Pre-Market Brief: Stocks Slide as Rising Yields Overshadow Earnings

Oleksandr Pylypenko - Barchart - Thu Oct 20, 2022

Morning Markets

December S&P 500 futures (ESZ22) are trending down -0.43% this morning after three major US benchmark indices snapped a two-day rally as the U.S. Dollar and Treasury yields resumed their moves higher. Three major U.S. stock indexes were weighted down primarily by losses in the Financials, Healthcare, and Utilities sectors.

The yield on the 10-year U.S. Treasury note touched its highest level in more than 14 years after U.S. homebuilding fell more than expected in September. Soft housing data failed to alter expectations that the Federal Reserve would remain aggressive in increasing interest rates to cool off stubbornly high inflation. In addition, Federal Reserve Bank of Minneapolis President Neel Kashkari said on Wednesday that "job market demand remains robust and underlying inflation pressures probably have not peaked yet."

“Against persistent core inflation pressures, the Fed is on track to continue tightening at a faster pace than originally anticipated,” Morgan Stanley said in a note, anticipating the Fed to increase rates by 75 basis points in November, 50bps in December, and 25bps in January.

At the same time, U.S. rate futures have priced in a 92.7% chance of a 75 basis point rate increase and a 7.3% chance of a super-sized 100 basis point hike at November's monetary policy meeting.

On a positive side, third-quarter profit growth expectations for S&P 500 companies advanced to 3% compared to 2.8% on Tuesday but still down from 11.1% at the start of July.

Today, all eyes are focused on the U.S. Initial Jobless Claims data in a couple of hours. Economists, on average, forecast that Initial Jobless Claims will come in at 230K, compared to the last week's figure of 228K.

Also, investors will be closely watching the U.S. Philadelphia Fed Manufacturing Index, which was at -9.9 in September. Economists foresee the October figure to stand at -5.0.

U.S. Existing Home Sales data will come in today as well. Economists expect this figure to be 4.70M in September, compared to the previous value of 4.80M.

In the bond markets, United States 10-Year rates are at 4.174%, up +1.08%.

The Euro Stoxx 50 futures are down -0.61% this morning as investors digested quarterly earnings reports amid continued political and economic uncertainty. The political uncertainty in the U.K. continues after the sudden resignation of Home Secretary Suella Braverman on Wednesday, adding to the continued erosion of Prime Minister Liz Truss’s authority. Another negative factor for European equities is the more than -5% drop in Nokia (NOKIA.H.DX) after the Finnish telecom equipment maker's quarterly operating profit missed analysts' estimates.

Germany Producer Price Index (PPI), France Business Survey, and Eurozone Current Account data were released today.

The German September PPI came in at +2.3% m/m and +45.8% y/y, stronger than expectations of +1.3% m/m and +44.7% y/y. The data showed that inflation remains a serious problem in the Eurozone’s largest economy, likely pressuring the European Central Bank to continue its monetary tightening policy.

The French October Business Survey has been reported at 103, stronger than expectations of 101.

Eurozone Current Account stood at -26.3B in August, weaker than expectations of -20.3B.

Asian stock markets today settled in the red as risk appetite waned on rate hike fears. China’s Shanghai Composite Index (SHCOMP) closed down -0.31%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.92%.

China’s Shanghai Composite today closed lower, but hopes of more stimulus measures in China helped limit declines. The People’s Bank of China kept its loan prime rate at 3.65% on Thursday, fueling expectations of more monetary stimulus to support the economy. However, concerns over the country's strict zero-COVID policy and the delay of crucial economic data weighed on sentiment.

At the same time, Japan’s Nikkei 225 Stock Index closed lower today as high commodity prices and a weak yen are set to increase economic pressure in the near term. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 2.57% to 22.79.

The Japanese September Trade Balance has been reported at -2,094.0B, stronger than expectations of -2,167.4B.

Pre-Market U.S. Stock Movers

Alcoa Corp (AA) plunged more than -8% in pre-market trading after the company delivered lower-than-anticipated Q3 EPS and revenue numbers.

International Business Machines (IBM) soared over +3% in pre-market trading after the company reported upbeat Q3 earnings results.

