U.S. stocks traded lower as the global markets continued to grapple with a recent uptick in hawkish central bank tones amid a rise in international bond yields. Treasuries were lower on the rising yields, crude oil prices rebounded on some bullish oil inventory data, gold dipped and the U.S. dollar declined. In economic news, ADP's employment data was below expectations ahead of tomorrow's June labor report. On the equity front, PriceSmart (NASDAQ:PSMT) and L Brands reported figures that were shy of analysts' forecasts, while the tech sector and Tesla (NASDAQ:TSLA) added to recent drops.
The Dow Jones Industrial Average (DJIA) lost 158 points (0.7%) to 21,320, the S&P 500 Index declined 23 points (0.9%) to 2,410, and the NASDAQ Composite dropped 61 points (1.0%) to 6,089. In moderate volume, 878 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil increased $0.39 to $45.52 per barrel and wholesale gasoline added $0.03 to $1.53 per gallon. Elsewhere, the Bloomberg gold spot price dipped $1.96 to $1,225.08 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was 0.5% lower at 95.81.
Costco Wholesale Corp. (NASDAQ:COST $157) reported June same-store sales growth of 6.0% year-over-year (y/y), above the FactSet estimate of a 3.9% gain. Excluding the impact of changes in gasoline prices and foreign exchange, COST's same-store sales were 6.5% higher. Shares gave up early gains and finished mildly lower.
L Brands Inc. (NYSE:LB $46) fell sharply after posting a 9.0% y/y drop in June same-store sales, versus the expected 6.8% decline, as sales tumbled at its Victoria's Secret stores.
PriceSmart Inc (NASDAQ:PSMT $81) reported fiscal Q3 earnings-per-share (EPS) of $0.62, versus expectations of $0.67, as revenues rose 3.7% y/y to $730 million, compared to the projected $735 million. Shares saw solid pressure.
Tesla Inc (NASDAQ:TSLA $309) continued a recent slide amid competition concerns toward the electric car maker and safety uncertainty after the Insurance Institute for Highway Safety (IIHS) announced that the Model S earned an "acceptable" rating, the second highest designation, in a collision test. TSLA responded by saying the most objective and accurate independent testing of vehicle safety is currently done by the U.S. Government, which found Model S and Model X to be the two cars with the lowest probability of injury of any cars that it has ever tested.
Yum China Holdings Inc (NYSE:YUMC $35) was under heavy pressure after the recently spun-off company posted softer-than-expected Q2 revenues and in line EPS, while same-store sales at Pizza Hut in the region missed forecasts, overshadowing upbeat results out of KFC.
Services sector growth surprisingly accelerates, ADP employment report misses
The June Institute for Supply Management (ISM) non-Manufacturing Index rose to 57.4 from May's unrevised 56.9 level, and compared to the Bloomberg forecast of a dip to 56.5. A reading above 50 denotes expansion. New orders rose 2.8 points month-over-month (m/m) to 60.5 and business activity ticked higher and remained above the 60 mark, while employment declined 2.0 points to 55.8. Prices rose increased 2.9 points to 52.1. The ISM said the majority of comments from respondents were positive about business conditions and the overall economy.
The final Markit U.S. Services PMI Index was revised to 54.2 in June from the preliminary 53.0 level, where it was expected to remain, and up compared to the 53.6 figure posted in May. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.
The ADP Employment Change Report showed private sector payrolls rose by 158,000 jobs in June, below forecasts of a 188,000 gain, while May's increase of 253,000 jobs was revised to a gain of 230,000. Today’s ADP data, which does not include government hiring and firing, comes ahead of tomorrow's broader June nonfarm payroll report, expected to show an increase of 178,000 jobs to the headline rate and a rise of 169,000 jobs to private sector payrolls. The unemployment rate is forecasted to remain at 4.3%, and average hourly earnings are projected to rise 0.3% m/m.
With the labor market continuing to be quite tight and inflation in retreat, the wage component of the report will likely continue to foster scrutiny as the markets grapple with the trajectory of Fed policy normalization. Compared to the last year, wages are projected to accelerate slightly to a 2.6% rate from May's pace of 2.5%.
Bond yields have rebounded sharply over the past couple weeks.
Weekly initial jobless claims rose by 4,000 to 248,000 last week, above forecasts of 243,000, with the prior week’s figure being unrevised at 244,000. The four-week moving average increased by 750 to 243,000, while continuing claims gained 11,000 to 1,956,000, north of estimates of 1,940,000.
The trade balance showed that the deficit came in at $46.5 billion in May, compared to estimates of $46.3 billion. April's deficit was unrevised at $47.6 billion. Exports rose 0.4% m/m to $192.0 billion, while imports dipped 0.1% to $238.5 billion.
The MBA Mortgage Application Index rose 1.4% last week, following the previous week's 6.2% drop. The increase came as a 0.4% dip in the Refinance Index was more than offset by a 3.1% gain for the Purchase Index. The average 30-year mortgage rate rose 7 basis points (bps) to 4.20%.
Treasuries were lower, with the yield on the 2-Year note flat at 1.40%, the yield on the 10-Year note gaining 4 bps to 2.36% and the 30-Year bond rate rising 5 bps to 2.90%.
Europe lower, Asia mixed
European equities finished mostly lower, with the euro gaining ground, along with bond yields in the region, as the markets digested minutes from monetary policy meetings by the Fed and European Central Bank (ECB), with the latter preserving the recent uptick in hawkish sentiment. Focus was on the political landscape as U.S. President Trump joined the G-20 summit in Germany, while geopolitical concerns lingered after North Korea's intercontinental ballistic missile (ICBM) test this week.
In economic news, German factory orders rose at a smaller-than-expected amount. The British pound ticked higher versus the U.S. dollar. However, Italian stocks bucked the trend amid continued eased banking sector concerns in the nation on the heels of recent bailout announcements, while the global sector continued to get a boost from the rise in bond yields as of late.
Stocks in Asia finished mixed amid heightened geopolitical concerns following this week's test of an ICBM by North Korea, while the markets awaited a flood of economic data out of the U.S. Japanese equities declined, with the yen recouping yesterday's drop, while Indian stocks advanced amid eased concerns in the banking sector.
Australian securities finished lower even as the nation's trade surplus widened much more than expected in May. Mainland Chinese shares rose and those traded in Hong Kong declined amid weakness in energy stocks following yesterday's drop in crude oil prices and as property developers rebounded from a recent drop. South Korean equities finished flat.
The international economic docket for tomorrow will begin with the Leading Index from Japan, foreign reserves from China and construction data from Australia. Releases from across the pond will include industrial production from Germany, retail sales from Italy and trade data, industrial production and manufacturing production from France and the U.K., while the latter will also release construction output.