Stocks Climb Before the Open as Bond Yields Fall, U.S. Inflation Data Looms

December S&P 500 futures (ESZ23) are up +0.43%, and December Nasdaq 100 E-Mini futures (NQZ23) are up +0.46% this morning as U.S. Treasury yields continued to fall, while market participants braced for a key U.S. consumer inflation report.

The minutes of the Federal Open Market Committee’s September 19-20 meeting revealed that most Federal Reserve policymakers found it “appropriate” to implement one more rate hike and stressed the importance of maintaining higher interest rates for an extended period as inflation continues to trend well above the central bank’s 2% target. At the same time, some participants argued that the focus of monetary policy decisions should transition from considering “how high” to raise rates to determining “how long” to hold rates at restrictive levels. “A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted,” according to the FOMC minutes released Wednesday.

In Wednesday’s trading session, Wall Street’s major averages ended higher. Alphabet Inc (GOOGL) and Meta Platforms Inc (META) rose over +1% following a report indicating that the megacap firms had received an internal draft proposing a more business-friendly stance on artificial intelligence from Southeast Asian countries. Also, Amgen Inc (AMGN) climbed more than +4% after Leerink Partners upgraded the stock to Outperform from Market Perform with a price target of $318. On the bearish side, Exxon Mobil Corp (XOM) slid over -3% after agreeing to buy Pioneer Natural Resources in an all-stock deal valued at $59.5 billion. In addition, shares of dialysis companies slumped after Novo Nordisk said that it was ending a kidney failure study of its GLP-1 drug Ozempic early due to efficacy data, with DaVita (DVA) tumbling more than -16% and Baxter International (BAX) plunging over -12%. 

Economic data on Wednesday showed that U.S. PPI rose +0.5% m/m and +2.2% y/y in September, higher than the expected figures of +0.3% m/m and +1.6% y/y. Also, U.S. September Core PPI rose +0.3% m/m and +2.7% y/y, stronger than expectations of +0.2% m/m and +2.3% y/y.

Meanwhile, Fed Governor Christopher Waller stated Wednesday that the U.S. central bank could “watch and see” what happens before making additional decisions on interest rates, particularly as financial markets tighten. “We’re in this position where we can watch and see what’s going on with rates,” Waller said. Also, Atlanta Fed President Raphael Bostic said Wednesday that the U.S. central bank should refrain from further interest rate hikes due to the numerous indicators suggesting a slowing economy. “Today, I don’t think we need to do anything more in terms of interest rates,” Bostic said. However, Bostic noted that the Fed would “need to do more” if inflation stalls or goes in the other direction.

U.S. rate futures have priced in an 8.6% probability of a 25 basis point rate increase at the November FOMC meeting and a 26.0% chance of a 25 basis point rate hike at the December FOMC meeting.

On the earnings front, notable companies like Fastenal (FAST), Delta Air Lines (DAL), Walgreens Boots (WBA), and Domino’s Pizza Inc (DPZ) are set to report their quarterly figures today.

Today, all eyes are focused on the U.S. consumer inflation report in a couple of hours. Economists, on average, forecast that September U.S. CPI will come in at +0.3% m/m and +3.6% y/y, compared to the previous values of +0.6% m/m and +3.7% y/y.

“It’s the last CPI reading before the next FOMC decision on November 1st and, therefore, it could be impactful to markets that are pricing little to no chance at a hike at that meeting,” Scotiabank Economics said in a recent note. 

Also, investors will likely focus on U.S. Core CPI data. Economists anticipate Core CPI to be +0.3% m/m and +4.1% y/y in September, compared to the previous figures of +0.3% m/m and +4.3% y/y.

U.S. Initial Jobless Claims data will also be closely watched today. Economists foresee this figure to come in at 210K, slightly higher than the 207K reported last week.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be +0.492M, compared to last week’s value of -2.224M.

In the bond markets, United States 10-year rates are at 4.560%, down -0.76%.

The Euro Stoxx 50 futures are up +0.40% this morning as investors digested solid U.K. growth numbers while awaiting the release of U.S. CPI data for monetary policy clues. Gains in energy and media stocks are leading the overall market higher. Data from the Office for National Statistics showed on Thursday that the U.K. economy rebounded moderately in August, primarily attributed to growth in the services sector. In corporate news, Publicis Groupe Sa (PUB.FP) climbed over +4% after the world’s largest advertising group boosted its 2023 sales and margin forecasts.

