Stocks Muted Before the Open With U.S. Inflation Data in Focus

December S&P 500 E-Mini futures (ESZ24) are down -0.15%, and December Nasdaq 100 E-Mini futures (NQZ24) are down -0.23% this morning as investors refrained from making any big bets ahead of a key U.S. inflation report that could offer clues on the Federal Reserve’s policy path.

The minutes of the Federal Open Market Committee’s September 17-18 meeting, released Wednesday, showed that some officials favored a smaller, quarter-point cut. “Some participants observed that they would have preferred a 25-basis-point reduction of the target range at this meeting, and a few others indicated that they could have supported such a decision,” according to the FOMC minutes. Despite the debate, the minutes noted a “substantial majority” supported the outsized half-point rate cut. Also, nearly all participants agreed that the upside risks to inflation have diminished, while downside risks to employment have increased. In addition, Fed officials aimed to communicate to the public that their policy “recalibration” should not be “interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants’ assessments of the appropriate path.”

“Fed minutes were pretty ‘ho-hum,’ which could actually be a good thing for stock investors,” said David Russell at TradeStation. “Policymakers agree inflation is fading and they see potential weakness in job growth. That keeps rate cuts on the table if needed. The bottom line is that Powell might have the market’s back headed into the year-end.”

In yesterday’s trading session, Wall Street’s major indices closed higher, with the benchmark S&P 500 notching a new record high, the blue-chip Dow posting a 1-1/2 week high, and the tech-heavy Nasdaq 100 climbing to a 2-3/4 month high. Norwegian Cruise Line (NCLH) surged nearly +11% and was the top percentage gainer on the S&P 500 after Citigroup upgraded the stock to Buy from Neutral with a price target of $30. Also, Pfizer (PFE) rose more than +3% after the Financial Times reported that the company’s CEO, Albert Bourla, is expected to meet with activist investor Starboard Value next week. In addition, Arcadium Lithium (ALTM) soared over +30% after Rio Tinto agreed to acquire the company for $6.7 billion. On the bearish side, Boeing (BA) slid more than -3% and was the top percentage loser on the Dow after withdrawing its offer to around 33,000 striking machinists and halting negotiations with their union. Also, Alphabet (GOOGL) fell over -1% on news that the U.S. Justice Department is weighing a breakup of Google.

Dallas Fed President Lorie Logan stated on Wednesday that she backed last month’s unusually large interest rate cut but favors smaller reductions ahead, citing “still real” upside risks to inflation and “meaningful uncertainties” about the economic outlook. “Following last month’s half-percentage-point cut in the fed funds rate, a more gradual path back to a normal policy stance will likely be appropriate from here to best balance the risks to our dual-mandate goals,” Logan said. Also, San Francisco Fed President Mary Daly stated she anticipates the U.S. central bank will keep reducing interest rates this year to protect the labor market. “I think that two more cuts this year, or one more cut this year, really spans the range of what is likely in my mind, given my projection for the economy,” Daly said.

Meanwhile, U.S. rate futures have priced in an 83.7% chance of a 25 basis point rate cut and a 16.3% chance of no rate change at the next central bank meeting in November.

Today, all eyes are focused on the U.S. consumer inflation report, which is set to be released in a couple of hours. Economists, on average, forecast that the U.S. September CPI will come in at +0.1% m/m and +2.3% y/y, compared to the previous numbers of +0.2% m/m and +2.5% y/y.

The U.S. Core CPI will also be closely watched today. Economists anticipate the core CPI to be +0.2% m/m and +3.2% y/y in September, compared to the previous figures of +0.3% m/m and +3.2% y/y.

A survey conducted by 22V Research showed that 42% of investors anticipate a “mixed/negligible” market reaction to the consumer inflation report, 32% predict a “risk-off” response, and only 25% expect it to be “risk-on.”

U.S. Initial Jobless Claims data will be reported today as well. Economists estimate this figure to be 231K, compared to last week’s number of 225K.

In addition, market participants will be anticipating speeches from Fed Governor Lisa Cook, New York Fed President John Williams, and Richmond Fed President Tom Barkin.

