Markets Today: Stocks Decline as Markets Brace for Tighter Fed Policy

Morning Markets

December S&P 500 futures (ESZ22) this morning are down -0.65%, and December Nasdaq 100 E-Mini futures (NQZ22) are down -0.83%.  Weakness in chip stocks in pre-market trading is dragging down technology stocks after Foxconn Technology Group, the world’s largest maker of iPhones, said it may boost production capacity at alternative sites to mitigate potential disruption at its main Covid-stricken plant in China.

Record-high inflation in Europe is boosting government bond yields and is weighing on stocks. The 10-year German bund yield is up +1.3 bp at 2.116%, and the 10-year T-note yield is up +3.8 bp to 4.045% after today’s news showed Eurozone Oct consumer prices rose at a record pace.

The outlook for higher U.S. interest rates is another bearish factor for stocks.  The market has priced in a 100% chance the Fed will raise the federal funds target range by +75 bp on Wednesday after the 2-day FOMC meeting concludes.  The markets will also scour post-meeting comments from Fed Chair Powell for clues about the size of future rate hikes. 

The Euro Stoxx 50 index today is up slightly by +0.02% and posted a 1-1/2 month high.  Strength in financial, travel and leisure stocks is leading the overall market higher today.  Also, signs of strength in German retail sales are supportive for stocks after German Sep retail sales unexpectedly rose +0.9% m/m, stronger than expectations of a -0.5% m/m decline and the biggest increase in 8 months.  European stocks gave up most of their gains on concern that record-high inflation will prompt the ECB to maintain its aggressive interest rate increases.  Today’s Eurozone Oct CPI rose by a record +10.7% y/y, stronger than expectations of +10.3% y/y. 

Asian markets today settled mixed.  China’s Shanghai Composite closed down -0.77%, and Japan’s Nikkei Stock Index closed up +0.98%.

China’s Shanghai Composite tumbled to a 6-month low today as increased Covid restrictions and weaker-than-expected economic news worsened the outlook for stocks.  Chinese authorities imposed fresh lockdowns throughout the country as new Covid cases soar.  China reported 2,675 new Covid infections on Sunday, the most in 2-1/2 months. 

China’s strict Covid Zero policy has reduced economic activity and hammered growth.  Today’s economic news showed that China’s Oct manufacturing PMI fell -0.9 to 49.2, weaker than expectations of 49.8.  Also, China’s Oct non-manufacturing PMI fell -1.9 to 48,7, weaker than expectations of 50.1 and the steepest pace of contraction in 5 months.

Japanese stocks today posted moderate gains following a sharp rally in U.S. stocks on Friday.  The recent plunge in the yen to a 32-year low against the dollar has also improved the earnings prospects of exporters and is underpinning the overall market.  In addition, the action by the BOJ to boost QE is a bullish factor for stocks after the BOJ said it would increase the amounts of longer-term government bonds it buys starting next month by increasing the frequency of its monthly asset purchases.

Today’s Japanese economic news was mixed for stocks.  On the positive side, Japan Sep retail sales rose +1.1% m/m, stronger than expectations of +0.8% m/m.  Conversely, Japan Sep industrial production fell -1.6% m/m, weaker than expectations of -0.8% m/m and the biggest decline in 4 months.  Also, the Japan Oct consumer confidence index fell -0.9 to a 1-3/4 year low of 29.9, weaker than expectations of -0.3 to 30.5.

Pre-Market U.S. Stock Movers

U.S. semiconductor chip stocks are under pressure today after Foxconn Technology Group, the world’s largest maker of iPhones, said it may boost production capacity at alternative sites to mitigate potential disruption at its main Covid-stricken plant in China.  Advanced Micro Devices (AMD), Micron Technology (MU), Nvidia (NVDA), and Qualcomm (QCOM) are down -1% or more.

U.S.-listed Chinese stocks are moving lower in pre-market after Covid cases spiked across China, and economic news showed China’s manufacturing and services activity weakened more than expected.  Pinduoduo (PDD), JD.com (JD), NetEase (NTES), Alibaba Group Holding (BABA), and Baidu (BIDU) are down more than -1%,

Hanesbrands (HBI) tumbled more than -3% in pre-market trading after Wells Fargo downgraded the stock to underweight from overweight.

Amgen (AMGN) fell more than -1% in pre-market trading after Barclays downgraded the stock to underweight from equal weight. 

Paramount Global (PARA) dropped -3% in pre-market trading after Wells Fargo downgraded the stock to underweight from equal weight.

Caterpillar (CAT) slid more than -1% in pre-market trading after UBS downgraded the stock to neutral from buy. 

Keurig Dr Pepper (KDP) dropped more than -2% in pre-market trading after Truist Securities downgraded the stock to sell from hold.

U.S. casino stocks with exposure to Macau are climbing in pre-market trading after Chinese authorities said mainland visitors could apply for electronic travel permits to Macau starting November 1, giving a potential boost to casinos battered by Covid restrictions.   Las Vegas Sands (LVS), Wynn Resorts (WYNN), and Melco Resorts & Entertainment (MLCO) are up more than +2%. 

Ceridian HCM Holding (CDAY) rose +1% in pre-market trading after Barclays upgraded the stock to equal weight from underweight. 

Pure Storage (PSTG) gained nearly +3% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight. 

Today’s U.S. Earnings Reports (10/31/2022)

Aflac Inc (AFL), American Water Works Co Inc (AWK), Arista Networks Inc (ANET), Cincinnati Financial Corp (CINF), Emerson Electric Co (EMR), Global Payments Inc (GPN), Hologic Inc (HOLX), Howmet Aerospace Inc (HWM), Loews Corp (L), NXP Semiconductors NV (NXPI), ON Semiconductor Corp (ON), Public Service Enterprise Group (PEG), SBA Communications Corp (SBAC), Stryker Corp (SYK), Vornado Realty Trust (VNO), Williams Cos Inc/The (WMB).

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