S&P Futures Plunge as Middle East Fears Weigh on Sentiment, Tesla and Netflix Earnings on Tap

December S&P 500 futures (ESZ23) are trending down -0.45% this morning as uncertainties lingered in the Middle East, and investors weighed the possibility of further rate hikes by the Federal Reserve while eagerly awaiting earnings results from U.S. heavyweights Tesla and Netflix.

In Tuesday’s trading session, Wall Street’s major indexes closed mixed. NVIDIA Corporation (NVDA) slumped over -4% following the United States’ imposition of curbs on the sale of chips produced by the company to China. Also, Goldman Sachs Group Inc (GS) fell more than -1% after the big bank reported a 33% decline in profit for the third quarter. In addition, NetScout Systems Inc (NTCT) plunged over -16% after the company cut its FY24 guidance. On the bullish side, Bank of America Corp (BAC) rose more than +2% after reporting better-than-expected Q3 results. Also, Dollar Tree Inc (DLTR) climbed over +4% after Goldman Sachs upgraded the stock to Buy from Neutral.

Economic data on Tuesday showed that U.S. September retail sales rose +0.7% m/m, stronger than expectations of +0.3% m/m. Also, U.S. industrial production stood at +0.3% m/m in September versus an expected figure of +0.1% m/m. In addition, U.S. September manufacturing production came in at +0.4% m/m, stronger than expectations of +0.1% m/m. 

“The data so far is extremely robust, which keeps another rate hike in December on the table,” said Gargi Chaudhuri, head of iShares investment strategy at BlackRock.

Meanwhile, Richmond Fed President Thomas Barkin stated on Tuesday that policymakers “have time” to work out whether they can hold interest rates at their current levels or if there is a need to raise them further to achieve the policymakers’ 2% inflation target. “While the path for inflation isn’t yet clear, we have time to see if we have done enough or whether there’s more work to do,” Barkin said. 

U.S. rate futures have priced in a 9.9% chance of a 25 basis point rate increase at the next central bank meeting in November and a 38.2% chance of a 25 basis point rate hike at the conclusion of the Fed’s December meeting.

Third-quarter earnings season picks up steam, with investors awaiting fresh reports from major global companies today, including Tesla (TSLA), Netflix (NFLX), Procter & Gamble (PG), Abbott Labs (ABT), and Morgan Stanley (MS). 

In other news, the planned summit between President Joe Biden and Arab leaders was called off following an explosion at a Gaza hospital that resulted in the loss of hundreds of lives. Israel attributed the explosion to a failed missile launch by the Palestinian Islamic Jihad, potentially marking one of the deadliest incidents since the Hamas attack on October 7th, which resulted in the deaths of 1,300 Israelis. At the same time, the foreign minister of Iran, a major oil exporter, advocated for an oil embargo against Israel.

Today, all eyes are focused on the U.S. Building Permits preliminary data in a couple of hours. Economists, on average, forecast that September Building Permits will stand at 1.455M, compared to the previous value of 1.541M.

Also, investors are likely to focus on U.S. Housing Starts data, which was at 1.283M in August. Economists foresee the September figure to be 1.380M.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be -0.300M, compared to last week’s value of +10.176M.

In addition, market participants will be looking toward a batch of speeches from Fed officials Waller, Williams, Bowman, Harker, and Cook.

In the bond markets, United States 10-year rates are at 4.854%, up +0.10%.

The Euro Stoxx 50 futures are down -0.22% this morning as investors digested fresh Eurozone and U.K. inflation data as well as disappointing results from Abb Ltd while concerns over an escalation in the Middle East conflict continued to weigh on sentiment. Industrial stocks lost ground on Wednesday, while energy and consumer product stocks outperformed. Data on Wednesday showed that U.K. prices maintained the same growth rate in September as in the prior month, ending the recent trend of declining inflation as services prices rose. Separately, data showed Wednesday that Eurozone headline inflation in September cooled to its lowest point since October 2021, confirming preliminary estimates. In corporate news, Adidas Ag (ADS.D.DX) climbed more than +4% after the sportswear maker lifted its guidance for a second time in three months. At the same time, Abb Ltd (ABBN.Z.IX) plunged over -5% after reporting weaker-than-expected earnings. 

U.K.’s CPI, U.K.’s Core CPI, Eurozone’s CPI, and Eurozone’s Core CPI data were released today.

U.K. September CPI stood at +0.5% m/m and +6.7% y/y, compared to expectations of +0.5% m/m and +6.6% y/y.

U.K. September Core CPI arrived at +0.5% m/m and +6.1% y/y, compared to expectations of +0.5% m/m and +6.0% y/y.

Eurozone September CPI has been reported at +0.3% m/m and +4.3% y/y, in line with expectations.

Eurozone September Core CPI came in at +0.2% m/m and +4.5% y/y, in line with expectations.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.80%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.01%.