Third-quarter corporate earnings season begins in earnest on Friday, with major banks such as JPMorgan Chase (JPM) and Wells Fargo (WFC) set to report their quarterly results. The S&P 500’s estimated earnings growth rate is 5%, based on estimates from LSEG.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.080%, up +0.33%.

The Euro Stoxx 50 futures are down -0.30% this morning as investors exercised caution ahead of key U.S. inflation data. Technology and mining stocks led the declines on Thursday. Data from statistics agency Istat released on Thursday showed that Italy’s monthly industrial production rose less than expected in August. Meanwhile, the German government downgraded its 2024 growth forecast, with Economy Minister Robert Habeck announcing late Wednesday that gross domestic product in the Eurozone’s largest economy is expected to contract by 0.2% this year, revised down from a previous projection of 0.3% growth. Investors will also pay attention to the French government’s 2025 budget later on Thursday, which includes plans for 60 billion euros ($65.68 billion) in tax increases and spending cuts aimed at addressing a spiraling fiscal deficit. In corporate news, Gsk Plc (GSK.LN) climbed over +5% after the drugmaker agreed to pay up to $2.2 billion to settle U.S. court cases related to its heartburn treatment, Zantac.

Italy’s Industrial Production data was released today.

The Italian August Industrial Production came in at +0.1% m/m, weaker than expectations of +0.3% m/m.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +1.32%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.26%.

China’s Shanghai Composite Index closed higher today, recovering some of the previous day’s losses, following the release of details on stimulus measures. Energy and consumer staple stocks led the gains on Thursday. China’s central bank has established a swap facility to provide liquidity to institutional investors for stock purchases as part of an extensive stimulus package announced previously. The People’s Bank of China will accept applications from eligible securities firms, funds, and insurers starting Thursday to receive highly liquid assets such as government bonds and central bank bills, provided they offer certain collaterals such as bonds, stock ETFs, and shares of companies listed on the CSI 300 index, according to the bank’s statement. The size of the tool is set at 500 billion yuan ($70.6 billion) and may be expanded in the future, the monetary authority stated. Meanwhile, market participants speculate that officials will announce a major fiscal stimulus package during a press conference hosted by the Ministry of Finance on Saturday. In corporate news, Haitong Securities and Guotai Junan Securities surged +10% after the companies released details of their merger deal.

Japan’s Nikkei 225 Stock Index closed higher today, tracking overnight gains on Wall Street, though it trimmed some of its early gains as investors sold stocks to lock in profits. Japanese stocks also continued to benefit from a weaker yen, which dropped toward its lowest level since early August. Automobile, insurance, and bank stocks led the gains on Thursday. Data released on Thursday showed that producer prices in Japan rose more than anticipated in September. However, prices of imported goods fell due to the yen’s rebound, indicating that price pressures from raw material costs were easing. Meanwhile, a Bank of Japan survey showed that nearly 86% of Japanese households anticipate higher prices a year from now, signaling rising inflation expectations that could support the central bank’s rationale for further interest rate hikes. In corporate news, Lion Corp. climbed nearly +7% following a report that Japan Activation Capital invested in the consumer goods manufacturer. At the same time, Aeon plunged more than -8% after the supermarket chain reported a 76.5% drop in its half-year net profit through August. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -10.63% to 28.67.

The Japanese September PPI has been reported at 0.0% m/m and +2.8% y/y, stronger than expectations of -0.3% m/m and +2.3% y/y.

Pre-Market U.S. Stock Movers

10X Genomics (TXG) plunged over -27% in pre-market trading after the company reported weaker-than-expected preliminary Q3 revenue.

CVS Health (CVS) rose more than +1% in pre-market trading after Barclays upgraded the stock to Overweight from Equal Weight with a price target of $82.

PayPal Holdings (PYPL) fell over -1% in pre-market trading after Bernstein downgraded the stock to Market Perform from Outperform.

PepsiCo (PEP) dropped about -0.8% in pre-market trading after TD Cowen downgraded the stock to Hold from Buy.

Nike (NKE) gained more than +1% in pre-market trading after Truist upgraded the stock to Buy from Hold with a price target of $97.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Thursday - October 10th

Delta Air Lines (DAL), Domino’s Pizza (DPZ), Neogen (NEOG), Tilray (TLRY), Oil-Dri Of America (ODC), Aehr Test Systems (AEHR), VOXX (VOXX).

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