Stocks Set to Open Higher on Tech Boost, Fed Minutes Awaited

September S&P 500 E-Mini futures (ESU26) are up +0.48%, and September Nasdaq 100 E-Mini futures (NQU26) are up +1.10% this morning, pointing to a higher open on Wall Street after the long weekend.

Stock index futures were supported by a rebound in technology stocks at the start of a week that will once again test investors’ appetite for the AI trade. South Korean memory chipmaker Samsung Electronics is scheduled to report preliminary second-quarter earnings on Tuesday. Also, Elon Musk’s rocket and AI company SpaceX (SPCE) is set to join the Nasdaq 100 index before the opening bell on Tuesday. SK Hynix’s $29 billion U.S. listing is set to follow just a few days later, in what would rank among the biggest share sales in history.

Meanwhile, the price of WTI crude fell nearly -1% on Monday as flows through the Strait of Hormuz persisted and OPEC+ agreed to increase crude production. Treasuries rose as traders continued to scale back their expectations for Federal Reserve rate hikes, with the benchmark 10-year yield falling two basis points to 4.47%.

Investor focus this week is also on the minutes of the Federal Reserve’s latest policy meeting and comments from Fed officials.

In Thursday’s trading session, Wall Street’s major indices closed mixed. Chip and AI infrastructure stocks plunged, with SanDisk (SNDK) sinking over -14% to lead losers in the S&P 500 and Nasdaq 100, and KLA Corp. (KLAC) tumbling more than -11%. Also, Tesla (TSLA) slumped over -7% after the EV maker’s Q2 deliveries failed to impress investors. In addition, Jabil Inc. (JBL) fell more than -9% after announcing plans to offer a mixed shelf of debt securities, without disclosing the offering size. On the bullish side, Genuine Parts (GPC) surged over +12% and was the top percentage gainer on the S&P 500 after Bloomberg reported that the company has attracted a cash bid for its auto-parts division from O’Reilly Automotive.

The Labor Department’s report released on Thursday showed that nonfarm payrolls rose by 57K in June, weaker than expectations of 114K. At the same time, the U.S. June unemployment rate unexpectedly fell to a 1-year low of 4.2%, stronger than expectations of no change at 4.3%. In addition, U.S. June average hourly earnings rose +0.3% m/m and +3.5% y/y, in line with expectations. Finally, U.S. weekly initial jobless claims unexpectedly fell by -1K to 215K, compared with the 219K expected.

“A labor market that is still expanding, but no longer overheating, allows the Fed to remain patient while assessing price pressures. If disinflation continues as expected, policymakers will have little reason to move away from a holding pattern in the second half of the year,” said Andrew Dubinsky at UBS Chief Investment Office. 

San Francisco Fed President Mary Daly said on Thursday that inflation should begin to ease, but that significant uncertainties remain around the economic outlook. “We continue to have policy in a slightly restrictive position, so inflation should come down,” Daly said.

Meanwhile, U.S. rate futures have priced in a 75.9% chance of no rate change and a 24.1% chance of a 25 basis point rate hike at the conclusion of the Fed’s July meeting.

This week, the minutes of the Fed’s first policy meeting under Kevin Warsh as chairman will be the main highlight. Market participants want to see whether Mr. Warsh’s pledge to overhaul Fed communications extends to the minutes, after the central bank issued a much shorter policy statement following its rate decision in mid-June. Fed officials left interest rates unchanged last month but released projections showing growing concern that they may need to raise interest rates to counter rising price pressures. However, Warsh said last week that inflation risks had come down in recent weeks. Against that backdrop, investors will be looking for further clues on whether the Fed could raise interest rates in the coming months.

“The minutes could offer a greater insight into the Federal Open Market Committee’s thinking. We presume they will be in the same form as have been previously, although we do note that the statement released at the time of the [rate] announcement was in a slimmed-down form,” according to Ellie Henderson at Investec.

Market watchers will also keep a close eye on speeches from Fed officials. Fed Governor Christopher Waller, New York Fed President John Williams, and Dallas Fed President Lorie Logan are scheduled to speak this week.

The U.S. economic calendar is relatively light this week, with highlights including Trade Balance, Consumer Credit, Existing Home Sales, and Initial Jobless Claims.

On the earnings front, only two S&P 500 companies are scheduled to report quarterly results this week: PepsiCo (PEP) and Delta Air Lines (DAL).

Today, investors will focus on the U.S. ISM Non-Manufacturing PMI and S&P Global Services PMI, set to be released in a couple of hours. Economists expect the June ISM services index to be 54.2 and the S&P Global services PMI to be 51.4, compared to the previous month’s values of 54.5 and 50.7, respectively.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.47%, down -0.51%.

