or 0.2 percent to 14,644.95, the Dow inched up 44.44 points or 0.1 percent to 34,933.23 and the S&P 500 crept up 5.09 points or 0.1 percent to 4,374.30.

Stocks moved to the upside early in the session amid a positive reaction to Federal Reserve Chair Jerome Powell’s prepared remarks before the House Financial Services Committee.

Powell reiterated the belief that “substantial further progress” towards the Fed’s goals of maximum employment and price stability is “still a ways off,” suggesting the central bank is not likely to begin tightening monetary policy anytime soon.

The Fed chief also once again stressed that the Fed will provide “advance notice” before announcing any changes to its asset purchase program.

Powell acknowledged that inflation has increased notably and will likely remain elevated in coming months but predicted inflation would moderate as the effects of the production bottlenecks unwind.

Buying interest waned shortly after the start of trading, however, as the sentiment from Powell was little changed from the Fed’s recent assessments.

Powell’s comments about inflation came as the Labor Department released a report showing producer prices jumped by much more than expected in the month of June.

The Labor Department said its producer price index for final demand surged up by 1.0 percent in June after climbing by 0.8 percent in May. Economists had expected producer prices to rise by 0.6 percent.

The report also showed the annual rate of producer price growth accelerated to 7.3 percent in June from 6.6 percent in May, reaching the highest level since 12-month data were first calculated in November of 2010.

Later in the day, the Federal Reserve released its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

The Beige Book noted the U.S. economy strengthened further from late May to early July, with the pace of growth described as moderate to robust.

Looking ahead, the Beige Book said the outlook for demand continued to improve but noted many contacts expressed uncertainty or pessimism over the easing of supply constraints.

On the earnings front, shares of Citigroup (C) moved modestly lower over the course of the session even though the financial giant reported better than expected second quarter earnings.

Delta Air Lines (DAL) also moved to the downside despite reporting a narrower than expected second quarter loss on revenues that exceeded analyst estimates.

Meanwhile, shares of Bank of America (BAC) came under pressure after the financial giant reported second quarter earnings that beat expectations but on weaker than expected revenues.

Most of the major sectors ended the day showing only modest moves, although energy stocks saw substantial weakness amid a steep drop by the price of crude oil.

Crude oil prices plunged after a report from Reuters said Saudi Arabia and the United Arab Emirates have reached a compromise over OPEC+ policy.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 3.7 percent, the NYSE Arca Oil Index tumbled by 3.3 percent and the NYSE Arca Natural Gas Index slumped by 2.5 percent.

Biotechnology and brokerage stocks also saw notable weakness on the day, while some strength was visible among tobacco and gold stocks.

Commodity, Currency Markets

Crude oil futures are tumbling $1.09 to $72.04 a barrel after plunging $2.12 to $73.13 a barrel on Wednesday. Meanwhile, after jumping $15.10 to $1,825 an ounce in the previous session, gold futures are edging down $1 to $1,824 an ounce.

On the currency front, the U.S. dollar is trading at 110.07 yen versus the 109.97 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1804 compared to yesterday’s $1.1837.

Asia

Asian stocks ended mixed on Thursday as investors reacted to dovish commentary from Federal Reserve Chair Jerome Powell and new data from China suggesting the country’s growth rebound is steadying.

Chinese shares rallied as a slew of economic data alleviated concerns over a notable slowdown. The benchmark Shanghai Composite Index jumped 36.09 points, or 1 percent, to 3,564.59, while Hong Kong’s Hang Seng Index ended up 208.81 points, or 0.8 percent, at 27,996.27.

China’s GDP grew 7.9 percent year-on-year in the second quarter of 2021, the National Bureau of Statistics said, shy of expectations for a gain of 8.1 percent and down sharply from 18.3 percent in the three months prior.

On a quarterly basis, GDP gained 1.3 percent – beating forecasts for 1.2 percent and up from 0.6 percent in the previous three months.

