December S&P 500 futures (ESZ23) are down -0.42%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.65% this morning as Treasury yields jumped after the Federal Reserve signaled interest rates would be higher for longer.
As widely expected, the Federal Reserve held its target range for the federal funds rate at 5.25% to 5.50% on Wednesday. At the same time, the Fed’s updated Summary of Economic Projections revealed that most officials favored another rate hike in 2023. Also, policymakers raised their projections for the federal funds rate at the end of 2024 to 5.1% compared with their previous forecast of 4.6%. Federal Reserve Chair Jerome Powell said officials are “prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.”
“The Fed didn’t really rock the boat. They acknowledged the strength in the economy, which also lowered the number of cuts that were expected next year, implying higher for longer is likely the path they will continue to take,” said Ryan Detrick, chief market strategist at Carson Group.
In Wednesday’s trading session, the benchmark S&P 500 fell to a 3-1/2 week low, and the tech-heavy Nasdaq 100 posted a 3-week low. Interest rate sensitive megacap stocks retreated after the 10-year T-note yield climbed to a 16-year high, with NVIDIA Corporation (NVDA) and Microsoft Corporation (MSFT) dropping over -2%. Also, Chewy Inc (CHWY) slid more than -5% after Oppenheimer downgraded the stock to Perform from Outperform. On the bullish side, Western Digital Corporation (WDC) climbed over +3% and was among the top percentage gainers on the S&P 500 after Exane BNP Paribas upgraded the stock to Outperform from Neutral. In addition, Coty Inc (COTY) rose more than +4% after the beauty products giant boosted its full-year guidance.
Meanwhile, U.S. rate futures have priced in a 31.5% probability of a 25 basis point rate increase at November’s monetary policy meeting and a 39.0% chance of a 25 basis point rate hike at the December FOMC meeting.
Today, all eyes are focused on the U.S. Philadelphia Fed Manufacturing index in a couple of hours. Economists, on average, forecast that the September Philadelphia Fed Manufacturing index will come in at -0.7, compared to the previous value of +12.0.
Also, investors will likely focus on U.S. Existing Home Sales data, which stood at 4.07M in July. Economists foresee the new figure to be 4.10M.
U.S. Current Account data will come in today. Economists foresee this figure to stand at -221.0B in the second quarter, compared to the first-quarter value of -219.3B.
U.S. Initial Jobless Claims data will be reported today as well. Economists estimate this figure to be 225K, compared to last week’s value of 220K.
In the bond markets, United States 10-year rates are at 4.437%, up +2.08%.
The Euro Stoxx 50 futures are down -1.00% this morning, tracking overnight losses on Wall Street after the U.S. Federal Reserve signaled higher-for-longer interest rates, while investors also braced for the Bank of England’s policy decision due later in the day. Travel and energy stocks led the decline on Thursday. Meanwhile, the Swiss National Bank unexpectedly kept its interest rates unchanged, while Sweden’s Riksbank raised its key rate as anticipated and hinted at the possibility of further rate hikes. The focus is now on the Bank of England’s monetary policy decision. After U.K. inflation unexpectedly slowed, traders scaled back their bets on additional tightening measures by the central bank, with the market pricing an about 50% probability of a quarter-point hike. In corporate news, Jd Sports Fashion Plc (JD-.LN) climbed over +7% after the sportswear retailer projected a higher annual profit.
France’s Business Survey was released today.
The French September Business Survey stood at 99, stronger than expectations of 97.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.77%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.37%.
China’s Shanghai Composite today closed lower as the prospect of higher U.S. interest rates dampened risk sentiment. Big technology companies listed in Hong Kong experienced a significant decline on Thursday, echoing the substantial sell-off observed in U.S. tech stocks on Wednesday. Meanwhile, to rebuild market confidence, China pledged to expedite the implementation of additional policies aimed at solidifying its economic rebound, according to a report by state media CCTV on Wednesday, citing a cabinet meeting chaired by Premier Li Qiang. In corporate news, Country Garden Holdings Co Ltd rose about +2% after the beleaguered company announced that its creditors had approved the extension of repayment for seven bonds as of September 12th.
“The U.S. central bank raised its end-2024 and 2025 dot plot projections by 50bp each, essentially signaling higher-for-longer rates. Rising U.S. bond yields, stronger USD, and elevated energy prices - all are ingredients for a bad recipe for Asian stocks,” Nomura analysts said in a note.
Japan’s Nikkei 225 Stock Index closed sharply lower today as technology heavyweights followed the downward trajectory of their U.S. counterparts after the Federal Reserve stiffened its hawkish stance, signaling the possibility of another rate hike by the year-end. Chip-testing equipment maker Advantest plunged over -2%, while chip-making equipment maker Tokyo Electron slipped about -1%. Meanwhile, the yield on 10-year Japanese government bonds hit its highest level in 10 years, tracking an increase in long-term U.S. Treasury yields. On the positive side, financial stocks outperformed due to the anticipation of improved profits amid higher Japanese government yields, with Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group rising over +1%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +5.74% to 18.25.
“Japanese heavyweight technology stocks tracked declines in the S&P and Nasdaq and pushed the Nikkei lower,” said Shuutarou Yasuda, a market analyst at Tokai Tokyo Research Institute.
Pre-Market U.S. Stock Movers
FedEx Corporation (FDX) climbed about +5% in pre-market trading after the company reported better-than-expected Q1 earnings and lifted the lower end of its annual outlook for EPS.
Frontier Group Holdings Inc (ULCC) fell more than -2% in pre-market trading after Citi downgraded the stock to Neutral from Buy.
Healthequity Inc (HQY) rose over +1% in pre-market trading after Baird upgraded the stock to Outperform from Neutral.
Nutanix Inc (NTNX) gained about +3% in pre-market trading after BofA upgraded the stock to Buy from Neutral.
Seelos Therapeutics Inc (SEEL) plunged over -11% in pre-market trading after Cantor Fitzgerald downgraded the stock to Neutral from Overweight.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - September 21st
Darden Restaurants (DRI), FactSet Research (FDS), Scholastic (SCHL), Valneva SE (VALN).
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