Markets Today: Stocks Slump as U.S. CPI Overshoots

Morning Markets

December S&P 500 futures (ESZ22) this morning down by -2.04% at a 23-month low. Stock index futures gave up overnight gains and plunged after U.S. Sep consumer prices rose more than expected. The U.S. Sep core CPI rose +6.6%, the fastest increase in 40 years.  Bond yields soared on the news as the 10-year T-note yield jumped to a 14-year high of 4.042%.  Stock indexes also fell back after U.S. weekly jobless claims rose more than expected to a 6-week high.

Stock indexes this morning initially moved higher on a rally in airline stocks after Delta Air Lines forecasted stronger-than-expected Q4 EPS.  Also, athletic apparel makers rallied in pre-market trading after Raymond James upgraded several stocks in the sector.

U.S. Sep CPI rose +0.4% m/m and +8.2% y/y, stronger than expectations of +0.2% m/m and +8.1% y/y. Sep CPI ex-food & energy rose +0.6% m/m and +6.6% y/y, stronger than expectations of +0.4% m/m and +6.5% y/y with the +6.6% y/y gain the fastest pace of increase in 40 years.

U.S. weekly initial unemployment claims rose +9,000 to a 6-week high of 228,000, showing a weaker labor market than expectations of 225,000.

The Euro Stoxx 50 today is up by +0.76%.  A rally in European airline stocks today is lifting the overall market after IAG said Q3 has been “better than expected,” and EasyJet noted robust bookings, saying it will increase capacity by 30% y/y to 20 million passengers in Q1 of 2023.   Gains in the overall market were limited by weakness in chip makers after Applied Materials cut its Q4 EPS forecast and Taiwan Semiconductor Manufacturing Co slashed its 2022 capital spending target. 

ECB Governing Council member Wunsch said the ECB's deposit rate, currently 0.75%, will "most probably" need to exceed 2% and may eventually have to top 3% to get record inflation under control.

Asian markets today closed lower.  China’s Shanghai Composite closed down -0.39%, and Japan’s Nikkei Stock Index closed down -0.60%. 

China’s Shanghai Composite today posted moderate losses. Covid concerns weighed on stocks today after Shanghai reported that new Covid cases jumped to a 3-month high, which may lead to lockdowns and restrictions that strangle economic activity.  Also, a slide in Chinese property stocks weighed on the overall market after CIFI Holdings defaulted on a bond payment due October 8, fueling concerns about a potential spillover to other firms. 

Japan’s Nikkei Stock Index today dropped to a 1-1/2 week low.  Weakness in technology stocks weighed on the overall market today after Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker, cut its capital spending target for this year by 10%, a sign the company is bracing for a broader-than-anticipated slowdown.  In addition, signs of faster producer price inflation in Japan also weighed on stocks after Japan Sep PPI rose more than expected.

Japan Sep PPI rose +0.7% m/m and +9.7% y/y, stronger than expectations of +0.3% m/m and +8.9% y/y

Pre-Market U.S. Stock Movers

Airline stocks jumped in pre-market trading after Delta Air Lines forecasted Q4 adjusted EPS of $1.00-$1.25, stronger than the consensus of 80 cents.  Delta Air Lines (DAL) is up more than +5%, United Airlines Holdings (UAL) is up more than +3%, American Airlines Group (AAL) is up more than +2%, and Southwest Airlines (LUV)  is up more than +1%. 

Athletic apparel stocks rose after Raymond James initiated coverage on Lululemon Athletica with a strong buy and Nike and Skechers with an outperform rating.  Skechers (SKX) jumped more than +5%, and Lululemon Athletica (LULU) and Nike (NKE) rose more than +1%.

Comcast Corp (CMCSA) rose nearly +2% in pre-market trading after Citigroup upgraded the stock to buy from neutral.

DISH Network (DISH) climbed more than +2% in pre-market trading after it said it was in preliminary discussions on a complex deal to merge its Boost mobile-phone business will Conx Corp. 

CNH Industrial (CNHI) gained nearly +3% in pre-market trading after Deutsche Bank said it sees the company reporting a “significant” 13% EPS beat at quarterly results. 

Digital Word Acquisition (DWAC) jumped more than +10% in pre-market trading after Google said it approved the company’s ”Truth Social” app for distribution on the Play Store.

AO Smith (AOS) dropped nearly -3% in pre-market trading after lowering its full-year adjusted EPS estimate to $3.05-$3.15 from a previous estimate of $3.35-$3.55, well below the consensus of $3.44. 

Applied Materials (AMAT) slid more than -1% in pre-market trading after slashing its Q4 adjusted EPS forecast to $1.54-$1.78 from $1.82-$2.18, well below the consensus of $2.02. 

American Express (AXP) fell -1% in pre-market trading after Citigroup downgraded the stock to sell from neutral. 

U.S.-listed Macau casino stocks retreated in pre-market trading on concerns about the impact of China’s Covid Zero strategy after the state-sponsored People’s Daily newspaper ran a series of commentaries touting the benefits of the strict policy.  Wynn Resorts (WYNN) and MGM Resorts International (MGM) are down more than a-2%, and Las Vegas Sands (LVS) is down more than -1%. 

Today’s U.S. Earnings Reports (10/13/2022)

BlackRock Inc (BLK), Delta Air Lines Inc (DAL), Domino's Pizza Inc (DPZ), Fastenal Co (FAST), Progressive Corp/The (PGR), Walgreens Boots Alliance Inc (WBA).

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