Industrial production climbed an annual 8.3 percent in June, exceeding expectations for 7.8 percent but down from 8.8 percent in May.

Fixed asset investment jumped an annual 12.6 percent, also beating forecasts for 12.1 percent and slowing from 15.4 percent in the previous month.

Retail sales expanded 12.1 percent year-on-year, beating expectations for 11.0 percent after rising 12.4 percent in May. The jobless rate held steady at 5.0 percent.

Japanese shares tumbled as investors awaited earnings and kept a wary eye on a surge in COVID-19 cases just one week out from the 2020 Olympic Games Opening Ceremony.

The Nikkei 225 Index tumbled 329.40 points, or 1.2 percent, to 28,279.09, while the broader Topix ended 1.2 percent lower at 1,939.61.

Market heavyweight SoftBank Group declined 1.2 percent. Uniqlo clothing brand owner Fast Retailing dropped 1.1 percent as the company lowered its profit forecast for the year, citing the impact of the COVID-19 pandemic on sales.

Optical products company Nikon Corp. slumped 6.2 percent, while steelmakers Nippon Steel and JFE Holdings both rose about 1.7 percent. Automakers Honda Motor and Nissan Motor fell 1.8 percent and 2.3 percent, respectively.

Australian markets ended lower, with tech stocks taking a beating. The benchmark S&P/ASX 200 Index dipped 18.80 points, or 0.3 percent, to close at 7,335.90, while the broader All Ordinaries Index ended down 15.20 points, or 0.2 percent, at 7,616.60.

Buy now, pay later firm Afterpay fell 2.3 percent to extend losses from the previous session after news of expected competition from tech giants Apple and PayPal. Xero dropped 2.3 percent and Appen gave up 3.3 percent.

Woodside Petroleum lost 1 percent despite the country’ top independent gas producer delivering 67 growth in quarterly sales revenues.

Mining giant Rio Tinto rallied 2.2 percent ahead of its quarterly production report, due on Friday. Gold miners Evolution, Newcrest and Regis Resources climbed 2-3 percent as gold prices hovered near four-week highs.

In economic news, the unemployment rate in Australia came in at a seasonally adjusted 4.9 percent in June. That was beneath expectations for 5.0 percent and down from 5.1 percent in May.

Seoul stocks advanced as the Bank of Korea decided to keep its benchmark lending rate unchanged at the record low 0.50 percent – in line with expectations. The benchmark Kospi rose 21.41 points, or 0.7 percent, to 3,286.22.

Bank of Korea Governor Lee Ju-yeol said the central bank will discuss raising its key interest rate beginning at its next meeting in August but noted that would still depend on COVID-19 developments.

Europe

European stocks have retreated on Thursday as investors weigh slowing growth in China against dovish comments from Federal Reserve Chairman Jerome Powell.

Powell told the U.S. House Financial Services Committee on Wednesday that the U.S. economy is “a ways off” from where it needs to be for the Fed to tighten its easy monetary policy.

While the German DAX Index has slumped by 0.9 percent, the French CAC 40 Index is down by 0.8 percent and the U.K.’s FTSE 100 Index is down by 0.7 percent.

The British pound has dropped against the dollar after Bank of England Governor Andrew Bailey told BusinessLive he won’t be rushed into making decisions on raising interest rates, despite rising inflation pressures.

German energy group Siemens Energy has moved sharply lower after the company said it expects to miss its margin guidance for the full fiscal year.

Its Spanish subsidiary Siemens Gamesa Renewable Energy has also plummeted after saying it expects a fiscal 2021 loss due to a sharp increase in raw material prices.

Medical and safety technology provider Draegerwerk AG has also tumbled after its second quarter preliminary EBIT declined to 80 million euros from last year’s 102 million euros due to the lower gross margin and higher functional expenses.

