Pre-Market Brief: Stocks Rebound As Bond Yields Fall, China’s COVID Spike Remains In Focus

Oleksandr Pylypenko - Barchart - Tue Nov 22, 2022

December S&P 500 futures (ESZ22) are trending up +0.23% this morning after three major US benchmark indices ended Monday roughly down as market participants remained cautious after reports suggested China could resume stricter measures to fight COVID-19, while earnings results were also closely watched. Three major U.S. stock indexes were weighted down primarily by losses in the Consumer Services, Energy, and Technology sectors.

Chinese authorities on Monday said it would shut businesses and schools in hard-hit districts and tighten rules for entering the city, triggering worries over the economy.

"There is this fear that China might reinstitute some of the COVID restrictions that they've just purportedly started to lift," said Carol Schleif, a deputy chief investment officer at BMO Family Office.

However, stocks limited losses in the early afternoon on Monday after the San Francisco Federal Reserve President Mary Daly said that officials need to be careful to avoid a “painful downturn.” Cleveland Fed President Loretta Mester supported Daly's statement, saying she supports a smaller rate increase in December. Investors now await the release of minutes from the Fed's November meeting on Wednesday.

“FOMC minutes could signal that slower rate hikes don’t necessarily mean a lower peak,” Nomura said in a recent note.

At the same time, U.S. rate futures have priced in a 71.1% chance of a 50 basis point rate increase and a 28.9% chance of a 75 basis point hike at December's monetary policy meeting.

Today, market participants will be closely monitoring speeches from FOMC members Mester, George, and Bullard for further clues on the Fed's plans for monetary policy.

Also, investors are likely to focus on Canada’s Core Retail Sales data, which was at +0.7% m/m in August. Economists foresee the September value to be -0.6% m/m.

Canada's New Housing Price Index data will be reported today. Economists estimate this figure to come in at +0.2% m/m in October, compared to the previous value of -0.1% m/m.

U.S. Richmond Manufacturing Index will come in today as well. Economists, on average, forecast the November figure to be at -9, compared to the previous value of -10.

In the bond markets, United States 10-Year rates are at 3.789%, down -0.98%.

TheEuro Stoxx 50 futures are up +0.54% this morning as investors warily assessed the likely impact of a surge in COVID cases in China on economic growth for the world's second-largest economy. Investors feared that stricter curbs could stifle economic activity in a major export market for Europe’s companies. At the same time, inflation in the Eurozone soared to 10.6% at the end of last month, up from 9.9% in September, indicating that the European Central Bank will continue to hike interest rates to counter rising inflation.

U.K. Public Sector Net Borrowing and Eurozone Current Account data were released today.

U.K. October Public Sector Net Borrowing has been reported at 12.73B, stronger than expectations of 19.10B.

Eurozone September Current Account stood at -8.1B, stronger than expectations of -20.3B.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.13%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.61%.

China’s Shanghai Composite today closed slightly higher as recent losses invited some bargain hunting. However, losses in technology stocks and concerns over rising COVID-19 cases in China continued to weigh on sentiment. A record-high increase in daily COVID cases saw the reintroduction of curbs in major cities, including Beijing and Shanghai. Market participants fret that stricter restrictions could again dent economic growth in the country and cause more global supply chain issues.

At the same time, Japan’s Nikkei 225 Stock Index closed higher today, benefiting from increased optimism after Warren Buffet’s hedge fund Berkshire Hathaway raised its stakes in the country’s five largest trading houses. The index's upward momentum was fueled by gains in the Gas & Water, Steel, and Insurance sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 1.62% and hit a new 1-month low of 18.20.

Pre-Market U.S. Stock Movers

Zoom Video Communications Inc (ZM) plunged over -9% in pre-market trading after the company posted a stronger-than-expected Q3 report but issued weak Q4 guidance.

Mullen Automotive Inc (MULN) tumbled about -6% in pre-market trading, extending yesterday's losses after the company filed to sell 220.83M shares of its common stock.

LYFT Inc (LYFT) dropped about -1% in pre-market trading after Cowen downgraded the stock from outperform to market perform with a price target of $12.00.

Symbotic Inc (SYM) rose about +3% in pre-market trading after the company slightly missed EPS but delivered better-than-expected revenue figures in the fourth quarter.

Agilent Technologies Inc (A) climbed more than +4% in pre-market trading after the company reported upbeat Q4 results and provided favorable FY2023 guidance.

Scpharmaceuticals Inc (SCPH) slid about -13% after the company filed to sell its common stock.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Tuesday - November 22nd

Medtronic (MDT), Analog Devices (ADI), VMware (VMW), Dollar Tree (DLTR), HP Inc (HPQ), CRH ADR (CRH), Baidu (BIDU), Best Buy (BBY), Campbell Soup (CPB), Warner Music (WMG), Burlington Stores (BURL), Dick’s Sporting Goods (DKS), Severn Trent PLC PK (STRNY), Vipshop (VIPS), PagSeguro Digital (PAGS), Nordstrom (JWN), Dycom Industries (DY), Cracker Barrel Old (CBRL), American Eagle Outfitters (AEO), Chindata (CD), Canadian Solar Inc (CSIQ), Jack In The Box (JACK), Construction Partners (ROAD), Asseco Poland ADR (ASOZY), BBVA Banco Frances ADR (BBAR), Guess (GES), Caleres (CAL), Abercrombie&Fitch (ANF), American Woodmark (AMWD), Chicos FAS (CHS), VNET DRC (VNET), Nordic American Tankers (NAT), Movado (MOV), Yatsen (YSG), Tsakos Energy (TNP), Global Cord Blood (CO), Fanhua (FANH), LMP Capital And Income Closed Fund (SCD), Gaotu Techedu DRC (GOTU), Kamada (KMDA), G Willi-Food (WILC), Daktronics (DAKT), CNFinance (CNF), Yirendai Ltd (YRD).

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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.