Stocks Set to Open Lower as Bond Yields Climb, U.S. Economic Data and Earnings in Focus

December S&P 500 E-Mini futures (ESZ24) are down -0.36%, and December Nasdaq 100 E-Mini futures (NQZ24) are down -0.55% this morning as Treasury yields climbed at the start of a busy week, with investors looking ahead to a fresh batch of U.S. economic data, comments from Federal Reserve officials, and corporate earnings reports.

In Friday’s trading session, Wall Street’s major averages ended higher, with the blue-chip Dow notching a new all-time high. Netflix (NFLX) surged over +11% and was the top percentage gainer on the S&P 500 and Nasdaq 100 after the streaming giant posted upbeat Q3 results. Also, Intuitive Surgical (ISRG) climbed more than +10% after the company reported stronger-than-expected Q3 results. In addition, Lamb Weston Holdings (LW) gained over +10% after activist investor Jana Partners disclosed a 5% stake in the company and said it plans to push the french-fry maker to explore a sale. On the bearish side, American Express (AXP) fell more than -3% and was the top percentage loser on the Dow after reporting weaker-than-expected Q3 revenue and lowering its full-year revenue growth guidance.

Economic data released on Friday showed that U.S. housing starts fell -0.5% m/m to 1.354M in September, stronger than expectations of 1.350M. At the same time, U.S. September building permits, a proxy for future construction, fell -2.9% m/m to 1.428M, weaker than expectations of 1.450M.

“Earnings season is off to the races, and despite some mixed signals, appears to be in good shape,” said Liz Young Thomas, head of investment strategy at SoFi. “We’re in the early innings though, and coming up on the final days before the election and the next Fed meeting. Never a dull moment.”

Meanwhile, U.S. rate futures have priced in a 90.2% probability of a 25 basis point rate cut and a 9.8% chance of no rate change at the conclusion of the Fed’s November meeting.

Third-quarter earnings season kicks into high gear this week, with investors looking forward to new reports from prominent companies including Tesla (TSLA), Coca-Cola (KO), T-Mobile (TMUS), Verizon (VZ), Texas Instruments (TXN), Lockheed Martin (LMT), General Motors (GM), 3M (MMM), IBM (IBM), AT&T (T), Boeing (BA), UPS (UPS), L3Harris Technologies (LHX), and Colgate-Palmolive (CL). According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +4.3% increase in quarterly earnings for Q3 compared to the previous year, down from +7.9% growth projected in mid-July.

Market participants will also be monitoring a spate of economic data releases this week, including the U.S. S&P Global Composite PMI (preliminary), the S&P Global Manufacturing PMI (preliminary), the S&P Global Services PMI (preliminary), the Richmond Manufacturing Index, Existing Home Sales, Crude Oil Inventories, Building Permits, Initial Jobless Claims, New Home Sales, Durable Goods Orders, Core Durable Goods Orders, and the University of Michigan’s Consumer Sentiment Index.

In addition, the Federal Reserve will release its Beige Book survey of regional business contacts this week, which provides an update on economic conditions in each of the 12 Federal Reserve districts. The Beige Book is published two weeks before each meeting of the policy-setting Federal Open Market Committee.

A host of Fed officials will be making appearances throughout the week, including Logan, Kashkari, Schmid, Daly, Harker, Bowman, and Barkin.

In other news, Israel is in discussions regarding its response to Iran after a Hezbollah drone exploded near Prime Minister Benjamin Netanyahu’s private residence over the weekend.

Today, investors will likely focus on the U.S. Conference Board’s Leading Index, which is set to be released in a couple of hours. Economists expect the September figure to be -0.3% m/m, compared to the previous number of -0.2% m/m.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.121%, up +1.11%.

The Euro Stoxx 50 futures are down -0.10% this morning as investors awaited further catalysts, with tensions in the Middle East and the upcoming U.S. presidential election keeping sentiment subdued. Energy stocks outperformed on Monday, while insurance stocks slumped. Data from the Federal Statistical Office released Monday showed that German annual producer prices fell further in September, driven by a steep drop in energy prices. Meanwhile, market participants will be keeping an eye on purchasing managers’ surveys of economic activity in the region along with a slew of corporate earnings reports this week. In corporate news, Munich Re (MUV2.D.DX) slid over -1% after Jefferies downgraded the stock to Hold from Buy. At the same time, JDE Peet’s (JDEP.NA) surged more than +16% after the coffee and tea company named a new chief executive officer and investment holding company JAB announced it would acquire Mondelez’s 86 million shares in the firm.

