Pre-Market Brief: Stocks Mixed As Resurgent Fed Fears Weigh On Sentiment, China Reopening Hopes

December S&P 500 futures (ESZ22) are trending up +0.08% this morning after three major US benchmark indices finished the regular session sharply lower as market participants fretted that stronger-than-anticipated service-sector activity could point to the Federal Reserve hiking interest rates for longer. Three major U.S. stock indexes were weighed down primarily by losses in the Oil & Gas, Financials, and Consumer Goods sectors.

In Monday's trading session, shares of Tesla (TSLA) tumbled over -6% on reports of the Model Y production cut by over 20% at its Shanghai plant in December, pulling the tech-heavy index down. However, the electric-vehicle maker denied rumors of a production cut in Shanghai.

U.S. services industry activity, which has been an area of the economy flagged by the Fed as a crucial contributor to inflation, unexpectedly rose to 56.5 in November, stronger than expectations of 53.3, indicating signs of underlying economic momentum. The data came on the heels of a reading last week that revealed stronger-than-expected job and wage growth in November, fueling concerns about more hawkish Fed monetary policy measures.

“It's all about the Fed. The Fed doesn't want the economy to fall apart, but they want the economy to slow to help counter inflation. Good news on the economy is bad news for inflation, whether that's China opening up or lower gasoline prices,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Meanwhile, U.S. rate futures have priced in a 78.2% chance of a 50 basis point rate increase and a 21.8% chance of a 75 basis point hike at December's monetary policy meeting. 

Today, all eyes are focused on the U.S. Trade Balance data in a couple of hours. Economists, on average, forecast that October Trade Balance will stand at -80.00B, compared to the previous value of -73.30B.

Also, investors are likely to focus on the Canada Ivey PMI data, which was at 50.1 in October. Economists foresee the new figure to be 51.0.

In the bond markets, United States 10-Year rates are at 3.583%, down -0.46%.

The Euro Stoxx 50 futures are down -0.30% this morning as investors worried about the region’s economic outlook while central banks continue to fight inflation at elevated levels. Data released on Monday revealed that Eurozone business activity shrank for a fifth month in November, indicating that the region’s economy was headed for a recession next year, while retail sales plunged as consumers reduced spending amid soaring inflation. The European Central Bank is widely expected to hike interest rates next week. In addition, the central bank will likely continue its rate-hike cycle at subsequent meetings to combat price pressures.

“We do expect that more rate increases will be necessary, but a lot has been done already. I would be reasonably confident in saying that it is likely we are close to peak inflation,” said ECB chief economist Philip Lane on Tuesday.

Germany’s Factory Orders and U.K. Construction PMI data were released today.

The German October Factory Orders stood at +0.8% m/m, stronger than expectations of +0.1% m/m.

U.K. November Construction PMI has been reported at 50.4, weaker than expectations of 52.0.

Asian stock markets today settled mixed after stronger-than-expected economic readings in the U.S. fueled concerns over a more hawkish Federal Reserve. However, China’s Shanghai Composite Index (SHCOMP) closed up +0.02%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.24%.

China’s Shanghai Composite today closed slightly higher as more cities lifted anti-COVID measures. China announced the relaxation of more testing mandates in the country's capital on Tuesday, following the easing of anti-COVID measures in several major cities over the weekend. Also, media reports suggested that Beijing is preparing to withdraw more restrictions under its severe zero-COVID strategy following a wave of unprecedented protests in the country, pushing investors to pile into heavily discounted Chinese stocks.

At the same time, Japan’s Nikkei 225 Stock Index closed higher today, fueled by gains in the Retail, Mining, and Shipbuilding sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 7.54% to 18.39.

Pre-Market U.S. Stock Movers

Gitlab Inc (GTLB) jumped more than +17% in pre-market trading after the company reported stronger-than-expected Q3 earnings and issued favorable Q4 and FY23 guidance.

Biovie Inc (BIVI) climbed about +21% in pre-market trading after the company announced positive results in NE3107 phase 2 trials.

Sumo Logic Inc (SUMO) gained over +11% in pre-market trading after the company reported upbeat Q3 results and provided a favorable Q4 outlook.

G-III Apparel Group Ltd (GIII) rose about +3% in pre-market trading after the company's CEO, Morris Goldfarb, bought 250,000 shares at $12.54.

Axon Enterprise Inc (AXON) slid over -2% in pre-market trading after the company announced a proposed $500M convertible senior note offering.

Powell Industries Inc (POWL) rose about +10% in pre-market trading after the company after the company released stronger-than-anticipated Q4 results.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Tuesday - December 6th

AutoZone (AZO), Ashtead Gro (ASHTY), Ferguson (FERG), Siemens Gamesa ADR (GCTAY), MongoDB (MDB), Caseys (CASY), Healthequity Inc (HQY), Toll Brothers (TOL), Coupa Software (COUP), Guidewire (GWRE), SentinelOne (S), Signet Jewelers (SIG), AeroVironment (AVAV), GMS Inc (GMS), Dave & Buster’s Entertainment (PLAY), C3 Ai (AI), Piedmont Lithium ADR (PLL), Avid Bioservices (CDMO), Zuora (ZUO), IES Holdings (IESC), Lilium NV (LILM), Smith & Wesson (SWBI), Zerofox Holdings (ZFOX), Domo (DOMO), Mitek (MITK), Stitch Fix (SFIX), ReneSola (SOL), Village Super Market (VLGEA), J.Jill (JILL), Oil-Dri Of America (ODC), Alico (ALCO), Conns (CONN).

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