September S&P 500 E-Mini futures (ESU24) are up +0.10%, and September Nasdaq 100 E-Mini futures (NQU24) are up +0.09% this morning as caution prevailed ahead of the Federal Reserve’s interest rate decision, with investors split on the size of a potential rate cut.
In yesterday’s trading session, Wall Street’s major averages closed little changed. Moderna (MRNA) advanced over +4% and was the top percentage gainer on the Nasdaq 100 after announcing that Health Canada approved its updated COVID-19 vaccine, SPIKEVAX KP.2 variant, for preventing COVID-19 in individuals six months of age and older. Also, Intel (INTC) rose more than +2% and was the top percentage gainer on the Dow after the chipmaker announced a multibillion-dollar agreement to make custom artificial intelligence chips for Amazon’s cloud computing division while also revealing plans to turn its Intel Foundry into a separate subsidiary. In addition, Hewlett Packard Enterprise (HPE) climbed over +5% after BofA upgraded the stock to Buy from Neutral with a price target of $24. On the bearish side, Accenture (ACN) fell more than -4% and was the top percentage loser on the S&P 500 after Bloomberg News reported that the IT and consulting services provider plans to push back most of its staff promotions by six months.
Economic data released on Tuesday showed that U.S. retail sales edged up +0.1% m/m in August, defying expectations for a -0.2% m/m decline. At the same time, U.S. August core retail sales, which exclude motor vehicles and parts, crept up +0.1% m/m, weaker than expectations of +0.2% m/m. In addition, U.S. industrial production climbed +0.8% m/m in August, stronger than expectations of +0.2% m/m.
“Another Goldilocks number,” said David Russell at TradeStation. “Retail sales are strong enough to keep us out of recession, but not strong enough to stop rate cuts.”
Today, all eyes are focused on the Federal Reserve’s monetary policy decision later in the day. While the Fed is widely expected to implement its first interest rate cut since 2020, market participants are debating whether a quarter-point reduction will be deemed sufficient for an economy showing signs of slowing or if policymakers will opt for a half-point cut instead. Investor attention will also be on the central bank’s quarterly “dot plot” in its Summary of Economic Projections and Chair Jerome Powell’s post-decision press conference.
Meanwhile, U.S. rate futures have priced in a 37.0% chance of a 25 basis point rate cut and a 63.0% chance of a 50 basis point rate cut later today.
A survey conducted by 22V Research revealed that market reaction expectations to the Fed decision hinge on the bets regarding the size of the cut. Investors who expect a 25 basis point reduction are divided on whether that cut would trigger a “risk-on” or “risk-off” reaction. At the same time, those wagering on a 50 basis point cut believe a smaller Fed move would be “risk-off.”
On the economic data front, investors will focus on the U.S. Building Permits (preliminary) and Housing Starts figures, scheduled for release in a couple of hours. Economists forecast August Building Permits to be 1.410M and August Housing Starts to be 1.310M, compared to the previous numbers of 1.406M and 1.238M, respectively.
U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be -0.100M, compared to last week’s value of 0.833M.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 3.667%, up +0.64%.
The Euro Stoxx 50 futures are down -0.25% this morning as investors digested key economic data from the region and cautiously awaited the Fed’s monetary policy decision. Technology and healthcare stocks led the declines on Wednesday. The Office for National Statistics reported Wednesday that the U.K.’s annual inflation rate remained steady in August despite an acceleration in service prices, bolstering expectations that the Bank of England will keep its key interest rate unchanged on Thursday. Separately, final data from Eurostat released on Wednesday confirmed that the Eurozone’s annual inflation rate stood at 2.2% in August, down from 2.6% in July. Meanwhile, attention is now focused on the U.S. central bank, which is widely anticipated to deliver its first rate cut in four years later today. In corporate news, Novo Nordisk A/S (NOVOB.C.DX) fell nearly -2% after reports surfaced about a price reduction for its Ozempic drug.
