S&P Futures Climb as Bond Yields Fall Ahead of Key U.S. Inflation Data

Oleksandr Pylypenko - Barchart - Fri Sep 29, 2023

December S&P 500 futures (ESZ23)are trending up +0.43% this morning as dovish-leaning remarks from Fed officials and reports of a potential meeting between U.S. and Chinese leaders boosted sentiment while investors looked ahead to a reading on the Federal Reserve’s preferred inflation gauge.

In Thursday’s trading session, Wall Street’s major indexes closed in the green. Jabil Circuit Inc (JBL) surged over +18% after the U.S.-based manufacturing company posted better-than-expected Q4 earnings. Also, megacap growth stocks climbed, with Meta Platforms Inc (META) rising about +2% and Alphabet Inc (GOOGL) gaining more than +1%. In addition, Peloton Interactive Inc (PTON) soared over +5% after the company announced it had inked a five-year strategic global partnership with Lululemon Athletica. On the bearish side, CarMax Inc (KMX) plunged more than -13% and was the top percentage loser on the benchmark S&P 500 after the used-car retailer reported a weaker-than-expected quarterly profit. Also, Micron Technology Inc (MU) fell over -4% after the memory maker issued mixed Q1 guidance.

The U.S. Department of Commerce’s third estimate of Q2 GDP came in unchanged at +2.1% q/q. Also, U.S. August pending home sales plummeted to their lowest level since 2020, recording a decline of -7.1% m/m, weaker than expectations of -0.8% m/m. In addition, the number of Americans filing for jobless claims the past week rose slightly to 204K, stronger than expectations of 215K, pointing to resilience in the labor market.

Chicago Fed President Austan Goolsbee said Thursday that policymakers were at risk of overshooting on interest rates by putting too much emphasis on the notion that substantial job losses are necessary to curb inflation. “The Fed has the chance to achieve something quite rare in the history of central banks - to defeat inflation without tanking the economy,” Goolsbee said. Also, Richmond Fed President Thomas Barkin stated that policymakers have time to determine whether further measures are required to combat inflation, and he suggested that insights from the labor market could be valuable in this regard. “We have time to see if we’ve done enough or whether there’s more work to be done,” Barkin said.

Meanwhile, U.S. rate futures have priced in a 17.2% chance of a 25 basis point rate hike at the November meeting and a 30.9% probability of a 25 basis point rate increase at the December FOMC meeting.

In other news, the Wall Street Journal reported that China’s Vice Premier He Lifeng and Foreign Minister Wang Yi are in discussions regarding possible visits to the United States, aiming to make preparations for a potential summit between Xi Jinping and Joe Biden.

Today, all eyes are focused on the U.S. core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, in a couple of hours. Economists, on average, forecast that the core PCE price index will come in at +0.2% m/m and +3.9% y/y in August, compared to the previous values of +0.2% m/m and +4.2% y/y.

Also, investors will likely focus on the U.S. Chicago PMI, which stood at 48.7 in August. Economists foresee the September figure to be 47.6.

U.S. Michigan Consumer Sentiment Index will be reported today. Economists foresee this figure to stand at 67.7 in September, compared to August’s value of 69.5.

U.S. Personal Spending data will also be closely watched today. Economists forecast Personal Spending to be at +0.4% m/m in August, compared to the previous figure of +0.8% m/m.

In the bond markets, United States 10-year rates are at 4.536%, down -1.32%.

The Euro Stoxx 50 futures are up +0.74% this morning as market participants digested a slew of important regional economic data ahead of a key U.S. inflation reading. Gains in luxury stocks are leading the overall market higher after Bank of America strategists raised their view on the sector to Overweight. Rate-sensitive technology stocks also gained ground as Eurozone government bond yields retreated from multi-year highs. Eurostat’s flash reading released on Friday showed that the Eurozone’s headline inflation fell to its lowest level in two years in September, while underlying inflation experienced the biggest decline since August 2020. In corporate news, Adidas Ag (ADS.D.DX) surged over +6% after U.S. peer Nike topped profit estimates on Thursday.

