Focus Remains on U.S. Rates as Stock Index Futures Decline Ahead of U.S. JOLTs Report

December S&P 500 futures (ESZ23) are showing a decrease of -0.38%, while December Nasdaq 100 E-Mini futures (NQZ23) are down -0.50% in the current session as market participants anticipate the release of fresh labor market data, while hawkish comments from Federal Reserve officials continue to keep Treasury yields in the spotlight.

During Monday’s trading session, the Nasdaq 100, dominated by technology stocks, outperformed major benchmarks, supported by a notable +3% surge in NVIDIA Corporation (NASDAQ:NVDA) following a bullish upgrade from Goldman Sachs, elevating the stock from a Buy to a Conviction Buy rating. Large-cap technology firms, including Meta Platforms Inc (NASDAQ:META) and Alphabet Inc (NASDAQ:GOOGL), also experienced gains of more than +2%. Additionally, Insulet Corporation (NASDAQ:PODD) saw an increase of over +3% after receiving an upgrade from Jefferies, moving from a Hold to a Buy rating. On a less positive note, Kellogg Company (NYSE:K) witnessed a sharp -6% drop and ranked among the top percentage losers on the benchmark S&P 500. This decline followed the completion of Kellogg’s North American cereal business separation into a new entity called WK Kellogg, along with a rebranding as Kellanova. Furthermore, Target Corporation (NYSE:TGT) slid over -3% after Bank of America Global Research reduced its price target on the stock from $135 to $120.

Recent economic data revealed that the U.S. ISM manufacturing index for September came in at 49.0, surpassing expectations of 47.7. The September S&P Global manufacturing PMI in the U.S. stood at 49.8, slightly higher than the anticipated 48.9. Moreover, U.S. construction spending showed a +0.5% month-over-month increase in August, aligning with market expectations.

Paul Ashworth, Chief North American Economist at Capital Economics, commented on the data, stating that “Overall, U.S. manufacturing appears to be over the worst, but the outlook remains muted – particularly given the softness of global conditions.”

Federal Reserve Governor Michelle Bowman expressed her belief on Monday that it would likely be necessary to raise interest rates further to bring inflation back in line with the central bank’s 2% target, even after data for August revealed some of the slowest price increases since 2020. Bowman stated, “I continue to expect that further rate increases will likely be needed to return inflation to 2% in a timely way.” Vice Chair for Supervision Michael Barr also weighed in, noting that the central bankers’ key concern revolved around the duration for which interest rates should remain elevated. Additionally, Cleveland Fed President Loretta Mester indicated that the U.S. central bank might need to implement one more rate increase before the year’s end.

In the meantime, U.S. rate futures have priced in a 25.7% probability of a 25 basis point rate increase at November’s monetary policy meeting, along with a 38.2% likelihood of a 25 basis point rate hike at the December FOMC meeting.

Today, all eyes are on the U.S. JOLTs Job Openings data set to be released shortly. Economists, on average, forecast that August JOLTs Job Openings will amount to 8.800 million, compared to the previous value of 8.827 million. Additionally, investors will pay close attention to a speech from Atlanta Fed President Raphael Bostic for further insights into the Fed’s interest-rate trajectory.

In the bond markets, U.S. 10-year rates are currently at 4.703%, reflecting an increase of +0.34%.

Over in Europe, Euro Stoxx 50 futures have gained +0.05% today after touching a six-month low earlier in the session. Bank and insurance stocks have shown strength, while rate-sensitive utility stocks have lagged due to expectations of higher interest rates. In corporate news, Boohoo Group Plc (BOO.LN) experienced a sharp -8% decline after the UK-based fast-fashion retailer adjusted its annual earnings and revenue forecasts. Similarly, Zalando Se (ZAL.D.DX) fell approximately -2% following Deutsche Bank’s downgrade of its forecast for adjusted earnings before interest and taxes.

Peter Garnry, Head of Equity Strategy at Saxo Bank, commented on the situation, stating that “The fight against inflation has raised the cost of capital to levels that have triggered open cracks in the global economy.”

Today’s economic data calendar in Europe remains relatively sparse.

In Asia, Japan’s Nikkei 225 Stock Index (NIK) closed down -1.64%, while the Chinese market was closed for a holiday. The Nikkei 225 experienced a significant decline, reaching a four-month low, primarily driven by concerns about prolonged higher U.S. interest rates. Energy stocks were the most substantial drag on the market following a more than -2% drop in WTI crude oil prices on Monday. Additionally, the yield on Japan’s 10-year government bonds declined as investors witnessed a better-than-expected auction for bonds with the same maturity. However, the rise in long-term U.S. yields led to a one-year low for the yen, which did not translate into a boost for export-oriented stocks. Consequently, Toyota Motor Corp recorded a decline of over -3%, while Mazda Motor Corp plunged by about -6%. The Nikkei Volatility index, which gauges the implied volatility of Nikkei 225 options, increased by +7.52% to 20.30.

Maki Sawada, a strategist at Nomura Securities, commented on the situation, stating that “Normally, yen weakness would be a reason for stocks to rise, particularly the exporters, because it boosts overseas profits. But because the background for the move is a rise in long-term yields, it’s a weight on the Nikkei.”

Pre-Market U.S. Stock Movers

Alx Oncology Holdings (NASDAQ:ALXO) surged by more than +18% in pre-market trading after announcing an investor call and webcast to share interim Phase 2 ASPEN-06 clinical trial results of evorpacept for the treatment of advanced HER2-positive gastric cancer.
Oddity Tech Ltd (NASDAQ:ODD) climbed over +16% in pre-market trading, indicating plans to surpass previously provided Q3 guidance.
Delta Apparel Inc (NYSE:DLA) gained about +17% in pre-market trading after receiving an unsolicited offer for the purchase of its Salt Life business.
Airbnb Inc (NASDAQ:ABNB) fell more than -1% in pre-market trading following a downgrade by KeyBanc from Overweight to Sector Weight.
Fiverr International Ltd (NYSE:FVRR) rose over +2% in pre-market trading after Roth MKM upgraded the stock from Neutral to Buy.
Dow Inc (DOW) gained more than +1% in pre-market trading after KeyBanc upgraded the stock from Underweight to Sector Weight.

Today’s Earnings Spotlight (Tuesday – October 3rd)