Pre-Market Brief: Stocks Mixed As Fed Minutes Boost Sentiment, But China’s Covid Woes Weigh

Oleksandr Pylypenko - Barchart - Fri Nov 25, 2022

December S&P 500 futures (ESZ22) are trending up +0.02% this morning after three major US benchmark indices notched solid gains on Wednesday as investors turned optimistic after minutes from the latest Federal Reserve meeting revealed that policymakers expected a slowing of rate hikes “soon.” Three major U.S. stock indexes were fueled primarily by gains in the Consumer Goods, Technology, and Utilities sectors.

Today, the U.S. stock market will be opened for a half-session for the Thanksgiving long weekend. In Wednesday's trading session, three major US benchmark indices closed in the green after the minutes showed that a "substantial majority" of Fed policymakers agreed it would "likely soon be appropriate" to slow the pace of interest rate hikes. However, Donovan indicated there was no signal of an actual halt yet, and different Fed members thought rates might need to go "somewhat higher" than anticipated.

“The Federal Reserve minutes signaled that some sensible voices are trying to drown out Fed Chair Powell’s relentless 'hike, hike, hike' chant,” said UBS Chief Economist Paul Donovan.

After the release of Fed minutes, U.S. rate futures have priced in a 75.8% chance of a 50 basis point rate increase and a 24.2% chance of a 75 basis point hike at December's monetary policy meeting.

“We continue to expect the Fed to hike by 50bp in December but then by only 25bp in January, with no further hikes,” Pantheon Macroeconomics said in a note following the Fed meeting.

In addition, U.S. Labor Department data showed on Wednesday that jobless claims rose more than expected last week, and U.S. business activity contracted for a fifth consecutive month in November, pointing to a slowing economy.

The U.S. economic data slate is empty on Friday.

All eyes next week will be on the U.S. CB Consumer Confidence, ADP Nonfarm Employment Change, ISM Manufacturing PMI, and Nonfarm Payrolls data. In addition, investors will be monitoring U.S. GDP in Q3, JOLTs Job Openings, Pending Home Sales, Crude Oil Inventories, Core PCE Price Index, PCE Price index, Unemployment Rate, and Personal Spending data.

In the bond markets, United States 10-Year rates are at 3.707%, down -0.05%.

The Euro Stoxx 50 futures are down -0.28% this morning in thin trading conditions, with market participants digesting Germany’s GDP and consumer confidence data. Also, investors are likely to focus on the speech by ECB’s vice-president Luis de Guindos, a day after the accounts of the October meeting revealed that policymakers feared that inflation might be getting entrenched, so rates would need to rise further.

“It was also clear that rates would need to be raised further to reach a level that would deliver on the ECB’s 2% medium-term target,” the accounts of the meeting revealed.

Germany's GDP, Germany's GfK Consumer Climate, France's Consumer Confidence, and Italy's Consumer Confidence data were released today.

The German third-quarter GDP has been reported at +0.4% q/q and +1.2% y/y, stronger than expectations of +0.3% q/q and +1.1% y/y. That indicates a modest improvement from the previous quarter, bolstered by consumer spending.

The German December GfK Consumer Climate stood at -40.2, weaker than expectations of -39.6.

The French November Consumer Confidence came in at 83, in line with expectations.

The Italian November Consumer Confidence was 98.1, stronger than expectations of 91.0.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.40%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.35%.

China’s Shanghai Composite today closed higher as dovish signals from the Federal Reserve boosted a broader appetite for risk-driven assets. At the same time, the country logged a record-high rise in daily COVID-19 infections, reporting 32,695 new cases on Thursday. In addition, China imposed new lockdowns in several major cities, including Beijing, Shanghai, and Guangzhou, and ordered mass testing. On the ground of this, investors are concerned that renewed lockdown measures in the country would again hamper economic growth.

Japan’s Nikkei 225 Stock Index closed lower as the hotter-than-expected inflation report in the country’s capital indicated more economic headwinds for the country. The index's downward momentum was fueled by losses in the Power, Shipbuilding, and Communication sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 2.39% and hit a 52-week low of 17.15.

Pre-Market U.S. Stock Movers

Canoo Inc (GOEV) climbed over +12% in pre-market trading after the company's CEO Tony Aquila bought 4.5M shares of common stock on November 21st in a total transaction size of $5.0M.

Rocket Lab USA, Inc. (RKLB) jumped about +6% in pre-market trading after the company was selected by NASA to launch the TROPICS mission.

Activision Blizzard Inc (ATVI) plunged more than -3% in pre-market trading after Politico reported that FTC might seek to block Microsoft's deal.

iQIYI Inc (IQ) dropped about -2% in pre-market trading after Nomura lowered its price target on the stock to $2.60 from $3.90 and kept a neutral rating.

BHP Group Ltd ADR (BHP) slid about -2% in pre-market trading after Goldman Sachs downgraded the stock to neutral from buy.

Virgin Orbit Holdings Inc (VORB) rose about +3% in pre-market trading after the company elected not to proceed with an offering due to current market conditions.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - November 25th

Meituan (MPNGF), Prudential Public ADR (PUK), Lonza Group AG (LZAGY), Citic ADR (CTPCY), Techtronic Industries ADR (TTNDY), Trip.com ADR (TCOM), Li Auto (LI), Polyus ADR (OPYGY), Surgutneftegaz ADR (SGTZY), Siemens Gamesa ADR (GCTAY), Bank Hapoalim ADR (BKHYY), Brambles ADR (BXBLY), Sonic Healthcare ADR (SKHHY), ASX ADR (ASXFY), Koc Holdings AS (KHOLY), Legend Bio (LEGN), Nedbank Group Ltd (NDBKY), Allkem (OROCF), Ayala ADR (AYALY), UOL ADR (UOLGY), Manchester United (MANU), Autogrill ADR (ATGSY), Beijing Capital Airport ADR (BJCHY), Kenon Holdings (KEN), HUTCHMED DRC (HCM), Bumi Resources ADR (PBMRY), Embotelladora Andina (AKOa), Grupo Simec ADR (SIM), Paladin Energy (PALAF), Asseco Poland ADR (ASOZY), Nexters (GDEV), Naas Tech ADR (NAAS), First Nat Bank Alaska (FBAK), Nordic American Tankers (NAT), Orron Energy AB (LNDNF), Edenor ADR (EDN), National Energy Services (NESR), Rada Electronic Industries (RADA), KNOT Offshore Partners LP (KNOP), Mitek (MITK), Fission Uranium (FCUUF), Hyzon Motors (HYZN), Ellomay Capital (ELLO), LightInTheBox (LITB), Falcon Oil & Gas (FOLGF), Xinyuan RE (XIN), Natuzzi (NTZ), Molecular Energies (PPCGF), Anpac Bio Med (ANPC), Gold Bull Resources (GBRCF), Touchpoint Group Holdings Inc (TGHI).

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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.