Pre-Market Brief: Stocks Higher As Focus Shifts to China and Inflation Data

Oleksandr Pylypenko - Barchart - Mon Nov 7, 2022

December S&P 500 futures (ESZ22) are trending up +0.52% this morning after three major US benchmark indices rebounded on Friday but finished the week lower as market participants prepare for the latest consumer price index data as well as congressional midterm elections. Three major U.S. stock indexes were fueled primarily by gains in the Basic Materials, Financials, and Industrials sectors.

In Friday's trading session, three major US benchmark indices rebounded as investors mulled a mixed jobs report and speculation about China easing the Covid-19 lockdown measures. The Labor Department's data showed that the unemployment rate rose more than expected to 3.7%. However, nonfarm payrolls increased by 261,000 jobs last month, stronger than forecasts of 200,000.

Ahead in the week, market participants will be closely monitoring the latest CPI reading for October. Economists, on average, forecast the October CPI to stand at +0.6% m/m and +8.0% y/y, compared to the previous figures of +0.4% m/m and +8.2% y/y.

"If inflation hasn't started to maybe dip below 8%, then I think probably the Fed is on tap for another 75 basis point in December," said Tim Courtney, a Chief Investment Officer at Exencial Wealth Advisors.

Meanwhile, U.S. rate futures have priced in a 56.8% chance of a 50 basis point rate increase and a 43.2% chance of a 75 basis point hike at December's monetary policy meeting. Also, investors are now pricing in a peak of about 5.1% for the fed funds rate next year, compared to expectations of just under 5% before November's Fed meeting.

In addition, investors are likely to focus on a batch of speeches from Fed policymaker Waller as well as FOMC members Williams and Mester for further clues on the Fed's rate hike path.

Congressional midterm elections will be in the spotlight as well. Analysts said a surprise win by Democrats in the Nov. 8th midterm election could increase the volatility amid concerns about more fiscal spending and inflation.

"If the Dems were to retain full control of Congress, you're more likely to see fiscal expenditures rise and that would be highly problematic in this inflationary environment," said Spenser Lerner, a portfolio manager at Harbor Capital.

In the bond markets, United States 10-Year rates are at 4.138%, down -0.49%.

The Euro Stoxx 50 futures are up +0.54% this morning as investors gear up for a busy week in U.S. politics and the latest inflation report to assess the progress of Federal Reserve rate increases in cooling prices. Also, European stocks were steady after China’s exports and imports contracted in October, and the Chinese government reiterated its commitment to maintaining a strict COVID-19 strategy.

Switzerland's Unemployment Rate n.s.a, U.K. Halifax House Price Index, and Germany's Industrial Production data were released today.

Switzerland's October Unemployment Rate n.s.a has been reported at 1.9%, stronger than expectations of 2.0%.

U.K. October Halifax House Price Index stood at -0.4% m/m, in line with expectations.

The German September Industrial Production came in at +0.6% m/m, stronger than expectations of +0.2% m/m.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.23%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +1.21%.

China’s Shanghai Composite today closed higher, boosted by bets on smaller rate hikes. China’s indexes rallied last week on growing speculation that Beijing will scale back its zero-COVID policy. However, officials from China’s health commission said over the weekend that the country plans to maintain its strict COVID-related curbs.

The Chinese Trade Balance has been reported at 85.15B in October, weaker than expectations of 95.95B.

Japan’s Nikkei 225 Stock Index closed higher today, fueled by gains in the Transport, Power, and Shipbuilding sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 1.42% and hit a new 1-month low of 23.70.

Pre-Market U.S. Stock Movers

FAT Brands Inc (FAT) tumbled over -14% in pre-market trading after the company announced the proposed public offering of its class A common stock.

Nov Inc (NOV) jumped about +7% in pre-market trading after Wells Fargo upgraded the stock to equal weight from underweight.

Meta Platforms Inc (META) rose over +3% in pre-market trading after The Wall Street Journal reported that the company would implement large-scale job cuts this week.

AMC Entertainment Holdings Inc (AMC) dropped about -1% in pre-market trading after Citi lowered its price target on the stock to $1.20 from $3.13, maintaining a sell rating.

Kosmos Energy Ltd (KOS) climbed more than +3% in pre-market trading after the company reported positive Q3 numbers and reaffirmed FY22 guidance.

Duke Energy Corporation (DUK) slid over -2% in pre-market trading after the company reported mixed Q3 results and cut its FY22 adjusted EPS outlook.

Dominion Energy Inc (D) dropped more than -1% in pre-market trading after JPMorgan downgraded the stock to neutral from overweight.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - November 7th

Activision Blizzard (ATVI), BioNTech (BNTX), Diamondback (FANG), Fortescue Metals (FSUMF), Franco-Nevada (FNV), Roblox (RBLX), IFF (IFF), Coloplast A (CLPBY), Orix (IX), Eisai Co ADR (ESALY), Palantir (PLTR), STERIS (STE), Ajinomoto ADR (AJINY), Ryanair ADR (RYAAY), HF Sinclair (DINO), Subaru ADR (FUJHY), Viatris (VTRS), BB Seguridade Participacoes SA (BBSEY), Essential Utilities (WTRG), Fair Isaac (FICO), NiSource (NI), Shockwave Medical (SWAV), Qiagen (QGEN), James Hardie Industries ADR (JHX), Isuzu Motors (ISUZY), Choice Hotels (CHH), Admiral Group ADR (AMIGY), Allkem (OROCF), Viper Energy Ut (VNOM), Apellis Pharma (APLS), Spirit Realty (SRC), LYFT (LYFT), Brookfield Business (BBU), Cabot Corp (CBT), Haemonetics (HAE), Fabrinet (FN), Appfolio Inc (APPF), Brighthouse Financial (BHF), Chiba Bank ADR (CHBAY), Curaleaf (CURLF), Hiscox (HCXLF), Apple Hospitality REIT (APLE), American Equity Inv. Life (AEL), Kemper (KMPR), New Relic Inc (NEWR), Mirati Ther (MRTX), Five9 (FIVN), Taiyo Yuden ADR (TYOYY), TripAdvisor (TRIP), Nelnet (NNI), ICU Medical (ICUI), Instructure Holdings (INST), Brp Gr (BRP), Kosmos Energy (KOS), DigitalOcean Holdings (DOCN), Beam (BEAM), AMC Entertainment (AMC), ViaSat (VSAT), Prospect Capital (PSEC), Internet Initiative Japan ADR (IIJIY), Ringcentral Inc (RNG), Squarespace (SQSP), Lifestance Health Group (LFST), Matson (MATX), Treehouse Foods (THS), Inter Parfums (IPAR), ACADIA (ACAD), Holly Energy Partners LP (HEP), Delek US Energy (DK), Itron (ITRI), Cytek Biosciences (CTKB), Kennametal (KMT), Krystal Biotech (KRYS), Caretrust Inc (CTRE), Helios Tech (HLIO), Mueller Water Products (MWA), Arcus Biosciences (RCUS), Veracyte Inc (VCYT), Addus (ADUS), Palomar (PLMR), Definitive Healthcare (DH), Enovix (ENVX), Teijin (TINLY), Masonite Int (DOOR), EverCommerce (EVCM), Day One Biopharmaceuticals (DAWN), Syndax Pharmaceuticals (SNDX), Danaos (DAC), New Mountain Finance (NMFC), Two Harbors (TWO), Digital Turbine (APPS), Fulgent Genetics (FLGT), Primoris (PRIM), Everbridge (EVBG).

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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.