U.K.’s GDP, Germany’s Retail Sales, Germany’s Unemployment Change, Germany’s Unemployment Rate, France’s CPI (preliminary), Italy’s CPI (preliminary), Eurozone’s CPI (preliminary), and Eurozone’s Core CPI (preliminary) data were released today.

U.K. GDP has been reported at +0.2% q/q and +0.6% y/y in the second quarter, compared to expectations of +0.2% q/q and +0.4% y/y.

The German August Retail Sales stood at -1.2% m/m, weaker than expectations of +0.5% m/m.

The German September Unemployment Change arrived at +10K, stronger than expectations of +15K.

The German September Unemployment Rate was at 5.7%, in line with expectations.

The French September CPI came in at -0.5% m/m and +4.9% y/y, weaker than expectations of -0.3% m/m and +5.1% y/y.

The Italian September CPI stood at +0.2% m/m and +5.3% y/y, compared to expectations of +0.1% m/m and +5.3% y/y.

Eurozone September CPI has been reported at +4.3% y/y, weaker than expectations of +4.5% y/y.

Eurozone September Core CPI arrived at +4.5% y/y, weaker than expectations of +4.8% y/y.

Japan’s Nikkei 225 Stock Index (NIK) closed down -0.05%, while the Chinese market was closed for a holiday.

Japan’s Nikkei 225 Stock Index closed just below the flatline as investors digested a barrage of economic data from the country while uncertainty over a potential U.S. shutdown and the ongoing auto workers strike kept sentiment in check. The Nikkei has lost more than 4% in the third quarter, marking its first quarterly decline since last September. Data on Friday showed that core inflation in Japan’s capital decelerated for the third consecutive month in September but remained above the Bank of Japan’s 2% target for the 16th straight month. Separately, data indicated that Japan’s seasonally adjusted factory output was flat in August from the previous month, while retail sales grew more than expected in August from a year earlier. Meanwhile, chip-related stocks and other tech names outperformed on Friday, mirroring gains seen among their U.S. peers, with chip-testing equipment maker Advantest climbing about +3% and chip-testing equipment giant Tokyo Electron rising more than +2%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -2.18% to 18.40.

The Japanese September Tokyo Core CPI has been reported at +2.5% y/y, weaker than expectations of +2.6% y/y.

The Japanese August Unemployment Rate was at 2.7%, weaker than expectations of 2.6%.

The Japanese August Industrial Production stood at 0.0% m/m, stronger than expectations of -0.8% m/m.

The Japanese August Retail Sales arrived at +7.0% y/y, stronger than expectations of +6.6% y/y.

Meanwhile, Hong Kong stocks surged on Friday, driven by optimism over spending during China’s Golden Week holiday and the prospect of a potential meeting between U.S. and China leaders.

Pre-Market U.S. Stock Movers

Nike Inc (NKE) climbed over +8% in pre-market trading after the world’s largest sportswear maker topped Wall Street estimates for Q1 profit and projected a 100 basis point increase in Q2 gross margins.

Editas Medicine Inc (EDIT) surged more than +7% in pre-market trading after Stifel upgraded the stock to Buy from Hold.

FedEx Corporation (FDX) gained about +0.6% in pre-market trading after HSBC initiated coverage of the stock with a Buy rating.

Ball Corporation (BALL) rose over +1% in pre-market trading after Jefferies upgraded the stock to Buy from Hold.

Bumble Inc (BMBL) soared more than +4% in pre-market trading after Loop Capital upgraded the stock to Buy from Hold.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - September 29th

Carnival Corp (CCL), Lovesac (LOVE), Comtech (CMTL), Natuzzi (NTZ).

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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. For more information please view the Barchart Disclosure Policy here.