Markets Today: Stocks Slip as Bond Yields Climb on U.S. Labor Market Strength

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.39%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.34%.

Stock index futures this morning are moderately lower.  A smaller-than-expected increase in weekly initial unemployment claims signals labor market strength that nudged bond yields higher and is weighing on stocks. Losses in stock index futures were limited after the U.S. Aug trade deficit narrowed more than expected to a 3-year low, a positive development for GDP.

U.S. weekly initial unemployment claims rose +2,000 to 207,000, showing a stronger labor market than expectations of 210,000.  Weekly continuing claims unexpectedly fell -1,000 to 1.664 million, showing a stronger labor market than expectations of an increase to 1.671 million.

The U.S. Aug trade deficit shrank to a nearly 3-year low of -$58.3 billion from -$64.7 billion in July, a narrower deficit than expectations of -$59.8 billion. 

After Wednesday’s smaller-than-expected increase in the U.S. Sep ADP employment change, market attention will focus on Friday’s monthly U.S. report that is expected to show Sep nonfarm payrolls rose by +170,000 and the Sep unemployment rate fell by -0.1 to 3.7%. 

The markets are discounting a 24% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 43% 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 are moving higher.  The 10-year T-note yield is up +3.2 bp at 4.765%.  The 10-year German bund yield is up +1.6 bp at 2.935%.  The 10-year UK gilt yield is up +2.3 at 4.602%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.23%.  China’s Shanghai Composite Index was closed for the Golden Week holidays.  Japan’s Nikkei 225 today closed +1.80%.

The Euro Stoxx 50 today is moderately higher, led by strength in industrial goods and services stocks.  European government bond yields are modestly higher and are limiting gains in stocks after ECB Vice President de Guindos said that given still strong inflation, it is "premature" to discuss a potential reduction of interest rates. Also, weaker-than-expected German economic news today was bearish for stocks, including weak German trade news and a record contraction in the German Sep S&P construction PMI.  In addition, energy stocks are under pressure as crude prices tumbled to a 5-week low. 

ECB Vice President de Guindos said that given still strong inflation, it is "premature" to discuss a potential reduction of interest rates.

German Aug exports fell -1.2% m/m, weaker than expectations of -0.6% m/m.  Also, Aug imports unexpectedly fell -0.4% m/m versus expectations of a +0.5% m/m increase.

The German Sep S&P construction PMI fell -2.2 t 39.3, the steepest pace of contraction since the data series began in 2020.

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

Japan’s Nikkei Stock Index today closed moderately higher as it rebounded from Wednesday’s 4-1/2 month low.  Japanese stocks had carryover support from a stabilization of T-note yields on Wednesday that allowed U.S. equity markets to recover.  A rally in airline stocks led the overall market higher as a plunge in crude prices to a 5-week low should lower fuel costs and boost airlines’ profits. Japanese stocks rallied today despite rising government bond yields as the 10-year JGB bond yield climbed to a new 10-year high at 0.814%. 

Pre-Market U.S. Stock Movers

Clorox (CLX) dropped more than -4% in pre-market trading after saying preliminary net sales fell by 23%-28% in the quarter ended September 30 after a cyberattack disrupted production.

Rivian Automotive (RIVN) tumbled more than -7% in pre-market trading after announcing plans to issue $1.5 billion in convertible debt.

Tractor Supply (TSCO) slid by more than -1% in pre-market trading after Citigroup downgraded the stock to neutral from buy.   

Energy stocks and energy service providers are under pressure in pre-market trading as crude prices are down another -1% at a new 5-week low after plunging by -5% on Wednesday.  As a result, Devon Energy (DVN), Phillips 66 (PSX), Haliburton (HAL), Marathon Oil (MRO), Schlumberger (SLB), Exxon Mobil (XOM), Occidental Petroleum (OXY), and Valero Energy (VLO) are down more than -1%.

Conagra Brands (CAG) fell more than -1% in pre-market trading after reporting Q1 net sales of $2.90 billion, weaker than the consensus of $2.95 billion.

Resources Connection (RGP) fell more than -1% in pre-market trading after reporting Q1 revenue of $170.2 million, below the consensus of $170.5 million. 

Chubb Ltd (CB) gained more than +1% in pre-market trading after Deutsche Bank reinstated coverage of the stock with a recommendation of buy and a price target of $269. 

O’Reilly Automotive (ORLY) rose nearly +1% in pre-market trading after Citigroup upgraded the stock to buy from neutral with a price target of $1,040.

Ceridian HCM Holding (CDAY) climbed more than +2% in pre-market trading after Needham upgraded the stock to buy from hold with a price target of $82.

Orchard Therapeutics ADRs (ORTX) soared more than +95% in pre-market trading after Kyowa Kirin agreed to acquire the company for $387.4 million or $16 per American depository share. 

Earnings Reports (10/5/2023)

Aehr Test Systems (AEHR), Conagra Brands Inc (CAG), Constellation Brands Inc (STZ), Lamb Weston Holdings Inc (LW), Park Aerospace Corp (PKE), Richardson Electronics Ltd/Uni (RELL), Urban One Inc (UONEK).

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