Stock Index Futures Slip on Worries About Economic Slowdown, Interest Rate Outlook

Oleksandr Pylypenko - Barchart - Wed Sep 6, 2023

September S&P 500 futures (ESU23) are down -0.23%, and September Nasdaq 100 E-Mini futures (NQU23) are down -0.37% this morning as investors worried that higher oil prices might lead to increased inflation and potentially hinder the outlook for global economic growth.

In Tuesday’s trading session, Wall Street’s major indexes closed in the red. Homebuilder stocks retreated after the yield on the 10-year Treasury note climbed to a 1-week high, with Lennar Corporation (LEN) plunging over -4% and Toll Brothers Inc (TOL) slumping more than -5%. In addition, Xylem (XYL) fell over -4% following the announcement that CEO Decker will retire at the end of the year, with COO Pine slated to take over as CEO. On the bullish side, Airbnb Inc (ABNB) surged more than +7% and was the top percentage gainer on the tech-heavy Nasdaq 100 after being added to the S&P 500. Energy stocks also gained ground as the price of WTI crude rose over +1% to a 10-month high on more supply cuts from Saudi Arabia and Russia.

Fed Governor Christopher Waller said Tuesday that policymakers have the leeway to “proceed carefully” with tightening, given recent data demonstrating a continued easing of inflation. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller said.

Meanwhile, U.S. rate futures have priced in a 7.0% probability of a 25 basis point rate increase at the September FOMC meeting and a 40.5% chance of a 25 basis point rate hike at November’s monetary policy meeting.

Today, all eyes are focused on the U.S. ISM non-manufacturing index in a couple of hours. Economists, on average, forecast that the August ISM Non-Manufacturing PMI will come in at 52.5, compared to the previous value of 52.7.

Also, investors will likely focus on the U.S. S&P Global Composite PMI, which stood at 52.0 in July. Economists foresee the August figure to be 50.4.

U.S. S&P Global Services PMI will also be closely watched today. Economists expect August’s figure to be 51.0, compared to July’s value of 52.3.

U.S. Trade Balance data will be reported today as well. Economists foresee this figure to stand at -68.00B in July, compared to the previous number of -65.50B.

In the bond markets, United States 10-year rates are at 4.261%, down -0.21%.

The Euro Stoxx 50 futures are down -0.68% this morning in the wake of disappointing German factory orders data and an uptick in oil prices raising inflation concerns. Data on Wednesday showed that German industrial orders fell more than expected in July, indicating that the challenges facing Europe’s largest economy extended into the third quarter. Meanwhile, European Central Bank Governing Council member Klaas Knot said Wednesday that markets might be underestimating the likelihood of an interest rate increase in September. In corporate news, Telefonica Sa (TEF.E.DX) rose over +1% after Saudi Arabia’s STC Group acquired a 9.9% stake in the Spanish telecom giant, valued at 2.1 billion euros, in a move to become its top shareholder.

Germany’s Factory Orders, U.K.’s Construction PMI, and Eurozone’s Retail Sales data were released today.

The German July Factory Orders stood at -11.7% m/m, weaker than expectations of -4.0% m/m.

U.K. August Construction PMI has been reported at 50.8, stronger than expectations of 50.5.

Eurozone July Retail Sales came in at -0.2% m/m and -1.0% y/y, compared to expectations of -0.1% m/m and -1.2% y/y.

Asian stock markets today closed in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.12%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.62%.

China’s Shanghai Composite today closed slightly higher, buoyed by gains in property stocks, while investors anxiously awaited trade data for insights into the state of the world’s second-largest economy. In a commentary on Wednesday, state media Securities Times suggested the elimination of property sales and purchase restrictions, as well as the removal of selling price limitations in the majority of non-tier 1 cities. Meanwhile, Hong Kong-listed mainland property developers climbed on Wednesday as investors anticipated further easing measures for the sector. Sunac China, one of the country’s largest private developers, surged over +60% after being added to the Stock Connect program, while its property services arm, Sunac Services Holdings, indicated it was considering payment of a special dividend. Investor focus is now squarely on Chinese trade data, due on Thursday.

“China’s current economic woes are caused by both cyclical and structural factors, thus requiring measures on both fronts. To put the economy on a stronger recovery path, the most urgent task is to prevent property activities from sliding further,” said Wang Tao, chief China economist at UBS.

Japan’s Nikkei 225 Stock Index closed higher today, extending its winning streak to an eighth straight session as dovish comments from Bank of Japan board member Hajime Takata bolstered market sentiment. BOJ board member Hajime Takata said he observed some indications of progress toward raising Japanese inflation and wage growth. However, Takata reiterated the necessity to “patiently maintain the current massive monetary stimulus,” suggesting that the BOJ is inclined to retain its ultra-loose policy in the coming months. Meanwhile, automobile stocks outperformed on Wednesday, with Honda Motor Co Ltd rising over +1% and Toyota Motor Corp gaining more than +2%. Chip stocks also gained ground, with Advantest climbing about +3%. In addition, insurance and bank stocks advanced due to an increase in long-term bond yields, which created a more favorable investment environment. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -2.39% to 17.14.

“Dollar-yen continues to climb and is making the whole export sector in Japan more competitive,” said Tony Sycamore, a market analyst at IG.

Pre-Market U.S. Stock Movers

Enbridge Inc (ENB) plunged over -7% in pre-market trading following the company’s announcement of three agreements with Dominion Energy to acquire East Ohio Gas Co, Questar Gas, and Public Service Company of North Carolina for a total value of $14 billion.

AeroVironment Inc (AVAV) climbed more than +14% in pre-market trading after the maker of combat drones and other unmanned systems posted upbeat Q1 results and raised its FY24 guidance.

Mitek Systems Inc (MITK) soared over +15% in pre-market trading after the company reported stronger-than-expected Q1 results and lifted its FY23 forecast.

Gitlab Inc (GTLB) gained more than +6% in pre-market trading after reporting upbeat Q2 results and providing strong Q3 and FY24 guidance.

First Solar Inc (FSLR) rose over +2% in pre-market trading after Morgan Stanley upgraded the stock to Equal Weight from Underweight.

Celanese Corporation (CE) gained about +3% in pre-market trading after KeyBanc upgraded the stock to Overweight from Sector Weight.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Wednesday - September 6th

Core Main (CNM), Descartes Systems (DSGX), GameStop Corp (GME), Sprinklr (CXM), American Eagle Outfitters (AEO), ChargePoint Holdings (CHPT), Intapp (INTA), Verint (VRNT), Phreesia (PHR), Dave & Buster’s Entertainment (PLAY), Photronics (PLAB), Yext (YEXT), Couchbase (BASE), Calavo Growers (CVGW), Argan (AGX), Cantaloupe (CTLP), Daktronics (DAKT), Torrid Holdings (CURV).

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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.