China’s Shanghai Composite today closed lower as concerns over the country’s property sector overshadowed better-than-expected readings on China’s economy. Data showed on Wednesday that China’s economy expanded at a rate exceeding expectations in the third quarter, while domestic consumption also picked up pace last month, indicating that the recent recovery may have sufficient momentum to meet Beijing’s annual growth target. Meanwhile, JP Morgan and Nomura revised their forecasts for China’s 2023 GDP upward. Separately, data showed that the country’s industrial output grew more than expected in September from a year earlier, remaining consistent with the August growth rate, signifying that policy support measures are beginning to stabilize segments of the world’s second-largest economy. At the same time, data released Wednesday indicated that China’s home sales worsened in the first three quarters of the year, despite Beijing’s efforts to reverse a protracted real estate slump. In addition, market sentiment was negatively affected by the Biden administration’s latest imposition of additional restrictions on the export of more advanced artificial intelligence chips to China. As a result, 5G communications and AI stocks slumped on Wednesday. In other news, Country Garden’s $15 million coupon payment deadline has passed without a word of payment, heightening expectations that China’s largest private property developer has defaulted on its offshore debt. On the positive side, BYD climbed over +4% after the Chinese automaker said it expects third-quarter profit to rise at least 67% amid record electric vehicle sales.

The Chinese GDP has been reported at +1.3% q/q and +4.9% y/y in the third quarter, stronger than expectations of +1.0% q/q and +4.4% y/y.

The Chinese September Industrial Production stood at +4.5% y/y, stronger than expectations of +4.3% y/y.

The Chinese September Retail Sales came in at +5.5% y/y, stronger than expectations of +4.9% y/y.

The Chinese September Unemployment Rate was at 5.0%, stronger than expectations of 5.2%.

“Third-quarter GDP and September activity data, National Day Golden Week tourism revenue, as well as high-frequency trackers jointly point to more green shoots in the economy and indicate the sequential growth momentum continues to recover on the back of the ongoing policy easing, albeit at a gradual pace,” Goldman Sachs analysts said in a note.

Japan’s Nikkei 225 Stock Index closed just above the flatline today as investors digested better-than-expected Chinese economic data, while anxieties about a more hawkish Federal Reserve and uncertainties related to the Gaza conflict continued to weigh on sentiment. Energy stocks outperformed on Wednesday due to a surge in crude oil prices. Bank stocks also gained ground, mirroring the gains observed in their U.S. counterparts, with Concordia Financial Group Ltd and Resona Holdings Inc rising over +2%. Meanwhile, the Bank of Japan announced unscheduled bond purchases after the country’s 10-year yield reached a new decade-high. In corporate news, Keisei Electric Railway climbed more than +7% following a statement from shareholder Palliser Capital, which asserted that the company is trading at a substantial discount and has room to release value. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -0.71% to 21.00.

Pre-Market U.S. Stock Movers

United Airlines Holdings Inc (UAL) slid over -4% in pre-market trading after the carrier provided weaker-than-expected Q4 EPS guidance. 

Floor & Decor Holdings Inc (FND) climbed more than +7% in pre-market trading after entering the S&P MidCap 400 index.

NVIDIA Corporation (NVDA) fell over -1% in pre-market trading after Morgan Stanley lowered its price target on the stock to $600 from $630.

Viking Therapeutics Inc (VKTX) soared about +15% in pre-market trading after the biotech drug developer announced data from an early-stage clinical study showed its drug candidate reduced liver fat levels.

Elastic NV (ESTC) rose over +1% in pre-market trading after Jefferies upgraded the stock to Buy from Hold.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - October 18th

Tesla (TSLA), Procter & Gamble (PG), Abbott Labs (ABT), Netflix (NFLX), Morgan Stanley (MS), Elevance Health (ELV), Lam Research (LRCX), U.S. Bancorp (USB), Crown Castle (CCI), Travelers (TRV), Kinder Morgan (KMI), Las Vegas Sands (LVS), PPG Industries (PPG), Nasdaq Inc (NDAQ), Discover (DFS), Equifax (EFX), State Street (STT), M&T Bank (MTB), Steel Dynamics (STLD), Northern Trust (NTRS), Citizens Financial Group Inc (CFG), Rexford Inl Rty (REXR), Ally Financial Inc (ALLY), First Industrial RT (FR), Commerce Bancshares (CBSH), First Horizon National (FHN), Zions (ZION), Alcoa (AA), Columbia Banking (COLB), Synovus (SNV), FNB (FNB), Liberty Oilfield (LBRT), United Community Banks (UCBI), Unifirst (UNF), SL Green (SLG), Winnebago Industries (WGO), Marten Transport (MRTN), Stepan (SCL), Banner (BANR), Monarch (MCRI).

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