Pre-Market Brief: Stocks Lower as Fed Meeting Looms

Oleksandr Pylypenko - Barchart - Mon Oct 31, 2022

December S&P 500 futures (ESZ22) are trending down -0.55% this morning after three major US benchmark indices rallied in the previous week, with the Dow posting its best week in decades as investors continued to digest a variety of corporate earnings results. These gains were fueled by a rally in the Technology, Telecoms, and Utilities sectors.

Apple (AAPL) shot up over +7% after reporting better-than-expected fourth-quarter results, fueling the broader tech sector. Intel (INTC) advanced more than +10% after its third-quarter results surpassed Wall Street expectations, and the company outlined plans to cut costs over the coming years.

"This stock market clearly wants to go higher and is growing confident that next week's Fed-driven fireworks will include the beginning of a deliberation to tighten at a slower pace," said Edward Moya, a senior market analyst at OANDA in New York.

The core personal consumption expenditures price index, the Fed’s preferred inflation measure, rose +5.1% y/y in September, slower than expectations of +5.2% y/y, encouraging further bets on less aggressive Federal Reserve monetary policy action. However, consumer spending remained strong, growing faster than anticipated in September, supported by falling gas prices.

This week, investors will be looking toward the U.S. Federal Reserve’s interest rate decision and policy statement. Meanwhile, U.S. rate futures have priced in a 19.0% chance of a 50 basis point rate increase and an 81.0% chance of a 75 basis point hike at November's monetary policy meeting.

"We expect the FOMC to deliver a fourth 75bp rate hike at its November meeting and indicate that it could soon be appropriate to step down the pace of hikes," Morgan Stanley said in a note.

Ahead in the week, market participants will also be closely monitoring Manufacturing and Services PMIs, JOLTs Job Openings, and ADP Nonfarm Employment Change data.

Today, all eyes are on the U.S. Chicago Purchasing Managers Index (PMI) data in a couple of hours. Economists, on average, forecast that the October Chicago PMI will come in at 47.0 compared to the previous value of 45.7.

In the bond markets, United States 10-Year rates are at 4.067%, up +1.41%.

The Euro Stoxx 50 futures are up +0.08% this morning. However, those gains are likely to be fragile as weak Chinese factory activity data weighed on sentiment amid new disruptions from COVID-related lockdowns. In addition, Eurozone October CPI preliminary data came in at+10.7% y/y, stronger than expectations of +10.2% y/y. The European Central Bank hiked interest rates by 75 basis points for the second time last week, expecting to increase rates "further" to combat extremely elevated inflation.

"We will take a significant interest step again in December," ECB governing council member Klaas Knot said on Sunday.

Eurozone Core CPI, Eurozone GDP, Germany Retail Sales, and Switzerland Retail Sales data were also released today.

Eurozone Core CPI (preliminary) has been reported at +5.0% y/y, stronger than expectations of +4.8% y/y.

Eurozone third quarter GDP (preliminary) was at +0.2% q/q, weaker than expectations of +1.0% q/q.

The German September Retail Sales stood at +0.9% m/m, stronger than expectations of -0.3% m/m.

Switzerland's September Retail Sales came in at +3.2% y/y, weaker than expectations of +3.5% y/y.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.77%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +1.78%.

China’s Shanghai Composite today closed lower as sentiment towards China worsened after PMI data showed the country's manufacturing sector contracted in September. The reading showed that COVID-related disruptions are likely to keep weighing on the world’s second-largest economy.

Japan’s Nikkei 225 Stock Index closed higher today despite data revealing that industrial production fell further in September. However, retail sales grew more than expected in September, showing some strength in the Japanese economy. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 2.02% to 23.70.

Pre-Market U.S. Stock Movers

Xpeng Inc (XPEV) plunged about -5% in pre-market trading, extending Friday's losses after Citi downgraded XPeng to sell from buy with a price target of $3.18.

