Stock Index Futures Plunge as Hawkish FOMC Minutes Weigh on Sentiment, Economic Data in Focus

Oleksandr Pylypenko - Barchart - Thu Jul 6, 2023

September S&P 500 futures (ESU23) are down -0.40%, and September Nasdaq 100 E-Mini futures (NQU23) are down -0.42% this morning after three major U.S. benchmark indices ended the regular session lower as the minutes of the Federal Reserve’s June meeting presented a hawkish outlook, while investors braced for a new round of economic data.

The minutes of the Federal Open Market Committee’s June 13-14 meeting showed that almost all Federal Reserve policymakers “judged it appropriate or acceptable” to hold interest rates steady to allow further evaluation of the tightening cycle’s effects on the real economy. At the same time, nearly all officials supported further rate increases following a pause at the June meeting, expressing concerns about the robustness of the labor market and “unacceptably high” elevated inflation. “Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate,” according to the FOMC minutes released Wednesday.

In Wednesday’s trading session, chip stocks retreated after China said it would curb exports of some metals widely used in the semiconductor industry, with Intel Corporation (INTC) falling over -3% and Micron Technology Inc (MU) dropping more than -2%. Also, United Parcel Service Inc (UPS) slid about -2% as employees moved closer to a strike following the breakdown of negotiations between the postal service operator and the Teamsters union regarding a new labor contract. On the bullish side, Meta Platforms Inc (META) climbed over +2% and was among the top percentage gainers on the tech-heavy Nasdaq 100 in anticipation of the forthcoming launch of its Twitter competitor, Threads. In addition, Alphabet Inc (GOOGL) rose more than +1% after Piper Sandler raised its price target on the stock to $140 from $128.

“Data releases will now dominate over the next couple of days, with the jobs report on Friday, as well as Thursday’s ISM services index and the weekly jobless claims,” said Jim Reid, a head of research and global fundamental credit strategy at Deutsche Bank.

Meanwhile, U.S. rate futures have priced in a 91.1% probability of a 25 basis point rate increase and an 8.9% chance of no hike at the next central bank meeting in July.

Today, all eyes are focused on U.S. ADP Nonfarm Employment Change data in a couple of hours. Economists, on average, forecast that June ADP Nonfarm Employment Change will stand at 228K, compared to the previous value of 278K.

Also, investors are likely to focus on the U.S. ISM Non-Manufacturing PMI, which was at 50.3 in May. Economists foresee the new figure to be 51.0.

U.S. JOLTs Job Openings data will also be closely watched today. Economists forecast May JOLTs Job Openings to be at 9.935M, compared to the previous number of 10.103M.

U.S. S&P Global Composite PMI will be reported today. Economists foresee this figure to stand at 53.0 in June, compared to 54.3 in May.

U.S. Services PMI will come in today. Economists expect June’s figure to be 54.1, compared to May’s number of 54.9.

U.S. Initial Jobless Claims data will also be in focus today. Economists estimate this figure to be 245K, compared to last week’s value of 239K.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to come in at -0.983M, compared to last week’s value of -9.603M.

In the bond markets, United States 10-Year rates are at 3.976%, up +0.81%.

The Euro Stoxx 50 futures are down -1.42% this morning as the hawkish minutes from the Federal Reserve’s last policy meeting reignited concerns about tighter monetary policy, while investors also evaluated early corporate earnings reports. Meanwhile, Eurostat said on Thursday that Eurozone retail sales were unchanged from April as higher expenditure on non-food items balanced out the declines observed in food and automotive fuel. In corporate news, shares of Hunting Plc (HTG.LN) surged over +21% following its announcement that trading exceeded management’s expectations, with revenue and operating profit surpassing targets set at the beginning of the year. Also, Currys Plc (CURY.LN) plunged more than -11% after reporting a 38% drop in full-year profit.

Germany’s Factory Orders, U.K.’s Construction PMI, and Eurozone’s Retail Sales data were released today.

The German May Factory Orders stood at +6.4% m/m, stronger than expectations of +1.2% m/m.

U.K. June Construction PMI has been reported at 48.9, weaker than expectations of 51.0.

Eurozone May Retail Sales came in at 0.0% m/m and -2.9% y/y, weaker than expectations of +0.2% m/m and -2.7% y/y.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.54%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.70%.

China’s Shanghai Composite today closed lower as a series of weak economic readings from the country over the past week, coupled with concerns regarding a potential trade war between the United States and China, continued to weigh on sentiment. According to Goldman Sachs Group Inc, Chinese investors do not anticipate policymakers to announce forceful stimulus measures or significant economic reforms during a crucial meeting scheduled for later this month. Meanwhile, an index tracking Chinese banks listed in Hong Kong plunged more than -6% and hit a seven-month low, extending yesterday’s losses after Goldman Sachs downgraded some major Chinese banks. Shares of Hong Kong-listed Chinese property developers also lost ground on Thursday. In other news, U.S. Treasury Secretary Janet Yellen is scheduled to arrive in China on Thursday to foster stability in the strained relationship between the world’s largest economies. The top U.S. official is anticipated to engage in discussions with Chinese counterparts and representatives from major American corporations.

Japan’s Nikkei 225 Stock Index closed sharply lower today and hit a more than one-week low, primarily driven by declines in chip-related stocks. Chip stocks plunged on Thursday, underpinned by an over -22% drop in Socionext following the announcement that the company’s top shareholders, including Panasonic Holdings and Development Bank of Japan, would sell their entire stake worth 280 billion yen. In addition, chip-maker Renesas Electronics slid over -4%, while chip-making equipment maker Tokyo Electron fell more than -3%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 2.44% to 18.80.

“News on the sale of Socionext shares sent U.S. technology stocks down overnight, which pushed leading Japanese chip shares lower today,” said Shigetoshi Kamada, a general manager of research at Tachibana Securities.

Pre-Market U.S. Stock Movers

Spirit Airlines Inc (SAVE) climbed about +2% in pre-market trading after rival JetBlue terminated the Northeast Alliance with American Airlines after announcing it would not appeal a court ruling.

Canadian Solar Inc (CSIQ) rose over +3% in pre-market trading after UBS upgraded the stock to Buy from Neutral.

Affirm Holdings Inc (AFRM) plunged more than -4% in pre-market trading after Piper Sandler downgraded the stock to Underweight from Neutral.

American Express Company (AXP) fell about -2% in pre-market trading after Baird downgraded the stock to Neutral from Outperform.

Vulcan Materials Company (VMC) dropped over -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: Thursday - July 6th

Levi Strauss A (LEVI), Tilray (TLRY), Kura Sushi (KRUS), Simulations Plus (SLP), Park Aerospace (PKE).

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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.