U.K.’s CPI, U.K.’s Core CPI, Eurozone’s CPI, and Eurozone’s Core CPI data were released today.
U.K. August CPI arrived at +0.3% m/m and +2.2% y/y, in line with expectations.
U.K. August Core CPI came in at +0.4% m/m and +3.6% y/y, in line with expectations.
Eurozone August CPI has been reported at +0.1% m/m and +2.2% y/y, compared to expectations of +0.2% m/m and +2.2% y/y.
Eurozone August Core CPI stood at +0.3% m/m and +2.8% y/y, in line with expectations.
Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.49%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.49%.
China’s Shanghai Composite Index closed higher today as trading resumed after the Mid-Autumn Festival holiday. Real estate and insurance stocks led the gains on Wednesday. Also, chip-related stocks surged following the country’s announcement of a breakthrough in the development of homegrown chip-making equipment. Data released over the weekend showed that industrial output, retail sales, and fixed asset investments all slowed more than expected in August, while the jobless rate unexpectedly hit a six-month high. Meanwhile, several brokerages lowered their 2024 GDP growth projections for China following the release of the monthly data. Daiwa analysts said in a note that China’s 2024 GDP growth is likely to be under 5% as the third-quarter reading may be weaker than anticipated, attributing this to a sluggish recovery in domestic demand. In other news, the People’s Bank of China announced on Wednesday that it would renew the medium-term lending facility funds maturing on September 18th later this month. In corporate news, Henan Lingrui Pharmaceutical climbed over +5% after announcing plans to invest an additional 50 million yuan in Xiamen Jinyixing Equity Investment Fund. Investors are now turning their attention to the PBoC’s loan prime rate decisions scheduled for later this week.
Japan’s Nikkei 225 Stock Index ended higher today, snapping a two-day losing streak as investors geared up for an anticipated rate cut from the Fed. Automobile and energy stocks led the gains on Wednesday. Data released by the Ministry of Finance on Wednesday showed that Japan’s exports grew at a slower-than-anticipated rate in August due to a decline in shipments to the U.S. for the first time in three years, while imports increased at the smallest pace in five months. Separately, data from the Cabinet Office indicated that core machinery orders unexpectedly fell in July from the previous month, marking the first decline since May. Meanwhile, the yen regained some of Tuesday’s losses as investors awaited the Fed decision and also a Bank of Japan meeting later this week. BOJ Governor Kazuo Ueda and his colleagues are expected to keep their benchmark rate unchanged on Friday and discuss whether conditions are aligning for another hike later this year. In corporate news, Nippon Steel gained nearly +2% after Bloomberg reported that the company secured an extension in the security review of its takeover bid for U.S. Steel. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -2.41% to 27.14.
The Japanese July Core Machinery Orders came in at -0.1% m/m, weaker than expectations of +0.4% m/m.
The Japanese August Trade Balance has been reported at -695.3B yen, stronger than expectations of -1,380.0B yen.
The Japanese August Exports stood at +5.6% y/y, weaker than expectations of +10.0% y/y.
The Japanese August Imports came in at +2.3% y/y, weaker than expectations of +13.4% y/y.
Pre-Market U.S. Stock Movers
Intuitive Machines (LUNR) soared about +46% in pre-market trading after announcing it was awarded a NASA contract worth up to $4.82 billion for providing communication and navigation services for near-space missions.
VF Corporation (VFC) gained over +2% in pre-market trading after Barclays upgraded the stock to Overweight from Equal Weight with a price target of $22.
ResMed (RMD) fell more than -2% in pre-market trading after Wolfe Research downgraded the stock to Underperform from Peer Perform with a $180 price target.
Edwards Lifesciences (EW) dropped about -1% in pre-market trading after Jefferies downgraded the stock to Hold from Buy.
Super Micro Computer (SMCI) rose nearly +1% in pre-market trading after Needham initiated coverage of the stock with a Buy rating and a $600 price target.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Wednesday - September 18th
General Mills (GIS), Steelcase (SCS), Sangoma Technologies (SANG).
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