Markets Today: Stocks Fall as FOMC Meeting Begins

Morning Markets

December S&P 500 futures (ESZ22) this morning are down by -0.67%.  Stocks are under pressure today from rising global bond yields and concern that aggressive Fed tightening will push the economy into recession.  The 10-year T-note yield this morning jumped to a new 11-year high of 3.573%, which is weighing on technology stocks.  Also, Ford Motor is down more than -5% in pre-market trading after warning that its Q3 Ebitda will be below expectations as its Q3 supply costs were running $1 billion above expectations.

The 2-day FOMC meeting begins this morning and market expectations are for the FOMC to raise the fed funds target range by +75 bp for the third consecutive meeting. 

This morning’s U.S. housing news was mixed for stocks.  Aug housing starts jumped +12.2% m/m to 1.575 million, stronger than expectations of 1.450 million, due mostly to a surge in multifamily housing.  However, Aug building permits, a proxy for future construction, fell -10.0% m/m to a 2-year low of 1.517 million, weaker than expectations of 1.604 million.

The Euro Stoxx 50 today is down -0.78%.  European stocks today gave up an early advance and are moderately lower.   There is new concern that rising interest rates will curb global economic growth after Sweden’s Riksbank today raised interest rates by 100 bp, above expectations of a 75 bp rate hike after Sweden’s inflation rate accelerated to a new three-decade high in August.  The Federal Reserve is expected to raise its federal funds target range by +75 bp Wednesday, and the Bank of England is expected to raise its benchmark interest rate by +50 bp on Thursday. 

Persistent price pressures in Germany pushed European government bond yields higher and weighed on stocks after German August producer prices soared by a record +45.8% y/y. As a result, the 10-year UK gilt yield today jumped to an 11-year high of 3.289%, and the German 10-year bund yield rose to a 3-month high of 1.927%. 

ECB Governing Council member Muller called for "sufficiently robust and decisive" action by the ECB to tackle record Eurozone inflation, saying interest rates remain far from levels that would restrict the economic expansion.

German Aug PPI rose a record +45.8% y/y, stronger than expectations of +36.8% y/y.

Asian markets today closed higher.  China’s Shanghai Composite Index closed up +0.22%, and Japan’s Nikkei Stock Index closed up +0.44%. 

China’s Shanghai Composite Index today settled moderately higher, led by gains in hotel and travel stocks after the South China Post reported that Hong Kong is looking to ease Covid travel curbs after nearly three years of pandemic restrictions.  However, Chinese stocks fell back from their best levels after the PBOC today kept their main lending rates unchanged and said that China’s current interest rates are in a “reasonable range.” 

Japan’s Nikkei Stock Index today posted moderate gains on carry-over support from Monday’s rally in U.S. stocks.  Japanese stocks fell back from their best levels on signs of persistent price pressures after the Japan Aug national CPI rose more than expected at the fastest pace in nearly eight years.

Japan's Aug national CPI rose +3.0% y/y, stronger than expectations of +2.9% y/y and the largest in nearly eight years.  Japan Aug national CPI ex-fresh food & energy rose +1.6% y/y, stronger than expectations of +1.5% y/y and the largest increase in nearly 7-1/2 years.

Pre-Market U.S. Stock Movers

Ford Motor (F) tumbled more than -5% in pre-market trading after it said Q3 supply costs were running $1 billion above expectations and warned that Q3 Ebita could be in the $1.4 billion-$1.7 billion range, well below the consensus of a $2.7 billion-$3.0 billion range.   General Motors (GM) is also down more than -2% on the news.

Western Digital (WDC) slid more than -1% in pre-market trading after Deutsche Bank downgraded the stock to hold from buy, saying it’s difficult to see meaningful upside in the next six to nine months as oversupply in the flash memory market persists.

Nike (NKE) is down nearly -3% in pre-market trading after Barclays downgraded the stock to equal weight from overweight.

PayPal Holdings (PYPL) dropped more than -2% in pre-market trading after Susquehanna downgraded the stock to neutral from positive.

Weyerhaeuser (WY) slid more than -2% in pre-market trading after Bank of America downgraded the stock to neutral from buy.

Huntsman (HUN) fell more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from neutral. 

Change Healthcare (CHNG) jumped more than +7% in pre-market trading after winning court approval for the $7.8 billion acquisition by UnitedHealth Group, defeating a U.S. Justice Department lawsuit that had sought to block the deal.

U.S.-listed casino stocks with operations in Macau rose in pre-market trading on the possibility that Hong Kong would ease Covid restrictions such as mandatory hotel quarantine.  Las Vegas Sands (LVS) and Wynn Resorts (WYNN) are up more than +3%, and MGM Resorts International (MGM) is up more than +1%. 

Humana (HUM) is up more than +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight.

Cognex (CGNX) climbed more than +4% in pre-market trading after it boosted its Q3 revenue guidance to $195 million-$205 million from a prior forecast of $150 million-$180 million, above the consensus of $170.5 million.

SM Energy (SM) jumped +7% in pre-market trading after KeyBanc Capital Markets initiated coverage of the stock with a recommendation of overweight. 

Today’s U.S. Earnings Reports (9/20/2022)

Apogee Enterprises Inc (APOG), Stitch Fix Inc (SFIX).

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