Stocks Little Changed Before The Open As Powell Comments Spark Fears of Higher Interest Rates

March S&P 500 futures (ESH23) are up +0.09%, and March Nasdaq 100 E-Mini futures (NQH23) are up +0.07% this morning after three major U.S. benchmark indices finished the regular session sharply lower as Federal Reserve Chair Jerome Powell’s remarks on Capitol Hill took a more hawkish tone than investors expected, ramping up bets on a return to faster monetary tightening. Three major U.S. stock indexes were weighed down primarily by losses in the Financials, Basic Materials, and Oil & Gas sectors.

In Tuesday’s trading session, U.S. stock indexes plunged, and benchmark Treasury yields gained ground after Fed Chair Jerome Powell said interest rates would likely need to head higher than policymakers had expected. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” the central bank leader told U.S. lawmakers on Tuesday. In addition, Powell cautioned that the Fed might increase the pace of interest rate hikes “if the totality of the data were to indicate that faster tightening is warranted.”

After Powell’s comments, U.S. rate futures have priced in a 28.0% chance of a 25 basis point rate increase and a 72.0% chance of a 50 basis point hike at the next monetary policy meeting in March. 

“A 50 bps hike in the next meeting is possible, but it is going to be dependent on the payrolls not slowing down and CPI numbers showing that the disinflation progress we’ve made is stalling,” said Scott Ladner, a chief investment officer at Horizon Investments.

In the corporate sector, Dick’s Sporting Goods Inc (DKS) closed up over +11% after the retailer reported upbeat Q4 results, guided FY23 earnings above Wall Street estimates, and more than doubled its quarterly dividend. At the same time, Rivian Automotive Inc (RIVN) tumbled over -14% after the company announced a proposed $1.3B private offering of green convertible senior notes due 2029 to qualified institutional buyers.

Today, all eyes are focused on the U.S. ADP Nonfarm Employment Change data in a couple of hours. Economists, on average, forecast that February ADP Nonfarm Employment Change will stand at 200K, compared to the previous value of 106K.

Also, investors will likely focus on Federal Reserve Chairman Jerome Powell’s semi-annual monetary policy testimony before the House of Representatives Financial Services Committee.

U.S. JOLTs Job Openings data will also be closely watched today. Economists foresee this figure to stand at 10.500M in January, compared to the previous number of 11.012M.

U.S. Trade Balance data will come in today. Economists expect January’s figure to be -68.90B, compared to the previous number of -67.40B.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be +0.395M, compared to last week’s value of +1.165M.

In the bond markets, United States 10-Year rates are at 3.985%, up +0.26%.

The Euro Stoxx 50 futures are up +0.14% this morning as investors digested hawkish remarks from Federal Reserve Chair Jerome Powell and a series of important regional economic data. On the positive side, German industrial production unexpectedly rose +3.5% m/m in January, above expectations of +1.4% m/m, suggesting that the manufacturing sector could be regaining its footing. In corporate news, shares of Symrise Ag (SY1.D.DX) fell over -3% after the German flavor and fragrance maker forecasted a 2023 core profit margin narrowly below analysts’ expectations and in line with last year’s figure.

Germany’s Retail Sales, Italy’s Retail Sales, and Eurozone’s GDP (preliminary) data were also released today.

The German January Retail Sales stood at -0.3% m/m and -6.9% y/y, weaker than expectations of +2.0% m/m and -6.1% y/y.

The Italian January Retail Sales came in at +1.7% m/m, stronger than expectations of -0.2% m/m.

Eurozone GDP has been reported at 0.0% q/q and +1.8% y/y in the fourth quarter, weaker than expectations of +0.1% q/q and +1.9% y/y.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.06%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.48%.

China’s Shanghai Composite today closed lower as hawkish comments from Fed Chair Powell, growing U.S.-China tensions, and mixed trade data weighed on investor risk appetite. Data released earlier this week showed a sharp drop in Chinese imports, spurring worries over a slow rebound in local demand even after the country eased most COVID-19 restrictions. Investor focus is now on Thursday’s inflation print for February, which is expected to shed more light on the world’s second-largest economy.

At the same time, Japan’s Nikkei 225 Stock Index closed higher after a deluge of weak economic data released this week bolstered expectations that the Bank of Japan will keep its ultra-accommodative monetary stance in the near term. Data on Wednesday showed the country’s current account deficit widened more than expected to -1.977T in January. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 0.42% to 16.53.

Pre-Market U.S. Stock Movers

Fresh Tracks Therapeutics Inc (FRTX) spiked over +45% in pre-market trading after the company announced positive topline results for dose parts of the FRTX-02 study and said its board approved a strategic review.

Rigel Pharmaceuticals Inc (RIGL) climbed more than +33% in pre-market trading after the company reported better-than-expected Q4 results.

Crowdstrike Holdings Inc (CRWD) gained over +6% in pre-market trading after the cybersecurity technology company reported upbeat Q4 results and posted above-consensus Q1 and FY24 guidance.

Stitch Fix (SFIX) dropped more than -7% in pre-market trading after the company reported downbeat Q2 results and posted a weaker-than-expected Q3 revenue outlook. 

Shoals Technologies Group Inc (SHLS) slid over -7% in pre-market trading after the company said it commenced a secondary public offering of about 24.5M common shares.

Tesla Inc (TSLA) fell about -1% in pre-market trading after Berenberg downgraded the stock to hold from buy.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - March 8th

Brown Forman A (BFa), Legal & General Group Plc (LGGNY), Campbell Soup (CPB), MongoDB (MDB), Continental AG PK (CTTAY), Symrise Ag PK (SYIEY), Nuvei (NVEI), Hiscox (HCXLF), Granite REIT (GRP_u), Asana (ASAN), Life Time Holdings (LTH), ABM Industries (ABM), Korn Ferry (KFY), Spin Master Corp (SNMSF), Dada Nexus (DADA), United Natural Foods (UNFI), Vermilion Energy (VET), Vertex (VERX), Lifestance Health Group (LFST), Ranger Oil (ROCC), Duckhorn Portfolio (NAPA), Viridian Therapeutics (VRDN), Sovos Brands (SOVO), Membership Collective Group (MCG), Trulieve Cannabis (TCNNF), International Money Express (IMXI), Vita Coco (COCO), Yatsen (YSG), IDT (IDT).

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