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Pre-Market Brief: Stocks Climb on Hopes of Fed Pivot

Barchart - Tue Oct 4, 2022

Morning Markets

December S&P 500 futures (ESZ22) are trending higher +1.42% this morning, following a strong rally among three major US benchmark indices during the regular session as weaker than anticipated ISM manufacturing data boosted expectations of further monetary policy support from the Federal Reserve. Three major U.S. stock indexes were fueled primarily by gains in the Oil & Gas, Basic Materials, and Telecoms sectors. Also, lower T-note yields are a supportive factor for stocks today, with the 10-year T-note yield down by -1.74% to 3.587%.

"The U.S. yield markets are pulling back - that's been positive ... and that connotes a more risk-on environment," said Art Hogan, a chief market strategist at B. Riley Wealth in Boston.

ISM September manufacturing data has been reported at 50.9 compared to economists’ forecasts of 52.2, increasing at its slowest pace in nearly 2-1/2 years as new orders contracted. The data boosted investors' hopes that signs of slowing economic growth could force the Fed to step back the pace of rate increases.

"While good economic data, strong readings had been a catalyst for selling, this is the first time we've actually seen some negative news be a catalyst," said Hogan.

On the ground of this, U.S. rate futures have priced in a 46.3% chance of a 50 basis point rate increase and a 53.7% chance of a 75 basis point hike at November's monetary policy meeting.

Today, all eyes are focused on the U.S. JOLTs Job Openings data in a couple of hours. Economists, on average, forecast that August JOLTs Job Openings will stand at 10.775M, compared to the previous value of 11.239M.

Also, investors are likely to focus on the U.S. Factory Orders data, which was at -1.0% m/m in July. Economists foresee the August figure to come in at +0.3% m/m.

The Euro Stoxx 50 is up +2.94% this morning as investors seek bargains after European equities ended the third quarter in the red on concerns of economic downturn and aggressive monetary policy tightening. In addition, the U.K government reversed proposed tax cuts for top earners, boosting the market's bullish sentiment. Another supportive factor for the sentiment was Australia's central bank's smaller-than-expected interest rate hike by 25 basis points.

“Investors are starting to doubt central banks globally will remain aggressive with fighting inflation as financial stability risks are growing,” said Ed Moya, an analyst at Oanda.

Spain Unemployment Change and Eurozone Producer Price Index (PPI) data were released today. 

The Spanish Unemployment Change has been reported at 17.7K, compared to the previous value of 40.4K.

Eurozone August PPI stood at +5.0% m/m and +43.3% y/y, stronger than expectations of +4.9% m/m and +43.1% y/y.

Asian stock markets today closed in the green on hopes that the weakening U.S. economy would push the Fed into reducing its aggressive tone. Japan’s Nikkei 225 Stock Index (NIK) closed up +2.96%, while the Chinese market was closed for holidays.

Japan’s Nikkei 225 Stock Index settled higher today as yield-sensitive technology stocks marked solid gains. The index's upward momentum was primarily fueled by gains in the Automobile & Parts, Power, and Mining sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 0.42% to 26.22.

Japan's Tokyo Core Consumer Price Index (CPI) came in at 2.8% y/y in September, in line with expectations.

The Japanese 10-Year JGB Auction stood at 0.248%, compared to the last reported figure of 0.235%.

Pre-Market U.S. Stock Movers

Rivian Automotive Inc (RIVN) gained over +7% in pre-market trading on production news after the company produced 7,363 vehicles in the third quarter at its manufacturing facility in Normal and delivered 6,584 vehicles over the same period.

Aeroclean Technologies LLC (AERC) spiked about +39% in pre-market trading after the company announced an all-stock merger with Molekule.

Xos Inc (XOS) dropped about -6% in pre-market trading after the company announced that it had delivered 65 of its 100% battery-electric stepvan to return customer Merchants Fleet.

Butterfly Network, Inc (BFLY) rose more than +2% in pre-market trading after B.Riley initiated coverage of the stock with a buy rating and a price target of $9.50.

AXT Inc (AXTI) plunged more than -9% in pre-market trading after the company cut its Q3 revenue guidance. The company plans to generate revenue in the range of $34-$35 million, down from the previous guidance range of $39-$41 million.

Hyperfine Inc (HYPR) climbed over +3% in pre-market trading after B.Riley initiated coverage of the stock with a buy rating and a price target of $3.50.

Today’s U.S. Earnings Spotlight: Tuesday - October 4th

Acuity Brands (AYI), Novagold (NG), Virtus Dividend Interest Premium Strategy Fund (NFJ), Smart Global (SGH), Virtus Equity Convertible (NIE), PIMCO California Municipal Income (PCQ), PIMCO Municipal Income Fund (PMF), Saratoga Investment Corp (SAR), QEP (QEPC).

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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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