S&P Futures Slip as Investors Cautiously Await U.S. Big Bank Earnings, U.S. Rates Stay in Focus

Oleksandr Pylypenko - Barchart - Fri Oct 13, 2023

December S&P 500 futures (ESZ23)are trending down -0.24% this morning after three major U.S. benchmark indices closed lower on Thursday as hotter-than-expected U.S. inflation data bolstered bets on Federal Reserve rate hikes while investors geared up for earnings from big U.S. banks.

In Thursday’s trading session, Delta Air Lines Inc (DAL) dropped over -2% after lowering the high end of its 2023 profit guidance due to increasing fuel prices and larger-than-expected aircraft maintenance costs. Also, Ford Motor Company (F) fell more than -2% after the United Auto Workers Union expanded its strike at the company’s largest plant in Kentucky. In addition, Beyond Meat Inc (BYND) plunged over -5% after Mizuho Securities downgraded the stock to Underperform from Neutral. On the bullish side, Fastenal Company (FAST) climbed more than +7% and was the top percentage gainer on the benchmark S&P 500 after the industrial supplies company reported better-than-expected Q3 EPS.

The Labor Department’s report on Thursday showed consumer prices rose +0.4% m/m in September, higher than the consensus figure of +0.3% m/m. On an annual basis, headline inflation rose +3.7% in September, unchanged from August’s reading. Economists had expected a growth of +3.6% y/y. At the same time, U.S. core CPI eased to +4.1% y/y in September from +4.3% y/y in August, the smallest increase in 2 years. In addition, the number of Americans filing for jobless claims the past week was unchanged at 209K, stronger than expectations of 210K.

“As for how this will impact interest rates, at this point, ‘higher-for-longer’ may be more important than ‘how high?’ Whether or not the Fed opts for hikes, it’s unlikely we’ll see rates drop below where they are for as long as the inflation dragon proves difficult to slay,” said Richard Flynn, managing director at Charles Schwab U.K.

Meanwhile, U.S. rate futures have priced in a 9.7% probability of a 25 basis point rate increase at the next central bank meeting in November and a 30.5% chance of a 25 basis point rate hike at the December meeting.

On the earnings front, big banks and financial-sector companies, including JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), PNC Financial (PNC), along with health insurance giant UnitedHealth (UNH), are slated to release their quarterly results today.

In other news, crude oil rose about +3% as tensions escalated in the Middle East, with Israel appearing to gear up for a ground incursion into Gaza.

Today, all eyes are focused on the U.S. Michigan Consumer Sentiment preliminary reading in a couple of hours. Economists, on average, forecast that the Michigan consumer sentiment index will stand at 67.2 in October, compared to the previous value of 68.1.

U.S. Export and Import Price Indexes for September will also be in focus today. Economists anticipate the export price index to be at +0.5% m/m and the import price index to stand at +0.5% m/m.

In the bond markets, United States 10-year rates are at 4.646%, down -1.36%.

The Euro Stoxx 50 futures are down -0.50% this morning as investors digested inflation data from several Eurozone economies, with concerns about the global economy amplified by lackluster inflation data from China. Healthcare and financial stocks dropped the most on Friday, while energy and mining stocks outperformed. Data on Friday showed that French annual inflation held steady in September, while the Spanish September annual inflation rate accelerated from August’s reading. Separately, data published Friday by European Union statistics agency Eurostat showed that industrial output in the Eurozone rose more than expected month-on-month in August, although the overall output was more than 5% lower than the previous year. In corporate news, Sartorius Sted Bio (DIM.FP) plunged over -15% after the Franco-German lab supplies maker cut its annual forecast for sales and adjusted earnings margin.

France’s CPI, Spain’s CPI, and Eurozone’s Industrial Production data were released today.

The French September CPI has been reported at -0.5% m/m and +4.9% y/y, in line with expectations.

The Spanish September CPI stood at +0.2% m/m and +3.5% y/y, in line with expectations.

