S&P Futures Tick Higher as Investors Weigh Interest Rate Outlook

Oleksandr Pylypenko - Barchart - Fri Sep 8, 2023

September S&P 500 futures (ESU23) are trending up +0.08% this morning after the S&P 500 and Nasdaq closed in the red on Thursday as technology stocks dropped on concerns over the outlook for Apple, while the latest U.S. jobless claims data stoked worries about sticky inflation.

In Thursday’s trading session, the benchmark S&P 500 dropped to a 1-1/2 week low, and the tech-heavy Nasdaq 100 fell to a 1-week low. Apple Inc (AAPL) slid over -2% following a Bloomberg report indicating China’s intention to broaden the iPhone ban to encompass government-backed agencies and state companies. Shares of Apple suppliers also lost ground, with Skyworks Solutions Inc (SWKS) and Qualcomm Incorporated (QCOM) plunging more than -7%. In addition, C3.ai Inc (AI) tumbled over -12% after the enterprise software company said it would not be profitable by the end of fiscal year 2024. At the same time, the blue-chip Dow outperformed the other two indices, buoyed by an over +3% gain in Intel Corporation (INTC) after Citi said the chip giant’s previously disclosed foundry customer could be a “whale.” Also, McDonald’s Corporation (MCD) rose more than +1% after Wells Fargo upgraded the stock to Overweight from Equal Weight.

The Labor Department’s report on Thursday showed claims for state unemployment benefits unexpectedly fell -13K to a 7-month low of 216K, stronger than expectations of 234K, which further supports the notion of the Federal Reserve holding rates higher for longer. Also, U.S. unit labor costs were revised higher to +2.2% q/q from +1.6% q/q in the second quarter. In addition, U.S. Q2 nonfarm productivity was revised lower to +3.5% q/q from +3.7% q/q.

“A solid round of employment data that reinforces the perception that the jobs market will remain resilient for the time being. From here, the market will remain wary of corporate-hedging related flows as they have been the biggest driver of price action in US rates thus far in September,” said Ian Lyngen, managing director and head of U.S. rates strategy at BMO Capital Markets.

New York Fed President John Williams said Thursday that U.S. monetary policy is “in a good place,” but policymakers will need to carefully analyze data to determine the appropriate course of action regarding interest rates. Also, Chicago Fed President Austan Goolsbee stated that the debate within the Fed is “very rapidly approaching the time when our argument is not going to be about how high should the rates go.”

Meanwhile, U.S. rate futures have priced in a 7.0% probability of a 25 basis point rate increase at the September FOMC meeting and a 41.7% chance of a 25 basis point rate hike at the November FOMC meeting.

Today, investors will likely focus on U.S. Wholesale Inventories data, which stood at -0.5% m/m in June. Economists foresee the July figure to be -0.1% m/m.

In the bond markets, United States 10-year rates are at 4.240%, down -0.54%.

The Euro Stoxx 50 futures are down -0.90% this morning, ceding earlier gains and heading for an eighth straight day of losses. Losses in construction and chemical stocks are leading the overall market lower. The federal statistics office said on Friday that German inflation fell slightly in August, confirming preliminary data. Meanwhile, Citigroup downgraded its 2023 economic growth projection for the euro area to 0.4%, anticipating the region’s economy to contract “gently” over the next three quarters. In corporate news, Computacenter Plc (CCC.LN) climbed over +6% after the IT reseller reported better-than-expected first-half results.

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

The German August CPI has been reported at +0.3% m/m and +6.1% y/y, in line with expectations.

The French July Industrial Production stood at +0.8% m/m, stronger than expectations of +0.1% m/m.

The Spanish July Industrial Production came in at -1.8% y/y, stronger than expectations of -2.0% y/y.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.18%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.16%.

China’s Shanghai Composite today closed lower, extending losses following a series of disappointing economic readings this week, with the weakening yuan adding to the negative market sentiment. The offshore yuan weakened to the lowest level since December 2007 due to the widening services trade deficit and yield gap with other economies, impacting capital flows and trade. Meanwhile, property developers, energy, and media stocks retreated on Friday. On the positive side, semiconductor stocks outperformed due to the launch of Huawei’s Mate 60 Pro+ smartphone.

Japan’s Nikkei 225 Stock Index closed lower today as concerns over tighter U.S. Federal Reserve policy and a Chinese iPhone ban weighed on sentiment, compounded by data revealing that Japan’s economy grew less than initially estimated in the second quarter. Revised government data showed on Friday that Japan’s economy expanded less than initially estimated in the second quarter, primarily due to a decline in capital expenditure. Separately, the Ministry of Finance said on Friday that the country’s current account surplus logged a record amount for July as the trade balance swung to surplus. Meanwhile, Japanese Finance Minister Shunichi Suzuki stated Friday that swift currency fluctuations were undesirable and that authorities wouldn’t rule out any options against excessive swings. Tech and industrial stocks were among the biggest losers on Friday, with chip-making equipment giant Tokyo Electron plunging over -3%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -3.63% to 17.24.

The Japanese GDP has been reported at +1.2% q/q and +4.8% y/y in the second quarter, weaker than expectations of +1.5% q/q and +6.0% y/y.

The Japanese July Current Account n.s.a. stood at 2.772T, stronger than expectations of 2.295T.

Pre-Market U.S. Stock Movers

DocuSign Inc (DOCU) rose over +3% in pre-market trading after the electronic signature company posted upbeat Q2 results, lifted its full-year sales guidance, and boosted its share buyback program.

Adobe Systems Incorporated (ADBE) gained over +1% in pre-market trading after Mizuho upgraded the stock to Buy from Neutral.

Smartsheet Inc (SMAR) climbed more than +6% in pre-market trading after the company reported stronger-than-expected Q2 results and provided strong FY24 guidance.

Smith & Wesson Brands Inc (SWBI) soared over +9% in pre-market trading after the company posted upbeat Q1 results.

Spruce Biosciences Inc (SPRB) gained more than +8% in pre-market trading after Leerink upgraded the stock to Outperform from Market Perform.

First Solar Inc (FSLR) rose over +2% in pre-market trading after Deutsche Bank upgraded the stock to Buy from Hold.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - September 8th

Kroger (KR), National Beverage (FIZZ), Hooker Furniture (HOFT), Rent the Runway (RENT).

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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.