Stocks Climb Before the Open as Fed Rate Decision Looms

Oleksandr Pylypenko - Barchart - Wed Sep 20, 2023

December S&P 500 futures (ESZ23)are up +0.28%, and December Nasdaq 100 E-Mini futures (NQZ23) are up +0.32% this morning as market participants braced for the Federal Reserve’s interest rate decision due later in the day.

In Tuesday’s trading session, Wall Street’s major averages ended lower. Walt Disney Company (DIS) slid over -3% on plans to nearly double its capital expenditure for the parks business to $60 billion over the next 10 years. Also, Starbucks Corporation (SBUX) fell more than -1% after TD Cowen downgraded the stock to Market Perform from Outperform. In addition, Rocket Lab USA, Inc. (RKLB) plunged over -7% after the space launch company experienced an issue during its 41st mission launch and subsequently postponed the next mission. On the bullish side, Dell Technologies Inc (DELL) rose more than +1% after Daiwa upgraded the stock to Outperform from Neutral.

Economic data on Tuesday showed that U.S. August Housing Starts dropped to the lowest level since June 2020, standing at 1.283M, compared to a consensus of 1.440M. At the same time, U.S. Building Permits unexpectedly rose to 1.543M in August, stronger than expectations of 1.440M.

Today, all eyes are focused on the U.S. Federal Reserve’s monetary policy decision later in the day. U.S. rate futures have priced in a 99.0% chance for the Fed to keep its federal funds rate range unchanged at 5.25-5.50%. Also, investors will be paying close attention to the post-decision press conference by Fed Chair Jerome Powell and the release of the Fed’s Summary of Economic Projections, particularly focusing on the quarterly dot plot.

“Markets will focus on the Fed’s language, especially what they think. We all have an opinion on what the economy is doing, but apparently what the Fed thinks about it is the most important thing, if they see signs of softening or strengthening in the economy and that will inform us what will happen in November,” said Kim Forrest, chief investment officer at Bokeh Capital Partners.

On the economic front, investors will likely focus on U.S. Crude Oil Inventories data. Economists estimate this figure to be -2.200M, compared to last week’s value of +3.954M.

In other news, Bank of America strategists increased the S&P 500 year-end price target by 7% to 4600, citing factors like increased productivity, efficiency, and reduced labor intensity as drivers of solid economic growth.

In the bond markets, United States 10-year rates are at 4.350%, down -0.39%.

The Euro Stoxx 50 futures are up +0.70% this morning as investors digested U.K. inflation data while awaiting the U.S. Federal Reserve’s interest rate decision. Gains in real estate and healthcare stocks are leading the overall market higher. Data from the Office for National Statistics showed on Wednesday that Britain’s inflation rate unexpectedly fell to the lowest level in 18 months due to a decline in food prices. Meanwhile, the likelihood of a quarter-point rate hike by the Bank of England on Thursday has declined, with the market now attributing a probability of less than 60%, down from the previous 90%. In corporate news, M&G Plc (MNG.LN) rose over +2% after the insurer reported a stronger-than-expected 31% rise in its first-half operating profit.

U.K.’s CPI, U.K.’s Core CPI, and Germany’s PPI data were released today.

U.K. August CPI stood at +0.3% m/m and +6.7% y/y, weaker than expectations of +0.7% m/m and +7.0% y/y.

U.K. August Core CPI arrived at +0.1% m/m and +6.2% y/y, weaker than expectations of +0.6% m/m and +6.8% y/y.

The German August PPI came in at +0.3% m/m and -12.6% y/y, compared to expectations of +0.2% m/m and -12.6% y/y.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.52%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.66%.

China’s Shanghai Composite closed lower today as worries persisted regarding the world’s second-largest economy, despite the positive data from last week, while foreign investor selling also weighed on sentiment. China kept benchmark lending rates unchanged at a monthly fixing on Wednesday, as expected, following a series of upbeat August data indicating signs of stabilization in the world’s second-largest economy. Nonetheless, Cong Liang, Vice Chairman of the National Development and Reform Commission, expressed that China’s economy is still encountering numerous difficulties and challenges. Meanwhile, tourism, semiconductor, and automobile stocks underperformed on Wednesday. Tech giants listed in Hong Kong also lost ground. In other news, foreign investors sold a net 3.5 billion yuan worth of Chinese stocks through the Stock Connect program Wednesday.

“With Asia, GEM (Global Emerging Markets), and global funds already underweight China, especially GEM funds, we believe much of the pessimism has been priced in. The good news is the market is now cheap. We also see positives from the widespread improvement in August macro data,” HSBC said in a note.

Japan’s Nikkei 225 Stock Index closed lower today as investors adopted a cautious stance in anticipation of important central bank decisions, including those from the U.S. Federal Reserve and the Bank of Japan. Resource stocks lost ground on Wednesday after crude oil prices retreated from 10-month highs, while shippers and other stocks with higher dividends continued to outperform. Ministry of Finance data showed on Wednesday that Japan’s exports declined for the second consecutive month in August due to weakened demand for mineral fuels and semiconductor manufacturing equipment. Meanwhile, the yen steadied following comments from U.S. Treasury Secretary Janet Yellen, who stated that any currency intervention by Japan to smooth out volatility would be understandable.The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +2.01% to 17.26.

The Japanese August Trade Balance has been reported at -930.5B, weaker than expectations of -659.1B.

The Japanese August Exports stood at -0.8% y/y, stronger than expectations of -1.7% y/y.

The Japanese August Imports came in at -17.8% y/y, stronger than expectations of -19.4% y/y.

Pre-Market U.S. Stock Movers

Chewy Inc (CHWY) fell over -2% in pre-market trading after Oppenheimer downgraded the stock to Perform from Outperform.

Steelcase Inc (SCS) climbed more than +6% in pre-market trading after the company reported better-than-expected Q2 results and provided upbeat FY24 EPS guidance.

Nano Dimension Ltd (NNDM) rose over +3% in pre-market trading after the company announced that it had received approval from the Israeli court to continue with its previously announced share repurchase plan.

Dollar General Corporation (DG) dropped more than -2% in pre-market trading after JPMorgan downgraded the stock to Underweight from Neutral.

Hudson Pacific Properties Inc (HPP) gained over +2% in pre-market trading after BMO Capital upgraded the stock to Outperform from Market Perform.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Wednesday - September 20th

FedEx (FDX), General Mills (GIS), KB Home (KBH), Lifezone Metals (LZM), Genfit (GNFT).

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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.