Markets Today: Stocks Slip as Bond Yields Resume Their Climb

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.20%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.05%.

Stock index futures this morning gave up overnight gains and turned lower as rising bond yields weighed on stocks.  Stock index futures initially moved higher in overnight trading after U.S. lawmakers late Saturday night reached a deal to avoid a government shutdown, sparking a relief rally in stock index futures.  The markets are awaiting the U.S. Sep ISM manufacturing report and a speech from Fed Chair Powell later this morning for market direction.  

Adding to positive sentiment is better-than-expected Chinese economic news that is supportive of global growth after China Sep manufacturing and Sep non-manufacturing activity expanded more than expected.   

Goldman Sachs today said mega-cap U.S. tech stocks are likely to do well during the Q3 earnings season after a recent selloff led to lower valuations and "The divergence between falling valuations and improving fundamentals represents an opportunity for investors."

The markets are discounting a 33% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 50% 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 higher.  The 10-year T-note yield is up +6.0 bp at 4.631%.  The 10-year German bund yield is up +2.8 bp at 2.867%.  The 10-year UK gilt yield is up +4.6 bp at 4.484%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.39%.  China’s Shanghai Composite Index was closed for the Golden Week holidays.  Japan’s Nikkei 225 today closed -0.31%.

The Euro Stoxx 50 today gave up an early advance and turned lower as higher bond yields weighed on the overall market.   European government bond yields rose on hawkish comments from ECB Vice President Guindos, who said talk of rate cuts by the ECB are premature.  Also, weakness in pharmaceutical stocks was putting pressure on the overall market.   European stocks initially opened higher today as sectors exposed to China, such as luxury goods makers and miners, rose on signs of improvement in China’s economy after Chinese manufacturing activity in September expanded by the most in 6 months.

The Eurozone Aug unemployment rate fell -0.1 to match the record low of 6.4%, right on expectations.

ECB Vice President Guindos said interest rates at their current levels would help bring down inflation to the ECB's 2% target, and talk of rate cuts by the ECB are premature.

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

The China Sep manufacturing PMI rose +0.5 to 50.2, stronger than expectations of 50.1 and the fastest pace of expansion in 6 months.  Also, the Sep non-manufacturing PMI rose +0.7 to 51.7, stronger than expectations of 51.6.

Japan’s Nikkei Stock Index today gave up early gains and closed moderately lower.  Sings of weakness in Japanese manufacturing activity weighed on stocks after the Japan Sep Jibun Bank manufacturing PMI was revised downward to its steepest pace of contraction in 7 months.  Also, soaring government bond yields undercut stocks after the 10-year JGB bond yield jumped to a 10-year high of 0.783%.  Japanese stocks today initially opened higher on signs of economic optimism after the Q3 Tankan large manufacturing business conditions rose more than expected.  Also, positive carryover for a rally in U.S. stock index futures initially pushed Japanese stocks higher after U.S. lawmakers reached a deal late Saturday night to avoid a government shutdown. 

The yen dropped to an 11-1/4 month low against the dollar today after the Bank of Japan (BOJ) announced an extra bond-buying plan of five- to 10-year bonds for this week in an attempt to curb the rise in long-term government bond yields.  The BOJ said it will announce the amounts of its five- to 10-year bond buys when it begins the operations.

The Japan Q3 Tankan large manufacturing business conditions rose +4 to 9, stronger than expectations of 6.

The Japan Sep Jibun Bank manufacturing PMI was revised downward by -0.1 to 48.5 from the initially reported 48.6, the steepest pace of contraction in 7 months.

Pre-Market U.S. Stock Movers

Discover Financial Services (DFS) climbed more than +3% in pre-market trading after agreeing to improve its consumer compliance management system and enhance related corporate governance and enterprise risk management practices as part of a consent order issued by the FDIC.

Tesla (TSLA) gained nearly +1% in pre-market trading after releasing an updated version of the Model Y in China, with improved configurations and the same starting price.   

Datadog (DDOG) jumped more than +3% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral with a price target of $115.

Rivian Automotive (RIVN) rallied more than +3% in pre-market trading after Evercore ISI upgraded the stock to outperform from in line with a price target of $35.

FedEx (FDX) rose almost +1% in pre-market trading after Susquehanna Financial upgraded the stock to positive from neutral with a price target of $315.

Xylem (XYL) gained nearly +1% in pre-market trading after Melius Research upgraded the stock to buy from hold with a price target of $122.

Macerich (MAC) climbed more than +4% in pre-market trading after Piper Sandler upgraded the stock to neutral from underweight. 

U.S. Steel (X) gained more than +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from neutral with a price target of $40. 

Cryptocurrency-exposed stocks are moving higher in pre-market trading, with the price of Bitcoin up more than +5% at a 1-1/2 month high.  As a result, Coinbase Global (COIN), Marathon Digital (MARA), Microstrategy (MSTR), and Riot Platforms (RIOT) are up more than +5%. 

United Parcel Service (UPS) slid almost -1% in pre-market trading after Susquehanna Financial cut its price target on the stock to $160 from $173.

Fidelity National Financial (FNF) dropped more than -3% in pre-market trading after Keefe, Bruyette & Woods downgraded the stock to market perform from outperform 

Chubb Ltd (CB) fell more than -1% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.

Toast (TOST) slid more than -1% in pre-market trading after Mizuho Securities downgraded the stock to neutral from buy.

Earnings Reports (10/2/2023)

Veradigm Inc (MDRX).

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