Germany’s PPI data was released today.

The German September PPI has been reported at -0.5% m/m and -1.4% y/y, weaker than expectations of -0.2% m/m and -1.0% y/y.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.20%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.07%.

China’s Shanghai Composite Index closed higher today as sentiment was boosted after the nation’s banks lowered benchmark lending rates to stimulate the economy. Solar and semiconductor stocks led the gains on Monday. China lowered benchmark lending rates as expected at the monthly fixing on Monday, following last month’s cuts to other policy rates as part of a broader stimulus package aimed at reviving the economy. The one-year and five-year loan prime rates were reduced by 25 basis points to 3.10% and 3.60%, respectively, according to the People’s Bank of China. Meanwhile, Goldman Sachs economists said in a note that China’s central bank is expected to reduce the reserve requirement ratio by 50 basis points before the end of the year, instead of the previously anticipated 25 basis points. In other news, China’s securities regulator committed to deepening market reforms by harmonizing the domestic stock market with international practices, expanding the channels for overseas listings, and attracting more foreign investors. In corporate news, Wuhan P&S Information Technology surged +20% after reporting an 83% year-over-year increase in its attributable profit to 42.3 million yuan in Q3. Investor focus will be on the actions of the standing committee of the legislative National People’s Congress in the coming weeks regarding fiscal stimulus.

Japan’s Nikkei 225 Stock Index closed just below the flatline today amid ongoing political uncertainty ahead of the country’s general election this weekend. Financial and heavy-machinery stocks lost ground on Monday. At the same time, technology stocks advanced, tracking their U.S. peers higher after an earnings-driven jump in Netflix shares and broader gains across tech stocks on Friday. Meanwhile, the yen fell against the dollar on Monday as market participants positioned for the nation’s parliamentary election set for Sunday. The ruling coalition of the Liberal Democratic Party and Komeito may drop below the 233-seat threshold required for a parliamentary majority, according to an Asahi poll. Investor focus is also on the domestic earnings season, which is set to start later this week. In other news, MUFG stated that it sees a growing case for the Bank of Japan to raise rates again before year-end, citing recent economic indicators and financial market performance. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -0.72% to 26.24.

Pre-Market U.S. Stock Movers

Boeing (BA) gained over +3% in pre-market trading after the company and the leaders of its striking machinists union reached a new tentative agreement that could end a strike lasting over a month, which has disrupted production at the aircraft manufacturer.

Spirit Airlines (SAVE) soared about +54% in pre-market trading after the struggling carrier announced it had reached an agreement with its credit card processor to extend a debt refinancing timeline to December.

Kenvue (KVUE) climbed more than +4% in pre-market trading after the Wall Street Journal reported that activist investor Starboard Value had taken a sizeable stake in the company.

United Parcel Service (UPS) fell over -2% in pre-market trading after Barclays downgraded the stock to Underweight from Equal Weight with an unchanged price target of $120.

ServiceNow (NOW) dropped about -2% in pre-market trading after Morgan Stanley downgraded the stock to Equal Weight from Overweight.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Monday - October 21st

Nucor (NUE), WR Berkley (WRB), Alexandria RE (ARE), Equity Lifestyle (ELS), Medpace Holdings (MEDP), AGNC Invest (AGNC), Simpson Manufacturing (SSD), Wintrust (WTFC), Zions (ZION), RLI (RLI), BOK Financial (BOKF), Cadence Bancorp (CADE), Selective (SIGI), Hexcel (HXL), ServisFirst Bancshares (SFBS), Cathay (CATY), Empire State Realty (ESRT), Lufax (LU), Enterprise Financial (EFSC), Sandy Spring (SASR), Preferred Bank (PFBC), Metals Acquisition (MTAL), Dynex Capital (DX), HealthStream (HSTM), KKR Real Estate (KREF), Hbt Fin (HBT), TrustCo Bank NY (TRST), Washington Trust (WASH), SmartFinancial Inc (SMBK), RBB Bancorp (RBB), Guaranty Bancshares (GNTY).

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