Sonoco Products Company (SON) slid over -1% in pre-market trading after BMO Capital downgraded the stock to underperform from market perform with a price target of $58, down from $65.

Hanesbrands Inc (HBI) sank about -4% in pre-market trading after Wells Fargo downgraded the stock to underweight from overweight with a price target of $5, down from $13.

Paramount Global Class B (PARA) plunged about -4% in pre-market trading after Wells Fargo downgraded the stock to underweight from equal weight.

Caterpillar Inc (CAT) dropped over -1% in pre-market trading after UBS downgraded the stock to neutral from buy.

Amgen Inc (AMGN) slid more than -2% in pre-market trading after Barclays downgraded the stock to underweight from equal weight.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - October 31st

Berkshire Hathaway B (BRKb), Berkshire Hathaway A (BRKa), Stryker (SYK), Mondelez (MDLZ), Aflac (AFL), NXP (NXPI), Arista Networks (ANET), Bank of Communications ADR (BCMXY), BOC Hong Kong ADR (BHKLY), Japan Tobacco ADR (JAPAY), Public Service Enterprise (PEG), American Water Works (AWK), Astellas Pharma Inc (ALPMY), COSCO SHIPPING ADR (CICOY), Central Japan Railway Co (CJPRY), Mosaic (MOS), ZoomInfo (ZI), Komatsu (KMTUY), Kyocera ADR (KYOCY), Otsuka ADR (OTSKY), Astra Int (PTAIY), Hologic (HOLX), Howmet (HWM), Howmet Aerospace Pref (HWM_p), Akamai (AKAM), Shionogi ADR (SGIOY), Franklin Resources (BEN), Avis (CAR), Ono Pharmaceutical Co (OPHLY), CNA Financial (CNA), ANA Holdings ADR (ALNPY), Lattice (LSCC), Qantas Airways ADR (QABSY), Sonoco Products (SON), Credit Acceptance (CACC), Nedbank Group Ltd (NDBKY), Daiwa ADR (DSEEY), Marriot Vacations Worldwide (VAC), Trex (TREX), BWX Tech (BWXT), Timken (TKR), Amkor (AMKR), Saia (SAIA), Ryman Hospitality Properties (RHP), Vornado (VNO), Affiliated Managers (AMG), Leggett&Platt (LEG), GXO Logistics (GXO), One Gas Inc (OGS), CVR Energy (CVI), Black Stone Minerals (BSM), Axonics Modulation Technologies (AXNX), Rambus (RMBS), American States Water (AWR), Sanmina (SANM), Broadstone Net (BNL), Under Armour A (UAA), Under Armour C (UA), Alliance Resource (ARLP), Varonis Systems (VRNS), Advanced Energy (AEIS), Chegg Inc (CHGG), Otter Tail (OTTR), Sega Sammy ADR (SGAMY), Blackbaud (BLKB), NSK ADR (NPSKY), Boise Cascad Llc (BCC), Transocean (RIG), Banco Comercial Portugues ADR (BPCGY), Herbalife (HLF), TriCo (TCBK), Eaton Vance Tax Managed Diversified (ETY), Harmonic (HLIT), Capstone Mining (CSCCF), Lsb Industries (LXU), Kforce (KFRC), Sabine Royalty Trust (SBR), Alexanders (ALX), German American Bancorp (GABC), Archrock (AROC), Astra Agro Lestari TBK (AAGRY), Beyond Meat (BYND), John B Sanfilippo&Son (JBSS), Sun Country Airlines Holdings (SNCY), Kiniksa Pharma (KNSA), Tetragon (TGONF), Farmers Merchants (FMCB), Unisys (UIS), Intrepid Potash (IPI), Heidrick&Struggles (HSII), Loandepot (LDI), Capital Southwest (CSWC), HomeTrust (HTBI), Oil States (OIS), Sterling Bancorp (SBT), Northrim (NRIM), Silicom (SILC), CarpParts.Com (PRTS).

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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.