Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.48%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.67%.

Stock index futures this morning are moderately lower on this morning’s weaker-than-expected U.S. housing starts report.  Also, risks of an escalation in the Israeli-Hamas war weighed on stock index futures after an explosion at a Gaza hospital complicated diplomatic efforts to contain the conflict.  After the bombing, the leaders of Jordan, Egypt and the Palestinian Authority canceled their scheduled summits with President Biden, who landed in Israel today. Hamas immediately blamed Israel for the explosion, but Israeli military authorities today offered evidence that the explosion was caused by an errant Hamas missile, not by Israeli aerial bombing.  Also, crude oil prices surged more than +2% to a 2-week high after Iran’s foreign minister called for an oil embargo against Israel. 

U.S. Sep housing starts rose by +7.0% to 1.358 million units, slightly weaker than expectations for an increase to 1.383 million.  However, Sep building permits fell by -4.4% to 1.473 million units, which was slightly stronger than expectations for a larger decline to 1.453 million units.

The markets are discounting an 8% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 38% 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 the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields are higher.  The 10-year T-note yield rose to a 1-1/2 week high of 4.866% and is up +0.7 bp at 4.841%. The 10-year German bund yield rose to a 1-1/2 week high of 2.921% and is up +1.5 bp at 2.896%.  The 10-year UK gilt yield rise to a 1-1/2 week high of 4.592% and is up +7.4 bp at 4.586%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.59%.  China’s Shanghai Composite Index closed down -0.80%.  Japan’s Nikkei 225 today closed up +0.01%.

The Euro Stoxx 50 today is moderately lower as Middle East tensions ramped up after an explosion at a Gaza hospital killed hundreds.  Crude prices surged to a 2-week high after the Iranian foreign minister called for an oil embargo against Israel.  European technology stocks retreated, led by a -2% fall in ASML Holdings NV after it reported Q3 order bookings plunged -42% y/y amid a sector-wide slump in the semiconductor industry.  Losses in the overall market were limited as Adidas AG jumped more than +5% after it boosted its guidance for the second time in three months.  Also, government bond yields declined after ECB Governing Council member Stournaras said the turmoil in the Middle East has shifted the balance against any further tightening of ECB monetary policy.

China’s Shanghai Composite Stock Index today tumbled to a 1-3/4 month low and closed moderately lower.  A selloff in property developers led the overall market lower today after distressed builder Country Garden Holdings said it is unlikely to honor all offshore debt payments on time and will default on $15.4 million of dollar bond interest due. The 30-day grace period for payment on the dollar bonds’ interest ends today.  Also, Chinese stocks related to AI fell as the U.S. took steps to block China’s access to advanced semiconductor technology.  Chinese stocks moved lower today despite better-than-expected economic news on China Q3 GDP, Sep industrial production and retail sales, and Sep employment.

China Q3 GDP rose +4.9% y/y, stronger than expectations of +4.5% y/y.

China Sep industrial production rose +4.5% y/y, stronger than expectations of +4.4% y/y.

China Sep retail sales rose +5.5% y/y, stronger than expectations of +4.9% y/y and the biggest increase in 4 months.

The China Sep surveyed jobless rate unexpectedly fell -0.2 to a nearly 2-year low of 5.0%, showing a stronger labor market than expectations of no change at 5.2%.

Japan’s Nikkei Stock Index today settled little changed.  Strength in bank stocks led the overall market higher today after the 10-year Jan JGB bond yield climbed to a new 10-year high.  Japanese chip stocks rose after Socionext jumped more than +15% after announcing plans for an advanced 2-nanometer chips in 2025 with its partnership with Arm Holdings Plc and Taiwan Semiconductor Manufacturing Co. Speculation the Japanese government is mulling tax cuts is also supportive for stocks after the Nikkei newspaper reported that Prime Minister Kishida in considering temporary tax reductions in a policy speech to parliament on Monday. 

The yen found support today on comments from former BOJ member Sakurai, who said the BOJ may scrap its negative interest rate policy by the end of the year to adjust the currently excessive level of monetary easing. 

Pre-Market U.S. Stock Movers

Nvidia (NVDA) slid nearly -2% in pre-market trading after it warned that new U.S. rules on chip exports to China could hinder product development and cause other difficulties. 

Morgan Stanley (MS) fell more than -2% in pre-market trading after reporting Q3 wealth management net revenue of $6.40 billion, below the consensus of $6.58 billion. 

Interactive Brokers (IBKR) dropped more than -4% in pre-market trading after it tempered its guidance for accounts growth in an earnings call. 

Airline stocks are under pressure in pre-market trading after United Airlines flagged a sharp profit decline should flights to and from Israel remain grounded due to the Israel-Hamas conflict. As a result, United Airlines Holdings (UAL) is down more than -5%, and American Airlines Group (AAL), Delta Air Lines (DAL), and Alaska Air Group (ALK) are down more than -1%. 

Sherwin-Williams (SHW) fell more than -2% in pre-market trading after Bank of America Global Research downgraded the stock to underperform from neutral.

Citizens Financial Group (CFG) slid more than -3% in pre-market trading after reporting Q3 revenue of $2.01 billion, weaker than the consensus of $2.04 billion.

Albemarle (ALB) dropped more than -3% in pre-market trading after Bank of America Global Research downgraded the stock to underperform from neutral.

Abbott Laboratories (ABT) climbed more than +2% in pre-market trading after reporting Q3 net sales of $10.14 billion, better than the consensus of $9.81 billion. 

Viking Therapeutics (VKTX) surged more than +15% in pre-market trading after reporting its GLP-1/GIP receptor significantly reduced liver fat and plasma lipid following 28 days of treatment in a Phase 1 trial. 

Editas Medicine (EDIT) climbed more than +3% in pre-market trading after JPMorgan Chase upgraded the stock to neutral from underweight. 

Energy stocks and energy service providers are moving higher in pre-market trading with the price of WTI crude up more than +2% to a 2-week high.  As a result, Chevron (CVX), Devon Energy (DVN), Exxon Mobil (XOM), Haliburton (HAL), Occidental Petroleum (OXY), Marathon Oil (MRO), Schlumberger (SLB), and Valero Energy (VLO) up more than +1%.

Floor & Decor Holdings (FND) jumped more than +5% in pre-market trading after S&P Dow Jones Indices sad the company will replace Vicor Corp in the S&P MidCap 400, effective on Friday's open. 

Travelers Cos (TRV) rose more than +1% in pre-market trading after reporting Q3 net premiums written of $10.49 billion, above the consensus of $10.36 billion. 

Earnings Reports (10/18/2023)

Abbott Laboratories (ABT), Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), Discover Financial Services (DFS), Elevance Health Inc (ELV), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Lam Research Corp (LRCX), Las Vegas Sands Corp (LVS), M&T Bank Corp (MTB), Morgan Stanley (MS), Nasdaq Inc (NDAQ), Netflix Inc (NFLX), Northern Trust Corp (NTRS), PPG Industries Inc (PPG), Procter & Gamble Co/The (PG), State Street Corp (STT), Steel Dynamics Inc (STLD), Tesla Inc (TSLA), Travelers Cos Inc/The (TRV), US Bancorp (USB), Zions Bancorp NA (ZION).

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