Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.93% at a 1-month low, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -1.33% at a 3-1/2 week low.

Stock index futures this morning extended Wednesday’s losses as the hawkish tone from Wednesday’s FOMC meeting is hammering global risk sentiment.  The Fed on Wednesday signaled one more +25 bp rate hike this year and saw less easing next year, with the median forecast for the federal funds rate at 5.1% by the end of 2024, up from 4.6% when projections were made in June.

Stock index futures added to their losses this morning after weekly U.S. jobless claims unexpectedly fell to a 7-1/2 month low, showing a stronger labor market that was hawkish for Fed policy. 

Technology stocks are also under pressure this morning after the 10-year T-note yield soared to a 16-year high.  Also, Broadcom is down more than -4% in pre-market trading on reports that Google executives “extensively” discussed dropping the semiconductor maker as an AI chip supplier.

An increase in M&A activity is a positive factor for stocks after Cisco Systems agreed to a deal to acquire Splunk for about $28 billion.

U.S. weekly initial unemployment claims unexpectedly fell -20,000 to a 7-1/2 month low of 201,000, showing a stronger labor market than expectations of an increase to 225,000. Also, weekly continuing claims unexpectedly fell -21,000 to an 8-month low of 1.662 million, showing a stronger labor market than expectations of an increase to 1.692 million.

The U.S. Sep Philadelphia business outlook survey fell -25.5 to -13.5, weaker than expectations of -1.0.

The markets are discounting a 31% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 54% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in Q3 of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields today are higher.  The 10-year T-note yield jumped to a 16-year high of 4.488% and is up +7.1 bp at 4.478%. The 10-year German bund yield climbed to a 12-year high of 2.779% and is up +7.3 bp at 2.774%.  The 10-year UK gilt yield is up +12.5 bp at 4.339%.  

Overseas stock markets are lower today.  The Euro Stoxx 50 is down -1.71%.  China’s Shanghai Composite Index closed -0.77%.  Japan’s Nikkei 225 today closed -1.37%.

The Euro Stoxx 50 today dropped to a 1-week low and is under pressure after the Federal Reserve late Wednesday signaled interest rates would be higher for longer. Hawkish ECB commentary today also helped push European government bond yields higher, which weighed on stocks. The 10-year German bund yield rose to a 12-year high today after ECB Governing Council members Nagel and Makhlouf said the ECB may still need to raise interest rates further.  On the positive side, French business and manufacturing confidence indicators for August were stronger than expected.  Also, European retailer stocks rose, led by a +3% gain in Next Plc after the retailer raised its full-year sales and profit forecast.

The French Sep business confidence indicator was unchanged at 100, stronger than expectations of a decline to 98.  Also, the French Sep manufacturing sentiment index unexpectedly rose +2 to 99, stronger than expectations of a decline to 95.

ECB Governing Council member Makhlouf said there might still be an ECB rate hike in October, and March is too early to plan for an ECB interest rate cut.

ECB Governing Council member and Bundesbank President Nagel said it is too soon to say that interest rates have reached a plateau as the inflation rate is still "too high," and forecasts still only show a slow decline toward the ECB's target level of 2%.

China’s Shanghai Composite Stock Index today fell to a 3-week low and closed moderately lower.  Pessimism in China’s economy and disappointment with government measures to stimulate economic growth are undercutting Chinese stocks.  Today’s stock declines came amid a broader risk-off mood in global equity markets after the Federal Reserve on Wednesday signaled interest rates will be higher for longer.  Also, foreign outflows from onshore Chinese stocks have picked up steam as global funds have sold 27 billion yuan ($3.8 billion) of Chinese stocks this month via trading links with Hong Kong after a record 90 billion yuan outflow in August.

Japan’s Nikkei Stock Index today fell to a 1-week low and posted moderate losses. Negative carryover from Wednesday’s slide in U.S. equity markets undercut Japanese stocks after the Fed signaled interest rates will be higher for longer.  Higher Japanese government bond yields also weighed on stocks and lifted the yen from a 10-1/2 month low against the dollar today after the 10-year JGB government bond yield rose to a 10-year high of 0.751%.  The Bank of Japan (BOJ) meets today and tomorrow, although expectations are for the central bank to maintain QE and record low-interest rates.

Pre-Market U.S. Stock Movers

Broadcom (AVGO) tumbled more than -5% in pre-market trading following a report from The Information that said Google executives “extensively” discussed dropping the company as an AI chips supplier as early as 2027.

Cisco Systems (CSCO) dropped more than -3% in pre-market trading after agreeing to buy Splunk in a deal valued at $28 billion.

High-valuation chip stocks are falling in pre-market trading, with the 10-year T-note yield climbing to a nearly 16-year high.  As a result, Nvidia (NVDA), Marvell Technology (MRVL), NXP Semiconductors NV (NXPI), Qualcomm (QCOM), ON Semiconductor (ON), KLA Corp (KLAC), and Microchip Technology (MCHP) down more than -1%.

FactSet (FDS) fell more than -2% in pre-market trading after reporting Q4 adjusted EPS of $2.93, weaker than the consensus of $3.51.

CrowdStrike Holdings (CRWD) climbed more than +3% in pre-market trading after Guggenheim Securities raised its price target on the stock to $191 from $175 and Jeffries raised its price target on the stock to $170 from $155. 

FedEx (FDX) rose more than +5% in pre-market trading after raising the lower limit of its 2024 adjusted EPS forecast to $17.00-$18.50 from a previous estate of $16.50-$18.50, the midpoint above the consensus of $17.55. 

Film and entertainment stocks are moving higher in pre-market trading as Hollywood Studios and writers came closer to ending their 5-month-long strike.  As a result, Warner Bros Discovery (WBD) and Paramount Global (PARA) are up more than +3%.  Also, Netflix (NFLX) and Lions Gate Entertainment (LGF/A) are up more than +1%.

Nutanix (NTNX) rose more than +2% in pre-market trading after Bank of America Global Research upgraded the stock to buy from neutral. 

International Paper (IP) is up more than +1% in pre-market trading after Truist Securities upgraded the stock to buy from hold with a price target of $43.

Splunk (SPLK) soared more than +20% in pre-market trading after Cisco Systems agreed to buy the company for about $157 a share in cash in a deal valued at about $28 billion.

Earnings Reports (9/21/2023)

Darden Restaurants Inc (DRI), FactSet Research Systems Inc (FDS), Scholastic Corp (SCHL), Urban One Inc (UONEK), Veradigm Inc (MDRX).

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