Eurozone August Industrial Production arrived at +0.6% m/m and -5.1% y/y, compared to expectations of +0.1% m/m and -3.5% y/y.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.64%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.55%.

China’s Shanghai Composite today closed lower after the latest data highlighting persistent weaknesses in the country’s economy added to the gloom. Official data showed on Friday that China’s consumer inflation rate unexpectedly flatlined in September while factory-gate deflation continued, indicating that the economy’s path to growth remains fragile and necessitates additional support. Separately, customs data showed on Friday that the country’s exports and imports contracted at a slower rate for the second consecutive month in September. Meanwhile, Bloomberg News reported that China is contemplating forming a state-backed stabilization fund to bolster confidence in its $9.5 trillion stock market. Most sectors slid into the red on Friday, with consumer stocks leading the decline. Tech stocks traded in Hong Kong also slumped, with JD.com Inc plunging over -11% after multiple Wall Street brokerages cut the outlook for the e-commerce retailer. On the positive side, bank stocks outperformed, extending yesterday’s gains after Beijing’s state fund bought shares of the country’s “Big Four” lenders.

“September inflation data came out below consensus, suggesting a long way to go for the PBOC’s fight against deflation. The government has announced hundreds of counter-cyclical measures to boost domestic demand. But consumer confidence remains weak,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd.

The Chinese September CPI has been reported at +0.2% m/m and 0.0% y/y, weaker than expectations of +0.3% m/m and +0.2% y/y.

The Chinese September PPI was at -2.5% y/y, weaker than expectations of -2.4% y/y.

The Chinese September Trade Balance arrived at $77.71B, stronger than expectations of $70.00B.

The Chinese September Exports stood at -6.2% y/y, stronger than expectations of -7.6% y/y.

The Chinese September Imports came in at -6.2% y/y, weaker than expectations of -6.0% y/y.

Japan’s Nikkei 225 Stock Index closed lower today, tracking Wall Street’s declines overnight after hotter-than-expected U.S. inflation data fuelled bets for a more hawkish stance from the Federal Reserve. All sectors of the Nikkei 225 ended in the red, with real estate and financial stocks experiencing the largest declines. Meanwhile, a central bank quarterly survey showed on Friday that inflation expectations among Japanese households experienced a marginal increase in the three months to September. In corporate news, Seven & I Holdings Co Ltd plunged over -4% after the operator of the 7-Eleven convenience store chain in Japan released its financial results. On the positive side, Fast Retailing Co Ltd climbed more than +5% after the owner of the Uniqlo brand posted a strong earnings report. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +1.40% to 20.97.

Pre-Market U.S. Stock Movers

Dollar General Corporation (DG) climbed over +7% in pre-market trading after the retailer announced that Todd Vasos, current Board member and former Chief Executive Officer, had been appointed CEO of the company.

Netflix Inc (NFLX) dropped more than -1% in pre-market trading after Wolfe Research downgraded the stock to Peer Perform from Outperform.

Comtech Telecommunications Corp (CMTL) surged about +20% in pre-market trading after the company reported upbeat Q4 results and divested Power Systems Technology product line for $40 million in cash.

Belden Inc (BDC) plunged more than -14% in pre-market trading after cutting its Q3 revenue guidance amid softer-than-expected end-demand.

Arcutis Biotherapeutics Inc (ARQT) slid over -5% in pre-market trading after Goldman Sachs downgraded the stock to Neutral from Buy.

Fortinet Inc (FTNT) fell more than -2% in pre-market trading after Barclays downgraded the stock to Equal Weight from Overweight.

Applied Materials Inc (AMAT) gained over +1% in pre-market trading after Needham upgraded the stock to Buy from Hold.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - October 13th

UnitedHealth (UNH), JPMorgan (JPM), Wells Fargo&Co (WFC), BlackRock (BLK), Citigroup (C), PNC Financial (PNC).

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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.