U.K.’s GDP, U.K.’s Industrial Production, U.K.’s Manufacturing Production, and U.K.’s Monthly GDP 3M/3M Change data were released today.

U.K. August GDP has been reported at +0.2% m/m and +0.5% y/y, in line with expectations.

U.K. August Industrial Production stood at -0.7% m/m and +1.3% y/y, weaker than expectations of -0.2% m/m and +1.7% y/y.

U.K. August Manufacturing Production came in at -0.8% m/m and +2.8% y/y, weaker than expectations of -0.4% m/m and +3.4% y/y.

U.K. August Monthly GDP 3M/3M Change arrived at +0.3%, in line with expectations.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.94%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +1.75%.

China’s Shanghai Composite today closed higher as a move by Chinese sovereign wealth fund Central Huijin Investment to increase its stake in the nation’s biggest banks for the first time since 2015 boosted sentiment. China’s sovereign wealth fund raised its stakes in each of the four banks by 0.01% and expressed its intention to increase holdings even further over the next six months, stoking speculation authorities will intensify efforts to prop up the sinking stock market. As a result, shares of Industrial & Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China, along with stocks of other lenders, advanced in mainland and Hong Kong trading. Meanwhile, Reuters reported on Thursday that China issued a notice forbidding domestic brokerages and their overseas units from accepting new clients from the mainland for offshore trading, a move aimed at curbing capital outflows. Investor focus is now squarely on China’s trade data for September, due on Friday.

“The ‘real money’ by Central Huijin is of great significance to the stock market. It sent a strong signal of ‘continuous investment’ in the market. This will play an important and positive role in boosting investor confidence,” said Yang Delong, chief economist at First Seafront Fund Management.

Japan’s Nikkei 225 Stock Index closed sharply higher today as investors continued to scoop up beaten-down stocks, with chip stocks taking the lead in the rally. Data from the Cabinet Office on Thursday revealed that Japan’s core machinery orders declined for a second consecutive month in August, suggesting worries about a global economic slowdown and China’s uncertain recovery might be dampening companies’ willingness to make new investments. Meanwhile, Bank of Japan board member Asahi Noguchi reaffirmed the central bank’s prevailing stance of “patient monetary easing” until wage growth momentum is in place and for inflation to ease over the coming months. In corporate news, chip-related stocks climbed on Thursday after Samsung Electronics earnings indicated the industry’s performance hit the bottom. As a result, Tokyo Electron Ltd rose nearly +3%, Advantest Corp climbed about +4%, and Renesas Electronics Corp gained more than +5%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +0.05% to 20.68.

The Japanese September PPI stood at -0.3% m/m and +2.0% y/y, weaker than expectations of +0.1% m/m and +2.3% y/y.

The Japanese August Core Machinery Orders came in at -0.5% m/m and -7.7% y/y, weaker than expectations of +0.4% m/m and -7.3% y/y.

“The market was firm overall. Investors bought back stocks that fell in recent sell-offs. They realized that the fundamental for the Japanese economy has not changed,” said Ikuo Mitsui, fund manager at Aizawa Securities.

Pre-Market U.S. Stock Movers

Genetron Holdings Ltd (GTH) surged about +17% in pre-market trading after entering into a definitive merger agreement with New Genetron and its unit, Genetron New.

Dynatrace Holdings LLC (DT) rose over +1% in pre-market trading after DA Davidson upgraded the stock to Buy from Neutral.

First Solar Inc (FSLR) climbed more than +3% in pre-market trading after Barclays upgraded the stock to Overweight from Equal Weight.

Jack Henry & Associates Inc (JKHY) fell over -2% in pre-market trading after Goldman Sachs downgraded the stock to Sell from Neutral.

Smartsheet Inc (SMAR) gained over +1% in pre-market trading after UBS initiated coverage of the stock with a Buy rating.

Beyond Meat Inc (BYND) plunged more than -5% in pre-market trading after Mizuho downgraded the stock to Underperform from Neutral.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Thursday - October 12th

Fastenal (FAST), Delta Air Lines (DAL), Walgreens Boots (WBA), Domino’s Pizza Inc (DPZ), Commercial Metals (CMC), Smart Global (SGH), Oil-Dri Of America (ODC), Comtech (CMTL), Byrna Technologies (BYRN).

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