Tesla Inc (TSLA) slid over -6% in pre-market trading after the company issued a mixed Q3 report, missing revenue estimates.

Enservco Co (ENSV) jumped over +14% in pre-market trading after the company surpassed Q3 EPS and revenue expectations.

Telefonaktiebolaget LM Ericsson B ADR (ERIC) dropped about -15% in pre-market trading after the company reported disappointing quarterly earnings, with operating margins hit by increasing costs.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Thursday - October 20th

Danaher (DHR), L’Oreal ADR (LRLCY), Philip Morris (PM), Hermes International SA (HESAY), Union Pacific (UNP), AT&T (T), Blackstone Group (BX), Marsh McLennan (MMC), Wal Mart de Mexico ADR (WMMVY), CSX (CSX), ABB ADR (ABB), Atlassian Corp Plc (TEAM), Pernod Ricard (PRNDY), Freeport-McMoran (FCX), Dow (DOW), Volvo ADR (VLVLY), Nucor (NUE), Axis Bank ADR (AXBKY), Danone PK (DANOY), DNB Bank ASA (DNBBY), Nokia ADR (NOK), Fifth Third (FITB), Genuine Parts (GPC), Tractor Supply (TSCO), LM Ericsson B ADR (ERIC), SVB (SIVB), Snap (SNAP), Dover (DOV), KeyCorp (KEY), Quest Diagnostics (DGX), Publicis Groupe SA (PUBGY), NVR (NVR), Pool (POOL), Snap-On (SNA), Akzo Nobel ADR (AKZOY), Yara International ASA (YARIY), East West Bancorp (EWBC), Signature Bank (SBNY), American Airlines (AAL), Watsco (WSO), Boliden ADR (BDNNY), Webster Financial (WBS), Keppel Corporation (KPELY), Whirlpool (WHR), Bank the Philippine Islands ADR (BPHLY), Chart Industries (GTLS), Western Alliance (WAL), First Financial Bankshares (FFIN), Iridium (IRDM), Synovus (SNV), Tenet Healthcare (THC), Glacier (GBCI), Skechers (SKX), Alaska Air (ALK), Home BancShares (HOMB), Bank Ozk (OZK), Axfood ADR (AXFOY), Crocs (CROX), Terminix Global Holdings (TMX), Ufp Industries (UFPI), MSC Industrial Direct (MSM), Boston Beer (SAM), Kimberly-Clark de Mexico (KCDMY), WNS Holdings (WNS), Independent Bank (INDB), ManpowerGroup (MAN), Castellum ADR (CWQXY), BE Semiconductor ADR (BESIY), Pacific Premier (PPBI), Herc Holdings (HRI), Associated Banc-Corp (ASB), BancFirst (BANF), BankUnited (BKU), TAL Education (TAL), Atlantic Union (AUB), Columbia Banking (COLB), First Financial Bancorp (FFBC), Vicor (VICR), Lindsay (LNN), Sandy Spring (SASR), OFG Bancorp (OFG), Berkshire Hills Bancorp (BHLB), S&T Bancorp (STBA), 1st Source (SRCE), Heritage Financial Co (HFWA), Brandywine (BDN), Amerant Bancorp A (AMTB), Metropolitan Bank (MCB), BJs Restaurants (BJRI), Midland States Banc (MSBI), Insteel Industries (IIIN), CNB Financial (CCNE), Covenant (CVLG), Capstar Financial (CSTR), Bar Harbor Bankshares (BHB), BCB Bancorp (BCBP), Unity (UNTY), FVCBankcorp (FVCB), First Western Financial (MYFW), Colony Bankcorp (CBAN), Alpine Income (PINE), National Bankshares (NKSH), Chemung (CHMG), LCNB (LCNB), William Penn Bancorp (WMPN), SB Financial (SBFG), Thunderbird Entertainment (THBRF), Manhattan Bridge (LOAN), Nextplay Technologies (NXTP), InnSuites Hospitality (IHT), Digihost Technology (DGHI), NeuroMetrix (NURO), Plus Therapeutics (PSTV), Technip Energies NV (THNPY).

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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.