Stocks Set to Open Lower as Investors Await Key U.S. Inflation Data and Fed Speak

Oleksandr Pylypenko - Barchart - Mon Sep 25, 2023

December S&P 500 futures (ESZ23)are down -0.25%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.27% this morning as the benchmark U.S. 10-year yield rose toward a 15-year high, while market participants looked ahead to the release of the Fed’s favorite inflation gauge as well as speeches from Fed officials.

In Friday’s trading session, Wall Street’s major averages closed lower, with the benchmark S&P 500 posting a 3-1/4 month low and the blue-chip Dow notching a 2-1/4 month low. Scholastic Corporation (SCHL) tumbled over -13% after the company reported weaker-than-expected Q1 results. Also, Tyson Foods Inc (TSN) slid more than -3% after HSBC initiated coverage of the stock with a Reduce rating. On the bullish side, Ford Motor Company (F) rose over +1% after the United Auto Workers union reported significant progress in talks with the carmaker. U.S.-listed shares of Chinese firms also gained ground on news that Washington and Beijing were establishing working groups to discuss economic and financial matters, with PDD Holdings (PDD) climbing about +4% and Baidu Inc (BIDU) soaring more than +3%. In addition, Activision Blizzard Inc (ATVI) gained over +1% after the U.K. issued a preliminary approval for Microsoft’s $69 billion acquisition of the videogame publisher.

Economic data on Friday showed that the U.S. S&P Global manufacturing PMI stood at 48.9 in September, stronger than expectations of 48.0. At the same time, the U.S. September S&P Global services PMI fell to an 8-month low of 50.2, weaker than expectations of 50.6.

Fed Governor Michelle Bowman indicated Friday that she leans towards increasing interest rates again. “I continue to expect that further rate hikes will likely be needed to return inflation to 2% in a timely way,” Bowman said. Also, Boston Fed President Susan Collins said that further interest-rate hikes were “certainly not off the table.” In addition, San Francisco Fed President Mary Daly stated that she is not ready to declare a victory in the battle against inflation, emphasizing the central bank’s commitment to curbing price pressures “as gently as possible.”

U.S. rate futures have priced in a 25.5% probability of a 25 basis point rate increase at the next central bank meeting in November and a 35.5% chance of a 25 basis point rate hike at the December FOMC meeting.

In the coming week, the August reading of the U.S. core personal consumption expenditures price index, the Fed’s preferred inflation gauge, will be the main highlight. Also, market participants will be eyeing a spate of economic data, including the U.S. Building Permits, S&P/CS HPI Composite - 20 n.s.a., CB Consumer Confidence, New Home Sales, Richmond Manufacturing Index, Core Durable Goods Orders, Durable Goods Orders, Crude Oil Inventories, GDP, GDP Price Index, Initial Jobless Claims, Pending Home Sales, Goods Trade Balance (preliminary), Personal Income, Personal Spending, Chicago PMI, and Michigan Consumer Sentiment.

In addition, market participants will be looking toward a batch of speeches from Fed officials Kashkari, Bowman, Goolsbee, Cook, Barkin, and Williams.

Meanwhile, Federal Reserve Chair Jerome Powell will host a town hall with educators on Thursday.

On the earnings front, notable companies like Micron Technology (MU), Costco (COST), Nike (NKE), and Carnival (CCL) are slated to release their quarterly results this week.

The U.S. economic data slate is mainly empty on Monday.

In the bond markets, United States 10-year rates are at 4.495%, up +1.24%.

The Euro Stoxx 50 futures are down -0.68% this morning due to investor concerns regarding the potential for interest rates to remain elevated for an extended period, while continued apprehensions about China’s economic growth also weighed on sentiment. Losses in mining stocks are leading the overall market lower. China-exposed luxury stocks such as LVMH and Kering also underperformed. Meanwhile, ECB Governing Council member Francois Villeroy de Galhau stated on Monday that the European Central Bank has come to a juncture where it should exercise caution regarding raising interest rates excessively. ECB President Christine Lagarde is also set to deliver a speech later today. In corporate news, SBB (SBBB.S.DX) climbed over +27% following the Swedish property group’s sale of a 1.16% stake in its education subsidiary, EduCo, to Brookfield Super-Core Infrastructure Partners for about 242 million Swedish crowns. At the same time, Entain Plc (ENT.LN) plunged more than -10% after issuing a warning regarding its online gaming revenue.

Germany’s Ifo Business Climate Index, Germany’s Business Expectations, and Germany’s Current Assessment data were released today.

The German September Ifo Business Climate Index has been reported at 85.7, stronger than expectations of 85.2.

The German September Business Expectations stood at 82.9, in line with expectations.

The German September Current Assessment came in at 88.7, stronger than expectations of 88.0.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.54%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.85%.

China’s Shanghai Composite today closed lower as renewed concerns over the country’s property developers exerted downward pressure on market sentiment. China Evergrande Group tumbled over -21% after the troubled developer announced its inability to issue new debt due to an ongoing investigation into its unit, Hengda Real Estate Group, delivering another setback to its restructuring plans. Also, a warning to China from the EU’s chief trade negotiator that the bloc would take a more assertive stance in safeguarding its interests added to the downbeat mood. Meanwhile, Goldman Sachs said their client conversations with offshore investors revealed consistently pessimistic sentiment toward the Chinese economy, while onshore clients expressed mixed opinions. In other news, foreign investors offloaded a net 8 billion yuan worth of Chinese stocks via the Stock Connect on Monday.

Japan’s Nikkei 225 Stock Index closed higher today, snapping a 4-day losing streak as investors scooped up beaten-down stocks. Healthcare stocks outperformed on Monday, underpinned by an over +7% surge in Daiichi Sankyo after the drugmaker announced late last week that its jointly developed breast cancer drug with AstraZeneca slowed the progression of the disease in a late-stage trial. Tech stocks also gained ground, with chip-testing equipment maker Advantest and startup investor SoftBank Group climbing more than +3%. Investor attention this week is primarily centered on Tokyo inflation data for September, due on Friday. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -1.23% to 17.61.

Pre-Market U.S. Stock Movers

Nike Inc (NKE) fell over -1% in pre-market trading after Jefferies downgraded the stock to Hold from Buy.

Opendoor Technologies Inc (OPEN) plunged about -7% in pre-market trading after Citi lowered its price target on the stock to $2.70 from $3.90.

Sealed Air Corporation (SEE) rose more than +1% in pre-market trading after Citi upgraded the stock to Buy from Neutral.

Dow Inc (DOW) climbed over +1% in pre-market trading after JPMorgan upgraded the stock to Overweight from Neutral.

Urban Outfitters Inc (URBN) dropped more than -1% in pre-market trading after Jefferies downgraded the stock to Hold from Buy.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - September 25th

Thor Industries (THO), Manchester United (MANU), Lovesac (LOVE), Anixa Biosciences (ANIX).

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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.