Markets Today: Stock Index Futures Slip as Mixed U.S. CPI Report Keeps Fed Rate Hikes in Play

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are down -0.06%, and Sep Nasdaq 100 E-Mini futures (NQU23) are down -0.14%.

Stock index futures this morning are moderately lower on a mixed U.S. CPI report.  U.S. consumer prices in August increased to +3.7% y/y from +3.2% y/y in July, stronger than expectations of +3.6% y/y, which pushed the 10-year T-note yield up to a 3-week high of 4.342% and bolsters the case for the Fed to keep interest rates higher for longer.  However, stock losses were contained after Aug core CPI eased to +4.3% y/y from +4.7% y/y in July, right on expectations and the slowest pace of increase in almost two years.

U.S. stock index futures are also under pressure on negative carryover from a slide in European stocks as the 10-year German bund yield jumped to a 3-week high after Reuters reported that the ECB's new economic estimates due to be released Thursday will show a Eurozone inflation forecast for 2024 above 3%, bolstering the case for the ECB to raise interest rates at Thursday’s policy meeting.

The markets are discounting the odds at 5% for a +25 bp rate hike at the September 20 FOMC meeting and 43% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield climbed to a 3-week high of 4.342% and is up +1.6 bp at 4.296%. The 10-year German bund yield rose to a 3-week high of 2.690% and is up +2.5 bp at 2.668%.  The 10-year UK gilt yield fell to a 1-1/2 week low of 4.380% and is down -3.5 bp at 4.381%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.60%.  China’s Shanghai Composite Index closed -0.45%.  Japan’s Nikkei Stock Index closed -0.21%.

The Euro Stoxx 50 today is moderately lower.  European stocks are under pressure today on a report from Reuters that said the ECB expects inflation in the Eurozone to remain above 3% next year.  That pushed European government bonds higher, with the 10-year German bund yield climbing to a 3-week high of 2.690%.  The report also boosted market expectations for a 25 bp rate hike by the ECB at Thursday’s meeting to 64% from 42% on Tuesday. 

Weaker-than-expected Eurozone industrial production news also weighed on European stocks.  A brief rally in European carmakers lifted the overall market from its worst levels after the European Union said it was launching an investigation into Chinese subsidies for electric vehicles.  However, carmakers gave up their gains and turned lower on concerns about a backlash from Chinese authorities.

Reuters reported that the ECB's new economic estimates, due to be released Thursday, will show a Eurozone inflation forecast for 2024 above 3%.

Eurozone Jul industrial production fell -1.1% m/m, weaker than expectations of -0.9% m/m and the biggest decline in 4 months.

China’s Shanghai Composite Index posted moderate losses.  Weakness in Chinese suppliers to Apple declined today after the Chinese government flagged “security incidents” with Apple’s iPhones, the government’s first comments on the topic after reports that authorities were moving to restrict the use of Apple products in sensitive departments and state-owned companies.  Also, Chinese electric vehicle makers sold off after the European Union said it was launching an investigation into Chinese subsidies for electric vehicles. 

On the positive side, Chinese travel stocks and tourism-related companies rallied after Thailand said it would waive visa requirements for travelers from China.  Before the pandemic, Chinese tourists accounted for over 30% of Thailand’s 40 million tourist arrivals in 2019.  Also, property stocks gained as market sentiment improved on reports that developer Country Gardens received a yuan bond extension.

Japan’s Nikkei Stock Index closed slightly lower.  Weakness in Japanese technology stocks led the overall market lower, following the -1% fall in the Nasdaq 100 Stock Index on Tuesday.  Also, Japanese suppliers of Boeing fell after Boeing deliveries dropped for a second month after it reported deliveries of 737 Max jets were delayed due to a manufacturing defect where improperly drilled holes were found in a key component that helps control cabin pressure. Japanese stocks recovered from their worst levels on better-than-expected economic reports on August producer prices and Q3 BSI large manufacturing business conditions.  Also, Japanese tire companies gained after Citigroup took a bullish stance on the sector due to an improving demand outlook and benefits from the shift to electric vehicles.   

Japan Aug PPI eased to +3.2% y/y from +3.4% y/y in July, better than expectations of +3.3% y/y.

The Japan Q3 BSI large manufacturing business conditions rose +5.8 to 5.4, the highest since Q4 of 2021.

Pre-Market U.S. Stock Movers

Apple (AAPL) slid nearly -1% in pre-market trading after China flagged “security incidents” with Apple’s iPhones, the government’s first comments after news reports that it was restricting the use of Apple products in sensitive departments and state-owned companies. 

Airline stocks are under pressure after American Airlines Group cut its guidance for Q3 adjusted EPS to 20-30 cents from a previous estimate of 85-95 cents, well below the consensus of 65 cents.  As a result, American Airlines Group (AAL) is down more than -2%.  Also, Delta Air Lines (DAL), United Airlines Holdings (UAL), and Southwest Airlines (LUV) are down more than -1%.

Applied Optoelectronics (AAOI) tumbled more than -12% in pre-market trading after it terminated its agreement to sell manufacturing facilities in China to Yuhan Optoelectronic Technology.

Unity Software (U) lost almost -1% in pre-market trading after Oppenheimer noted negative publicity from the news that the company announced a new pricing structure for its game engine.

Ford Motor (F) rose more than +2% in pre-market trading after UBS double-upgraded the stock to buy from sell with a price target of $15. 

General Motors (GM) gained nearly +1% in pre-market trading after UBS upgraded the stock to buy from neutral with a price target of $44.

Moderna (MRNA) climbed more than +3% in pre-market trading after it said a reformulated version of its messenger-RNA-based flu shot met its primary goals in a final-stage trial, paving the way for it to seek FDA approval for the vaccine. 

Match Group (MTCH) rose more than +2% in pre-market trading after JPMorgan Chase said the stock is now a top pick, and investors are “too pessimistic” about the company. 

Earnings Reports (9/13/2023)

Cracker Barrel Old Country Store (CBRL), DZS Inc (DZSI), EVI Industries Inc (EVI), IBEX Holdings Ltd (IBEX), Presto Automation Inc (PRST), Radiant Logistics Inc (RLGT), REV Group Inc (REVG), Selectquote Inc (SLQT), Semtech Corp (SMTC), Vitesse Energy Inc (VTS).

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