Total Energies SE, BP Plc and Royal Dutch Shell have also fallen as oil extends overnight losses amid news that oil producers came to a compromise about supply. Oil prices were also pressured by data showing a drop in U.S. gasoline demand.

Just Eat Takeaway.com has also slumped. The online food ordering company said that adjusted EBITDA losses, mainly caused by U.S. and Canadian fee caps and the investment program, have now peaked.

On the other hand, credit data firm Experian has shown a strong move to the upside after raising its full-year guidance.

Cybersecurity firm Avast has also moved sharply higher after the company confirmed it was in advanced merger talks with U.S. peer NortonLifeLock.

In economic news, U.K. employment increased in the three months to May signaling that the labor market continues to recover.

There was a quarterly increase in the employment rate of 0.1 percentage points to 74.8 percent, the Office for National Statistics said.

At the same time, the ILO unemployment rate decreased 0.2 percentage points to 4.8 percent. In the three months to April, the jobless rate was 4.7 percent.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits decreased in line with economist estimates in the week ended July 10th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims fell to 360,000, a decrease of 26,000 from the previous week’s revised level of 386,000.

Economists had expected jobless claims to dip to 360,000 from the 373,000 originally reported for the previous week.

With the decrease, initial jobless claims once again fell to their lowest level since hitting 256,000 in the week ended March 14, 2020.

A separate report released by the Labor Department showed U.S. import prices increased in line with economist estimates in the month of June.

The Labor Department said import prices advanced by 1.0 percent in June after surging by an upwardly revised 1.4 percent in May.

Economists had expected import prices to increase by 1.0 percent compared to the 1.1 percent jump originally reported for the previous month.

Meanwhile, the report said export prices shot up by 1.2 percent in June after spiking by 2.2 percent in May. Export prices were expected to surge up by 1.3 percent.

The Federal Reserve Bank of New York released a report showing a substantial acceleration in the pace of growth in New York manufacturing activity in the month of July.

The New York Fed said its general business conditions index soared to 43.0 in July from 17.4 in June, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to inch up to 18.0.

Looking ahead, the New York Fed said firms remained optimistic that conditions would improve over the next six months, although the index for future business conditions slid to 39.5 in July from 47.7 in June.

A separate report released by the Federal Reserve Bank of Philadelphia showed a slowdown in the pace of growth in Philadelphia-area manufacturing activity in the month of July.

The Philly Fed said its diffusion index for current general activity fell to 21.9 in July from 30.7 in June, although a positive reading still indicates growth in regional manufacturing activity. Economists had expected the index to slip to 28.0.

Meanwhile, the report said the diffusion index for future general activity tumbled to 48.6 in July from a nearly 30-year high of 69.2 in June.

At 9:15 am ET, the Federal Reserve is due to release its report on industrial production in the month of June. Industrial production is expected to increase by 0.7 percent in June after climbing by 0.8 percent in May.

Federal Reserve Chair Jerome Powell is scheduled to testify before the Senate Banking Committee beginning at 9:30 am ET.

At 11 am ET, Chicago Federal Reserve President Charles Evans is due to participate in moderated question-and-answer session before a virtual 13th Annual Rocky Mountain Economic Summit hosted by the Global Interdependence Center.

The Treasury Department is also scheduled to announce the details of this month’s auction of twenty-year bonds at 11 am ET.

Stocks In Focus

Shares of American International Group (AIG) are moving significantly higher in pre-market trading after the company announced the sale of a 9.9 percent equity stake in its Life & Retirement business to Blackstone (BX) for $2.2 billion in cash.

Truist Financial (TFC) may also see initial strength after reporting second quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Bank of New York Mellon (BNY) are seeing pre-market weakness even though the company reported better than expected second quarter results and reauthorized the repurchase of up to $6 billion in common stock.

Cybersecurity firm NortonLifeLock (NLOK) may also move to the downside after confirming that it is in advanced discussions regarding a possible acquisition of rival Avast.