Morning Markets
December E-Mini S&P 500 futures (ESZ23) are up +0.24%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.38%.
Stock index futures this morning are moderately higher as bond yields decline. T-note yields are falling this morning after September's monthly ADP employment report showed fewer jobs than expected, a dovish factor for Fed policy. The markets will look to Friday’s monthly U.S. employment report for confirmation that the labor market is slowing.
The U.S. Sep ADP employment change rose +89,000, weaker than expectations of +150,000 and the smallest increase in over 2-1/2 years.
Weekly U.S. MBA mortgage applications fell -6.0% in the week ended Sep 29 to its lowest level since 1996. The home purchase sub-index fell -5.7% to 136.6, the lowest since 1995. The refinancing sub-index fell -6.6% w/w. The 30-year fixed mortgage rate rose +12 bp to 7.53%, the highest in almost 23 years.
The markets are discounting a 20% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 38% chance for that +25 bp rate hike at the following meeting that ends on December 13. The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.
U.S. and European bond yields fell back from early gains and are moving lower. The 10-year T-note yield fell back from a new 16-year high of 4.880% and is down -3.8 bp at 4.758%. The 10-year German bund yield fell back from a 12-year high of 3.026% and is down -2.5 bp at 2.943%. The 10-year UK gilt yield fell back from a 1-1/2 month high of 4.666% and is down -0.5 at 4.593%.
Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.40%. China’s Shanghai Composite Index was closed for the Golden Week holidays. Japan’s Nikkei 225 today closed -2.28%.
The Euro Stoxx 50 today recovered from a 6-1/2 month low and is moderately higher. Strength in retailer stocks is lifting the overall market, with Tesco Plc, Britain’s biggest grocer, up more than +1% after it boosted its profit forecast. Also, an easing of price pressures is supportive for stocks after Eurozone Aug PPI fell a record -11.5% y/y. An upward revision to the Eurozone Sep S&P composite PMI was another positive factor for stocks. On the negative side, Eurozone Aug retail sales fell more than expected by the most in 8 months, and government bond yields continue to climb as the 10-year German bund yield rose above 3% for the first time in 12 years.
ECB President Lagarde said future ECB decisions "will ensure that the interest rates will be set at sufficiently restrictive levels for as long as necessary."
Eurozone Aug retail sales fell -1.2% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 8 months.
Eurozone Aug PPI fell a record -11.5% y/y from a -7.6% y/y decline in July, right on expectations.
The Eurozone Sep S&P composite PMI was revised upward by +0.1 to 47.2 from the initially reported 47.1.
China’s Shanghai Composite Stock Index today was closed for the week-long Golden Week holidays.
Japan’s Nikkei Stock Index today plunged to a 4-1/2 month low and closed sharply lower. Japanese stocks sold off today on negative carryover from Tuesday’s slide in U.S. equity markets. Soaring global interest rates are undercutting stocks on concerns that the Federal Reserve will keep interest rates higher for longer. The jump in the 10-year T-note yield to a 16-year high today sparked selling in Japanese government bonds and pushed the 10-year JGB bond yield up to a 10-year high at 0.810%. The higher bond yields led to the selling of technology and consumer discretionary stocks and led the overall market lower.
The yen fell to an 11-1/2 month low of 150 per dollar Tuesday but recovered and fell to 149 yen per dollar after reports that Japanese authorities were checking forex rates, usually a precursor to currency intervention.
The Japan Sep Jibun Bank services PMI was revised upward by +0.5 to 53.8 from the initially reported 53.3.
Pre-Market U.S. Stock Movers
Palantir Technologies (PLTR) rose more than +2% in pre-market trading as the company has emerged as the top pick for a contract to overhaul the UK’s National Health Service.
Intel (INTC) climbed more than +2% in pre-market trading after it said it plans to separate its Programmable Solutions Group operations into a standalone business and sell shares to the public or seek an investor for it.
LyondellBasell (LYB) gained more than +1% in pre-market trading after Citigroup upgraded the stock to buy from neutral with a price target of $106.
On Holding AG (ONON) rose more than +1% in pre-market trading after it said it intends to double net sales between 2023 and 2026 and exceed 60% of gross profit margin by 2026.
Hub Group (HUBG) is up more than +1% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $98.
Matson Inc (MATX) climbed more than +2% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $113.
Apple (AAPL) slid more than -1% in pre-market trading after KeyBanc Capital Markets downgraded the stock to sector weight from overweight.
ON Semiconductor (ON) fell more than -1% in pre-market trading after BNP Paribas Exane downgraded the stock to neutral from outperform.
PPL Corp (PPL) dropped nearly -2% in pre-market trading after UBS downgraded the stock to neutral from buy.
Cal-Maine Foods (CALM) tumbled more than -11% in pre-market trading after reporting Q1 net sales of $459.3 million, weaker than the consensus of $479.5 million.
A10 Networks (ATEN) plunged more than -13% in pre-market trading after forecasting preliminary Q3 revenue between $56.5 million-$58.5 million, well below the consensus of $74.5 million.
Earnings Reports (10/4/2023)
Accolade Inc (ACCD), Acuity Brands Inc (AYI), AngioDynamics Inc (ANGO), BlueLinx Holdings Inc (BXC), Helen of Troy Ltd (HELE), Resources Connection Inc (RGP), RPM International Inc (RPM), Village Super Market Inc (VLGEA).
On the date of publication, Rich Asplund 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.
