This morning, September E-Mini S&P 500 futures (ESU23) are up +0.37%, and Sep Nasdaq 100 E-Mini futures (NQU23) have climbed +0.62%.
Stock indexes are showing moderate gains in pre-market trading. Notably, Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX) rebound after experiencing sharp losses on Thursday due to disappointing earnings reports. The stock market’s upward momentum is further supported by a decline in bond yields.
Today’s trading activity may be influenced by two key factors: the expiration of July stock options and an out-of-cycle rebalancing of the Nasdaq 100 Stock Index. The rebalancing, set to take effect on Monday, aims to reduce the dominance of mega-cap technology stocks within the index and increase the representation of smaller companies.
Bank of America has reported that EPFR Global data showed stock funds experienced -$2.1 billion in outflows in the week ending July 19. During the same period, $7.5 billion moved to cash, and $1.4 billion flowed into bond funds.
Market participants are currently pricing in a 96% probability of a +25 basis point rate hike at the upcoming FOMC meeting. The markets are also projecting a peak funds rate of 5.42% by November, which would be +34 basis points higher than the current effective federal funds rate of 5.08%.
Global bond yields are showing mixed movements. The 10-year T-note yield has decreased by -2.7 basis points to 3.823%. The 10-year German bund yield is down -2.6 basis points at 2.464%, while the 10-year UK Gilt yield has risen by +0.3 basis points to 4.280%.
Overseas stock markets are mostly lower. The Euro Stoxx 50 is down -0.12% and China’s Shanghai Composite Index closed slightly lower by -0.06%. Japan’s Nikkei Stock Index also ended the day lower by -0.57%.
The Euro Stoxx 50 is weighed down by a report from Morgan Stanley, which highlights negative earnings revisions and a more cautious tone surrounding forward guidance, with mentions of “weaker demand” surging in recent days. However, technology stocks recovered from early losses after SAP SE, Europe’s largest software company, slightly raised its operating profit outlook for 2023 and met overall sales forecasts for Q2. Additionally, the UK June retail sales data came in stronger than expected, alleviating recession concerns.
In China, the Shanghai Composite hit a 3-week low and closed slightly lower. Weakness in Chinese automakers’ stocks was a contributing factor, with JPMorgan Chase downgrading Xpeng to underweight from neutral. The ongoing price wars among automakers have led consumers to delay purchases in hopes of better bargains. According to Bloomberg, none of the top 10 Chinese automakers had achieved 50% of their annual sales goals by mid-year. However, a late rebound in property stocks helped the overall market recover most of its losses after a State Council meeting, chaired by Premier Li Qiang, announced plans to push forward projects renovating villages in big cities to boost domestic demand and urban development.
In Japan, the Nikkei Stock Index also declined to a 1-week low, largely due to negative sentiment spilling over from the Nasdaq 100 Stock Index’s slide on Thursday following disappointing quarterly earnings from Netflix and Tesla. Nevertheless, losses in the Japanese market were mitigated when Japanese government bond yields whipsawed lower after a report suggesting the BOJ sees little need to act on its current yield curve control program. The 10-year JGB bond yield fell from a 2-1/2 month high of 0.486% to a 2-week low of 0.435% following the news. Japanese inflation data showed mixed results, with consumer prices rising in June, while core prices eased.
In the pre-market U.S. trading session, several stocks are making notable moves. Tesla is up over +1%, attempting to recover some of the losses experienced on Thursday due to concerns about its profitability. Autoliv (NYSE:ALV) has jumped more than +5% after reporting better-than-expected Q2 sales. Conversely, Intuitive Surgical (NASDAQ:ISRG) dropped over -5% after reporting a slower U.S. growth rate in bariatric surgery amid patient interest in a new class of weight-loss drugs. Other companies like Comerica (NYSE:CMA), Harley-Davidson (NYSE:HOG), and Scholastic (NASDAQ:SCHL) are also experiencing notable pre-market movements following their earnings reports.
Overall, the markets today are displaying resilience as they await the Nasdaq 100 rebalancing and remain cautious amid ongoing economic and geopolitical developments.
Featured Image: Unsplash
