December S&P 500 futures (ESZ23) are up +0.17%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.05% this morning as market participants braced for a busy week of corporate earnings while awaiting a key speech by Federal Reserve Chairman Jerome Powell.
In Friday’s trading session, Wall Street’s major averages closed mixed. Dollar General Corporation (DG) soared over +9% and was the top percentage gainer on the benchmark S&P 500 after the retailer announced that Todd Vasos, current Board member and former Chief Executive Officer, had been appointed CEO of the company. Also, Wells Fargo & Company (WFC) gained more than +3%, and JPMorgan Chase & Co (JPM) rose over +1% after reporting better-than-expected Q3 earnings results. In addition, energy stocks surged as the price of WTI crude rose nearly +6%, driven by indications of an imminent ground invasion of Gaza by Israel. On the bearish side, Boeing Co (BA) fell more than -3% after a news report said the planemaker and Spirit AeroSystems had expanded inspections of a production defect affecting 737 Max 8 aircraft. Also, chip stocks retreated, with ON Semiconductor (ON) dropping over -4% and Advanced Micro Devices Inc (AMD) slumping more than -3%.
Economic data on Friday showed that the University of Michigan’s preliminary reading of consumer sentiment came in at 63.0 in October, weaker than expectations of 67.2. Also, the University of Michigan’s October year-ahead inflation expectations unexpectedly rose to +3.8%, stronger than expectations of +3.2%. At the same time, the U.S. import price index stood at +0.1% m/m in September versus the consensus number of +0.5% m/m.
Meanwhile, Philadelphia Fed President Patrick Harker said Friday that disinflation is underway and reiterated his preference for keeping interest rates unchanged unless there is a substantial shift in the data. “Absent a stark turn in what I see in the data and hear from contacts ... I believe that we are at the point where we can hold rates where they are,” Harker said.
U.S. rate futures have priced in a 9.8% probability of a 25 basis point rate increase at the November FOMC meeting and a 30.4% chance of a 25 basis point rate hike at the Fed’s monetary policy committee meeting in December.
Earnings season picks up steam this week, with results expected from several more big banks, including Goldman Sachs (GS), Bank of America (BAC), and Morgan Stanley (MS). Also, major global companies, including Tesla (TSLA), Netflix (NFLX), Johnson & Johnson (JNJ), American Airlines (AAL), United Airlines (UAL), AT&T (T), and Lockheed Martin (LMT), are expected to post quarterly updates this week.
Investors will also be monitoring a spate of economic data this week, including U.S. Retail Sales, Core Retail Sales, Industrial Production, Manufacturing Production, Business Inventories, Building Permits (preliminary), Housing Starts, Crude Oil Inventories, Initial Jobless Claims, Philadelphia Fed Manufacturing Index, and Existing Home Sales.
In addition, Federal Reserve Chairman Jerome Powell will speak at the Economic Club of New York on Thursday. Market participants will be closely watching whether the strong jobs and CPI data for September prompt Powell to deliver hawkish remarks in alignment with the widespread anticipation of higher rates for longer.
Today, all eyes are focused on the U.S. NY Empire State manufacturing index in a couple of hours. Economists, on average, forecast that the October NY Empire State manufacturing index will come in at -7.00, compared to the previous value of +1.90.
Also, investors will likely focus on a speech from Philadelphia Fed President Patrick Harker.
In the bond markets, United States 10-year rates are at 4.681%, up +1.15%.
The Euro Stoxx 50 futures are down -0.12% this morning as investors weighed prospects of an escalation in the Middle East conflict while gearing up for the start of earnings season. Utilities and tech stocks underperformed on Monday, while mining and energy stocks gained ground. Meanwhile, Polish stocks experienced their most significant surge since May 2022, and the Polish zloty strengthened as the country’s opposition party appeared to be on track for a majority following Sunday’s election. In corporate news, Ssab Ab (SSABB.S.DX) rose over +2% after JP Morgan upgraded the Swedish steel company to Overweight from Neutral.
Germany’s WPI and Italy’s CPI data were released today.
The German September WPI stood at +0.2% m/m, weaker than expectations of +0.3% m/m.
The Italian September CPI has been reported at +0.2% m/m and +5.3% y/y, in line with expectations.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.46%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -2.03%.
China’s Shanghai Composite today closed lower even after the country’s central bank made the biggest medium-term liquidity injection since 2020. The People’s Bank of China injected 789 billion yuan worth of liquidity into the banking system via its one-year medium-term lending facility Monday while keeping the policy rate unchanged at 2.5%. Separately, to improve market sentiment, China’s securities regulator announced on Saturday that it would impose limitations on securities lending activities and tighten scrutiny of improper regulatory arbitrage. Meanwhile, Bloomberg reported that the United States would tighten sweeping measures that limit China’s access to advanced semiconductors and chip manufacturing equipment. In other news, foreign investors sold a net total of 6.5 billion yuan worth of Chinese stocks through the Stock Connect program on Monday. Investor focus is now squarely on Chinese growth data for the third quarter, due later in the week.
“The PBOC continues to show an easing bias in today’s operation. We hold our view that China rates remain a lower-for-longer story on the back of likely continued subpar growth during the current period of economic transition,” said Becky Liu, head of China macro strategy at Standard Chartered Bank.
Japan’s Nikkei 225 Stock Index closed sharply lower today, mirroring the decline seen in the S&P 500 on Friday as concerns over the Israel-Hamas war continued to weigh on sentiment. Heavyweight chip stocks retreated on Monday, tracking U.S. technology stocks, with Tokyo Electron Ltd plunging over -3% and Advantest Corp slumping more than -4%. Investors also adopted a cautious stance regarding Japan as they awaited the release of crucial inflation data for September later this week. On the positive side, Ryohin Keikaku climbed over +8% after the operator of retail outlet brand Muji provided a better-than-expected full-year profit forecast. Also, Lawson Inc. rose more than +2% after boosting its full-year profit guidance on strong performance at its convenience stores. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +4.43% to 21.90.
“As risks for the Middle East rose, investors braced for further declines in markets and cut their long positions in stocks,” said Takehiko Masuzawa, head of trading at Phillip Securities Japan.
The Japanese August Industrial Production stood at -0.7% m/m, weaker than expectations of 0.0% m/m.
Pre-Market U.S. Stock Movers
Lululemon Athletica Inc (LULU) climbed over +5% in pre-market trading after S&P Dow Jones Indices announced that the stock would replace Activision Blizzard in the S&P 500 Index, effective Wednesday.
Hubbell Inc (HUBB) gained more than +2% in pre-market trading after S&P Dow Jones Indices said the stock would replace Organon & Co. in the S&P 500 Index, effective Wednesday.
Ehang Holdings Ltd (EH) rose over +2% in pre-market trading after Goldman Sachs upgraded the stock to Buy from Neutral.
Pfizer Inc (PFE) fell more than -2% in pre-market trading after the pharmaceutical giant cut its FY23 revenue and earnings guidance.
KB Home (KBH) dropped over -2% in pre-market trading after Goldman Sachs downgraded the stock to Neutral from Buy.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Monday - October 16th
Charles Schwab (SCHW), Equity Lifestyle (ELS), ServisFirst Bancshares (SFBS), Enerpac Tool Group (EPAC), FB Financial (FBK), CrossFirst Bankshares (CFB), Guaranty Bancshares (GNTY).
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