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Oleksandr Pylypenko

Stocks Set to Open Lower as U.S. Credit Outlook Downgrade Weighs on Sentiment, U.S. Inflation Data and Retail Earnings in Focus

December S&P 500 futures (ESZ23) are down -0.22%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.29% this morning as risk sentiment took a hit after rating agency Moody’s lowered the United States’ credit rating outlook while investors looked ahead to the release of U.S. inflation data as well as quarterly earnings reports from high-profile retailers.

Moody’s Investors Service lowered its assessment of the U.S. credit outlook from “stable” to “negative” on Friday, citing the U.S.’ “very large” fiscal deficits and partisan gridlock in Washington. While the rating agency reaffirmed America’s credit rating at AAA, the highest level, the lowered outlook suggests the rating could slip in the future. “In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the U.S.’ fiscal deficits will remain very large, significantly weakening debt affordability,” the statement said.

In Friday’s trading session, Wall Street’s major indexes closed higher, with the benchmark S&P 500 and blue-chip Dow posting 7-week highs and the tech-heavy Nasdaq 100 notching a 2-month high. Hologic Inc (HOLX) climbed over +7% after the company reported upbeat Q4 results. Also, chip stocks advanced following a report from Bloomberg News indicating that a Chinese artificial intelligence startup had bought a sufficient quantity of Nvidia’s chips before U.S. export curbs kicked in. In addition, Doximity Inc (DOCS) surged over +16% after posting better-than-expected Q2 results and boosting its full-year revenue and adjusted EBITDA outlook. On the bearish side, The Trade Desk (TTD) tumbled more than -16% after the company provided weaker-than-expected Q4 sales guidance. 

Data on Friday showed that the University of Michigan’s gauge of consumer sentiment fell to a 6-month low of 60.4 in November, weaker than expectations of 63.7. In addition, the University of Michigan’s November year-ahead inflation expectations unexpectedly rose to a 7-month high of 4.4%, stronger than expectations of 4.0%, while 5-year inflation expectations rose to a 12-year high of 3.2% in November from 3.0% in October.

San Francisco Fed President Mary Daly said Friday that the U.S. central bank might consider raising its benchmark lending rate again if progress on inflation stalls while the economy continues to surge. “If inflation continues to move sideways, and the labor market and GDP growth remain solid or strong? Well, then we probably have to raise again,” Daly said. At the same time, Atlanta Fed President Raphael Bostic said that policymakers can bring U.S. inflation back to their target without the necessity of further interest rate increases. “I think we will get to our 2% target without us having to do anything more,” Bostic said.

Meanwhile, U.S. rate futures have priced in an 11.4% probability of a 25 basis point rate increase at the December FOMC meeting and a 25.7% chance of a 25 basis point rate hike at the January FOMC meeting.

Third-quarter earnings season winds down, but several notable companies are due to report this week, including Tyson Foods (TSN), Home Depot (HD), Cisco (CSCO), TJX Companies (TJX), Palo Alto Networks (PANW), Target (TGT), Walmart (WMT), and Applied Materials (AMAT).

In the coming week, U.S. CPI data for October will be the main highlight. Also, market participants will be eyeing a spate of economic data, including the U.S. Core CPI, PPI, Core PPI, Retail Sales, Core Retail Sales, NY Empire State Manufacturing Index, Business Inventories, Crude Oil Inventories, Export Price Index, Import Price Index, Initial Jobless Claims, Philadelphia Fed Manufacturing Index, Industrial Production, Manufacturing Production, Building Permits (preliminary), and Housing Starts.

In addition, several Fed officials will be making appearances this week, including Cook, Williams, Jefferson, Goolsbee, Waller, Mester, and Daly.

In other news, indications of improving relations between the U.S. and China are emerging ahead of Wednesday’s summit between Presidents Joe Biden and Xi Jinping, with a Bloomberg report suggesting that Beijing is considering ending a freeze on Boeing Co.’s aircraft.

The U.S. economic data slate is largely empty on Monday.

In the bond markets, United States 10-year rates are at 4.631%, up +0.09%.

