Markets Today: Stocks Climb on Dovish Global Inflation News

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.71%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.98%.

Stock index futures this morning are moderately higher.  U.S. stock futures are climbing on carryover support from a rally in European stocks after today’s news showed Eurozone price pressures eased more than expected.  Eurozone Sep CPI eased to +4.3% y/y from +5.2% y/y in Aug, the slowest pace of increase in almost two years.  The friendly inflation news also sparked a bond rally, adding to the positive sentiment in stocks. 

U.S. stock index futures extended their gains as bond yields fell further on dovish inflation news after this morning’s report on the Aug PCE core deflator, the Fed’s preferred inflation gauge, rose +3/.9% y/y, the slowest pace in 2 years.

Adding to positive sentiment is the possible improvement in U.S.-China relations after the Wall Street Journal reported that China’s Vice Premier He Lifeng and Foreign Minister Wang Yi are discussing possible visits to Washington to prepare for a potential summit between President Xi Jinping and President Biden.

A negative factor for stocks is the near certainty of a U.S. government shutdown, with House Republicans unable to agree on a plan to continue funding federal operations.  Republican hardliners continue to demand deep spending cuts and immigration policy changes before agreeing to a plan.  A shutdown appears imminent on October 1 as House Speaker McCarthy cannot get GOP lawmakers to agree on a temporary spending bill to keep the government open. 

U.S. Aug personal spending rose +0.4% m/m, weaker than expectations of +0.5% m/m.  Aug personal income rose +0.4% m/m, right on expectations.

The U.S. Aug PCE core deflator eased to +3.9% y/y from +4.3% y/y in July, right on expectations and the slowest pace of increase in 2 years.

The markets are discounting a 17% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 36% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields today are moving lower.  The 10-year T-note yield is down -4.5 bp at 4.530%.  The 10-year German bund yield is down -8.3 bp at 2.847%.  The 10-year UK gilt yield is down -3.8 bp at 4.446%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +1.13%.  China’s Shanghai Composite Index was closed for the Golden Week holidays.  Japan’s Nikkei 225 today closed -0.05%.

The Euro Stoxx 50 today is moving higher as European price pressures ease after Eurozone Sep CPI rose less than expected at the slowest pace in almost two years.  The dovish European inflation report also knocked government bond yields lower, a supportive factor for equities.  Gains in European luxury stocks are leading the overall market higher after Bank of America raised their view on the sector to overweight. European bank stocks are also climbing, led by a +10% jump in Commerzbank AG after it announced plans to return 3 billion euros ($3.2 billion) to shareholders.   On the negative side, German Aug retail sales unexpectedly fell by the most in 8 months.

ECB Governing Council member Kazaks said, "Interest rates will probably remain steady for an extended period.  However, if inflation doesn't go down, then there could be a small increase."

Eurozone Sep CPI eased to +4.3% y/y from +5.2% y/y in Aug, better than expectations of +4.5% y/y and the slowest pace of increase in almost two years.  Also, Sep core CPI eased to +4.5% y/y from +5.2% y/y in Aug, better than expectations of +4.8% y/y and the slowest pace of increase in 13 months.

German Aug retail sales unexpectedly fell -1.2% m/m, weaker than the expectation of an increase of +0.5% m/m and the biggest decline in 8 months.

China’s Shanghai Composite Stock Index today was closed for the weeklong Golden Week holidays. 

Japan’s Nikkei Stock Index today closed slightly lower.  Weaker-than-expected economic news today weighed on Japanese stocks after Aug retail sales rose less than expected and after the Japan Sep consumer confidence index fell more than expected to a 6-month low.  Also, rising government bond yields undercut stocks after the 10-year JGB bond yield climbed to a 10-year high today at 0.774%.  Stocks sold off today on rising global bond yields. The 10-year Japan JGB bond yield rose to a 10-year high today at 0.763%.  On the positive side, Aug industrial production was stronger than expected, and price pressures eased after the Tokyo Sep CPI ex-fresh food and energy rose less than expected.

Today, the Bank of Japan (BOJ) attempted to slow the rise in long-term government bond yields when it announced an unscheduled bond-purchase operation.  The BOJ purchased 300 billion yen ($2 billion) of five- to 10-year bonds.  The 10-year Japan JGB bond yield fell back slightly from a 10-year high after the operation.

The Japan Sep consumer confidence index fell -1.0 to a 6-month low of 35.2, weaker than expectations of no change at 36.2.

Japan Aug industrial production was unchanged m/m, stronger than expectations of -0.8% m/m.

Japan Aug retail sales rose +0.1% m/m, weaker than expectations of +0.4% m/m.

Japan Tokyo Sep CPI ex-fresh food and energy eased to +3.8% y/y from +4.0% y/y in Aug, better than expectations of +3.9% y/y.

Pre-Market U.S. Stock Movers

Nike (NKE) jumped more than +8% in pre-market trading after reporting Q4 EPS of 93 cents, stronger than the consensus of 75 cents.  Other sports apparel and footwear stocks rallied on the Nike news, with Dick’s Sporting Goods (DKS) up more than +3%, and Foot Locker (FL) and Lululemon Athletica (LULU) up more than +2%.

Today's decline in bond yields is pushing chip stocks higher in pre-market trading.  Advanced Micro Devices (AMD), KLA Corp (KLAC), Microchip Technology (MCHP), Marvell Technology (MRVL), Lam Research (LRCX), and Applied Materials (AMAT) are up more than +1%.

Meta Platforms (META) is up more than +1% in pre-market trading on analysts' positive views after the annual Connect developers conference, where it detailed new artificial intelligence features and its latest lineup of head-worn devices.

Ball Corp (BALL) climbed more than +2% in pre-market trading after Jeffries upgraded the stock to buy from hold with a price target of $64. 

Texas Roadhouse (TXRH) is up more than +2% in pre-market trading after Northcoast Research upgraded the stock to buy from neutral with a price target of $118.

Brinker International (EAT) rose more than +3% in pre-market trading after Stifel upgraded the stock to buy from hold with a price target of $45. 

Earnings Reports (9/29/2023)

Carnival Corp (CCL), Comtech Telecommunications Cor (CMTL), Mitek Systems Inc (MITK), Uranium Energy Corp (UEC).

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