The Euro Stoxx 50 Index is down -0.05% this morning, taking a breather after last week's strong rally that lifted the benchmark to a new record high. Utility and technology stocks were among the biggest losers on Monday. At the same time, media and defense stocks outperformed. Data from Destatis released on Monday showed that German monthly factory orders rose more than expected in May, pointing to tentative signs of stabilization despite continued uncertainty stemming from the Middle East conflict. Separately, data showed that Eurozone monthly retail sales rebounded in May, underscoring an improving outlook for consumer demand. In addition, the Sentix index measuring investor morale in the Eurozone improved significantly in July, marking its third consecutive increase as growing confidence and brighter expectations, particularly in Germany, lifted sentiment. Investor focus this week is on final June inflation numbers from Germany and France. Germany’s and Italy’s industrial production data for May will also attract attention. In addition, the European Central Bank will release the accounts of its June meeting this week. In corporate news, easyJet (EZJ.LN) jumped over +10% after the British budget airline agreed in principle to Castlelake’s sweetened takeover offer, valuing the carrier at up to 5.5 billion pounds ($7.34 billion).

Germany’s Factory Orders, Eurozone’s Sentix Investor Confidence Index, Eurozone’s Retail Sales, and Eurozone’s PPI data were released today.

The German May Factory Orders rose +1.9% m/m, stronger than expectations of +1.1% m/m.

The Eurozone July Sentix Investor Confidence Index came in at -3.1, stronger than expectations of -14.5.

Eurozone’s May Retail Sales rose +0.2% m/m and +1.6% y/y, compared to expectations of +0.2% m/m and +1.5% y/y.

Eurozone’s May PPI rose +0.2% m/m and +5.9% y/y, compared to expectations of +0.2% m/m and +5.7% y/y.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.06%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.01%.

China’s Shanghai Composite Index closed slightly lower today as investors rotated out of the crowded technology sector and into certain cyclical sectors as well as high-end manufacturing. Robotics, satellite, and battery stocks slumped on Monday as investors locked in profits following a recent rally. Limiting losses, energy, agriculture, and consumer stocks advanced. Meanwhile, the China Securities Regulatory Commission on Friday proposed rule changes aimed at making it easier for listed companies to refinance. Elsewhere, new share trading rules took effect on Monday, introducing market-making mechanisms to Shenzhen’s ChiNext market and enhancing arrangements for block trades. In corporate news, Hengli Petrochemical climbed over +5% after the company said it expects first-half net profit to jump about 136.1% year-over-year. Investor attention this week is on China’s key inflation gauges for June. Economists expect China’s consumer inflation to ease slightly due to lower pork prices, reflecting weak consumer demand, while producer prices are projected to pick up, supported by a favorable base effect.

Japan’s Nikkei 225 Stock Index closed just below the flatline today. Technology stocks slipped on Monday as investors continued to rotate out of the AI sphere and into other sectors amid growing concerns about the sustainability of the AI trade. At the same time, shipping, automobile, and machinery stocks climbed. “Fund managers looking to secure profits are likely to keep selling AI stocks, which have broadly outperformed, and turn to underperformers and value stocks,” said Kazuhiro Sasaki at Phillip Securities Japan. Meanwhile, Japanese government bonds sank on Monday, with the benchmark 10-year yield climbing to its highest level since October 1996 as inflation and fiscal concerns weighed on sentiment. Elsewhere, the yen resumed its downward trend on Monday. Goldman Sachs revised its forecast for the Japanese currency to 165 per dollar in a year’s time from 155 previously, citing fiscal pressures in Japan, higher-for-longer U.S. Treasury yields, and only gradual interest-rate hikes from the Bank of Japan. Investor focus this week is on Japan’s May wage data, an important indicator for the BOJ as it considers raising interest rates again. Also, the BOJ is scheduled to hold a branch managers’ meeting and publish its regional economic report this week. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed up +9.53% to 37.36.

Pre-Market U.S. Stock Movers

Most members of the Magnificent Seven stocks edged higher in pre-market trading, with Meta Platforms (META) advancing about +2% and Tesla (TSLA) rising more than +1%.

Chip and AI infrastructure stocks advanced in pre-market trading, with Sandisk (SNDK) rising nearly +4% and KLA Corp. (KLAC) gaining more than +3%.

T-Mobile US (TMUS) rose over +1% in pre-market trading after BofA upgraded the stock to Buy from Neutral with an unchanged $220 price target.

Okta (OKTA) climbed more than +1% in pre-market trading after Scotiabank upgraded the stock to Outperform from Sector Perform with a $165 price target.

Datadog (DDOG) fell over -2% in pre-market trading after Bernstein downgraded the stock to Market Perform from Outperform with a price target of $226.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Monday - July 6th

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