Markets Today: Stocks Edge Higher on Hopes Israeli-Hamas Conflict Can Be Contained

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.38%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.22%.

Stock index futures this morning are moderately higher as the markets track diplomatic efforts to contain the Israel-Hamas conflict.  The markets are also looking to Q3 corporate quarterly earnings results that ramp up this week.

The U.S. and its allies are ramping up diplomatic efforts to contain the conflict between Israel and Hamas. President Biden is considering visiting Israel himself, and German Chancellor Scholz is expected to arrive in Israel on Tuesday.  Also, Jordan King Abdullah II is in Italy, where he’s expected to meet with Italian Prime Minister Meloni to discuss the crisis.  Meanwhile, U.S. Security Advisor Sullivan said the U.S. had warned Iran through back-channel talks about the risk of escalation of the war.

In an interview with Sky News, U.S. Treasury Secretary Yellen said higher interest rates in the U.S. may persist while also saying the U.S. economy is "in a good place." 

The U.S. Oct Empire manufacturing survey general business conditions fell -6.5 to -4.6, a smaller decline than expectations of for a report of -6.0.

The markets are discounting an 8% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 35% 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 higher.  The 10-year T-note is up +7.1 bp at 4.683%.  The 10-year German bund yield is up +4.4 bp at 2.781%.  The 10-year UK gilt yield is up +7.7 bp at 4.463%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.06%.  China’s Shanghai Composite Index closed down -0.46%.  Japan’s Nikkei 225 today closed down -2.03 %.

The Euro Stoxx 50 today is slightly higher as the markets focus on any new developments in the Israeli-Hamas war and what implications the war could have on the economy and interest rates.  Crude prices and European government bond yields are slightly higher.  Technological stock losses are weighing on the overall market after Bloomberg News reported that the U.S. is considering further restrictions on China’s access to advanced semiconductors.  An easing of Eurozone price pressures is supporting stocks after the German Sep wholesale price index eased to -4.1% y/y, the steepest drop in more than three years.  Also, Eurozone political risks eased as exit polls showed Poland’s pro-EU opposition party won a majority in parliamentary elections on Sunday. 

The German Sep wholesale price index eased to -4.1% y/y from -2.7% y/y in Aug, the largest decline in more than three years.

ECB Governing Council member de Cos said the surge in global borrowing costs means ECB policymakers have probably done enough to tame inflation, and the September assessment that the level of interest rates was more appropriate "is even more valid today."

China’s Shanghai Composite Stock Index today dropped to a 7-week low and closed moderately lower.  A slide in technology stocks today undercut market sentiment and weighed on the overall market after Bloomberg News reported the U.S. plans to tighten sweeping measures to restrict China’s access to advanced semiconductors and chipmaking gear. The new rules aim to close loopholes from curbs announced last October and strengthen controls on selling graphic chips for artificial intelligence applications.  The U.S. will also impose additional checks on Chinese firms attempting to evade export restrictions by routing shipments through other nations and add Chinese chip design firms to a trade restriction list, requiring overseas manufacturers to obtain a U.S. license to fill orders from those companies.  Losses in Chinese stocks were limited after the PBOC boosted liquidity and injected the most cash into the financial system in almost three years.

The People's Bank of China (PBOC) added a net 289 billion yuan ($39.6 billion) into the financial system via the medium-term lending facility, the largest monthly injection of cash into the financial system since December 2020.

Japan’s Nikkei Stock Index today closed sharply lower amid concern about the conflict between Israel and Hamas.  Weakness in technology stocks weighed on the overall market after Bloomberg News reported the U.S. will tighten curbs on China’s access to chip technology.  Also, a downward revision to Japan's industrial production activity in August was negative for stocks.  In addition, airlines and Industrial stocks moved lower on concerns that soaring fuel prices will undercut profits after last week’s surge in crude prices. 

Japan Aug industrial production was revised downward to -0.7% m/m from the initially reported unchanged m/m.

Pre-Market U.S. Stock Movers

Lululemon Athletica (LULU) jumped more than +4% in pre-market trading after S&P Dow Jones Indices announced the stock will replace Activision Blizzard in the S&P 500 before the opening of trading on Wednesday.

Hubbell Inc (HUBB) climbed more than +2% in pre-market trading after S&P Dow Jones Indices announced the stock would replace Organon in the S&P 500 before the opening of trading on Wednesday. 

VinFast Auto Ltd (VFS) rose more than +3% in pre-market trading after CEO Le Thi Thu Thuy said the company plans to move into Southeast Asian markets aggressively and expects to meet its target of selling 35,000 to 50,000 vehicles this year.  

Allison Transmission Holdings (ALSN) is up more than +2% in pre-market trading after JPMorgan Chase upgraded the stock to neutral from underweight.

Dexcom (DXCM) climbed more than +2% in pre-market trading after Leerink Partners reinstated coverage of the stock with a recommendation of outperform and a price target of $110. 

Colgate-Palmolive (CL) rose more than +1% in pre-market trading after Stifel upgraded the stock to buy from hold with a price target of $81. 

Instacart (CART) gained more than +1% in pre-market trading after Barclays initiated coverage on the stock with a recommendation of overweight and a price target of $40. 

New Ambrx Biopharma (AMAM) surged more than +45% in pre-market trading after it released data abstract from a trial of its investigational drug for prostate cancer.  Cantor Fitzgerald said the data “exceeded street expectations.” 

Apple (AAPL) fell more than -1% in pre-market trading on signs of weak Chinese demand for the new iPhone when market tracker Counterpoint Research reported sales of the new iPhone 15 are down -4.5% in China compared with the iPhone 14 over their first 17 days after release.

Pfizer (PFE) dropped more than -2% in pre-market trading after cutting its full-year revenue forecast to $58 billion-$61 billion from a previous estimate of $67 billion-$70 billion. 

Chip equipment stocks are falling in pre-market trading after Bloomberg News reported that the U.S. plans to tighten restrictions on China’s access to advanced semiconductors and chipmaking gear.  As a result, Nvidia (NVDA), KLA Corp (KLAC), Applied Materials (AMAT), Lam Research (LRCX), Advanced Micro Devices (AMD), and ASML Holding NV (ASML) are down more than -1%.   

Trade Desk (TTD) tumbled more than -5% in pre-market trading on signs of insider selling after an SEC filing showed CEO Green sold $14.9 million shares last Wednesday and Friday.

Charles Schwab (SCHW) slid nearly -1% in pre-market trading after reporting Q3 net revenue of $4.61 billion, weaker than the consensus of $4.63 billion.

Earnings Reports (10/16/2023)

Charles Schwab Corp/The (SCHW), CrossFirst Bankshares Inc (CFB), Enerpac Tool Group Corp (EPAC), Equity LifeStyle Properties Inc (ELS), FB Financial Corp (FBK), Guaranty Bancshares Inc/TX (GNTY), ServisFirst Bancshares Inc (SFBS), Veradigm Inc (MDRX).

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