The Euro Stoxx 50 futures are up +0.71% this morning, tracking Friday’s gains on Wall Street, while investors geared up for a series of data releases throughout the week to gain clarity on the economic outlook. Gains in healthcare stocks are leading the overall market higher, with Novo Nordisk A/S (NOVOB.C.DX) climbing over +3% following a study endorsing the efficacy of Wegovy, its blockbuster weight-loss drug, in reducing heart attacks and fatalities among obesity patients with a history of heart disease. Meanwhile, European Central Bank Vice President Luis de Guindos said Monday that economic growth in the Eurozone will remain weak in the short term due to weakening services and the labor market. However, he emphasized that countries in the bloc should refrain from releasing discretionary bank buffers to ease the pain. In other corporate news, Phoenix Group Holdings Plc (PHNX.LN) surged more than +6% after boosting its full-year cash generation forecast.

The European economic data slate is mainly empty on Monday.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.25%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.05%.

China’s Shanghai Composite today closed higher as optimism about a summit between the leaders of the world’s two largest economies later this week overshadowed lingering concerns about China’s economic health. According to independent surveys and alternative data, the rebound in China’s consumption decelerated, and private business confidence lost momentum in October, signaling that the economic recovery remains bumpy. Meanwhile, Hong Kong-listed tech giants climbed on Monday. At the same time, Chinese developers listed in Hong Kong underperformed after Moody’s cautioned that “China’s prolonged property market downturn will have adverse spillover effects amid a slowing economy.” In other news, U.S. Treasury Secretary Janet Yellen said Friday that she agreed with Chinese Vice Premier He Lifeng to “intensify communication” on economic matters. The message came ahead of a planned meeting this week between U.S. President Joe Biden and Chinese President Xi Jinping in San Francisco. Investor attention is also centered on Chinese retail sales and industrial production data due on Wednesday.

“The debate on investing in China has shifted profoundly towards long-term structural challenges, particularly on debt and deflation fronts, and should continue well into 2024. As a result, the hurdles ahead to a sustainable China equity market recovery are still high, with mounting macro pressure on earnings coupled with currency weakness,” Morgan Stanley strategists wrote.

Japan’s Nikkei 225 Stock Index closed just above the flatline today, giving up earlier gains as investors booked profits around the 33,000 level. Data showed on Monday that Japanese wholesale inflation decelerated to below 1% for the first time in just over 2-1/2 years in October. Meanwhile, the yen fell to a fresh 2023 low against the dollar, sparking concerns about potential intervention by authorities to support the currency. In corporate news, Benesse Holdings surged over +20% following its announcement on Friday of a 208 billion yen management buyout, with Swedish investment fund EQT AB participating as a partner. At the same time, Shiseido Co Ltd tumbled more than -14% after the cosmetics maker lowered its full-year profit forecast. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -2.30% to 19.54.

The Japanese October PPI came in at -0.4% m/m and +0.8% y/y, weaker than expectations of 0.0% m/m and +0.9% y/y.

Pre-Market U.S. Stock Movers

Boeing Co (BA) climbed over +3% in pre-market trading, driven by a $52 billion deal with Emirates and news that China is considering an end to a freeze on purchases of Boeing aircraft.

Milestone Pharmaceuticals Inc (MIST) gained more than +6% in pre-market trading after presenting positive results from the ReVeRA Phase 2 Study of Etripamil in AFib-RVR at the American Heart Association Scientific Sessions 2023.

Plug Power Inc (PLUG) slid over -7% in pre-market trading after Wolfe Research downgraded the stock to Peer Perform from Outperform.

HP Inc (HPQ) rose more than +1% in pre-market trading after Citi upgraded the stock to Buy from Neutral.

Unity Software Inc (U) fell about -1% in pre-market trading after Wolfe Research downgraded the stock to Peer Perform from Outperform.

Paramount Group Inc (PGRE) dropped over -3% in pre-market trading after BofA downgraded the stock to Underperform from Neutral.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Monday - November 13th

Sun Life Financial (SLF), Tyson Foods (TSN), Xp (XP), Aecom Technology (ACM), Henry Schein (HSIC), Roivant Sciences (ROIV), Monday.Com (MNDY), Natura & Co (NTCO), Azenta (AZTA), Tower (TSEM), Fortrea Holdings (FTRE), NAble (NABL), Alvotech (ALVO), Lufax (LU), Mueller Water Products (MWA), Star Bulk Carriers (SBLK), Fisker (FSR), Rumble (RUM), Danaos (DAC), Genius Sports (GENI), Navigator Holdings (NVGS), Opal Fuels (OPAL), Orla Mining (ORLA), Altus Power (AMPS), Anterix (ATEX), Beauty Health Co (SKIN), Harrow Health (HROW), Gladstone Capital (GLAD), Gracell Biotechnologies (GRCL).

More Stock Market News from Barchart

On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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