In the realm of morning markets, December E-Mini S&P 500 futures (ESZ23) and Dec Nasdaq 100 E-Mini futures (NQZ23) are displaying minimal fluctuations.

Stock index futures are maintaining their stability, but they are grappling with downward pressure stemming from a weak U.S. housing starts report and a 3.8 basis point surge in the 10-year T-note yield. Additionally, concerns about a potential UAW strike expansion and a looming U.S. government shutdown on September 30 are contributing to the market’s unease. Oil prices, on the other hand, surged to a new 10-and-a-half-month high today, boosting oil company stocks but casting a shadow on the inflation outlook and reinforcing expectations of a hawkish stance from the Federal Reserve.

Stocks are trading with caution as investors brace themselves for the commencement of the two-day FOMC meeting today. The consensus within the market is that the FOMC will maintain its funds rate target at the existing 5.25/5.50%. However, market participants are anticipating that the FOMC will uphold a hawkish stance, keeping the possibility of another rate hike later in the year on the table.

Specifically, the markets are pricing in a 31% probability that the FOMC will raise the funds rate by 25 basis points at the next FOMC meeting ending on November 1, with a 14% chance of a similar 25 basis point rate hike at the subsequent meeting ending on December 13. Subsequently, the consensus is that the FOMC will initiate rate cuts in 2024 in response to an expected slowdown in the U.S. economy.

Bond yields in the U.S. and Germany have ticked up today, while UK yields have dipped. The 10-year T-note yield has risen by 3.8 basis points to 4.341%. The 10-year German bund yield is up 0.3 basis points at 2.708%, while the 10-year UK gilt yield has declined by 4.2 basis points to 4.349%.

October WTI crude oil prices have advanced by 0.89% or $0.81 to reach $92.29 per barrel, marking a new 10-and-a-half-month high on the nearest-futures chart. This upward trajectory in oil prices over the past two months is attributed to supply constraints anticipated through the end of the year, following announcements from Saudi Arabia and Russia regarding the extension of their production cuts. Consequently, this sustained rally in oil prices is exerting upward pressure on inflation expectations, with the 10-year breakeven inflation expectations rate increasing by 0.2 basis points to 2.365%.

The OECD has revised its global GDP forecast for 2024 downwards to +2.7% from +3.0%, citing the ongoing challenges posed by high inflation and sluggish growth in the world economy.

In U.S. economic news, housing starts for August have declined by 11.3% to 1.283 million, significantly weaker than the expected 1% decline. However, building permits for August rose by 6.9% month-on-month to 1.542 million, surpassing expectations for a slight decrease.

The Eurozone’s final August CPI has been slightly revised lower to +0.5% month-on-month and +5.2% year-on-year, compared to the preliminary report of +0.6% month-on-month and +5.3% year-on-year. The final-core CPI remains unchanged at +5.3% year-on-year.

Overseas, global stock markets are displaying mixed performance. The Euro Stoxx 50 is up by a marginal 0.05%, China’s Shanghai Composite Index has closed down by 0.03%, and Japan’s Nikkei 225 has closed down by 0.87%.

In the pre-market, several U.S. stocks are on the move:

• Grocery delivery business Maplebear Inc, trading as Instacart (CART), is set to begin trading after pricing its IPO at $30 per share, at the high end of the marketed range. CART successfully raised $660 million in cash, resulting in an IPO valuation of $9.9 billion.
• The UAW has announced that more autoworkers will go on strike at noon on Friday if substantial progress is not made in contract talks. As a result, GM (GM) is up by 0.3% in pre-market trading, Ford (F) is up by 0.2%, and Stellantis NV (STLA) is up by 2.4%.
• Oil stocks are receiving support as WTI crude oil prices have surged to a new 10-and-a-half-month high. Exxon (XOM) is up by 0.5% in pre-market trading, Chevron (CVX) is up by 0.4%, and Conoco Phillips (COP) is up by 0.3%.
• Dell Technologies (DELL) has gained 1.1% in pre-market trading following an upgrade by Daiwa Securities to “outperform” from “neutral” based on an improved demand outlook.
• Starbucks (SBUX) has declined by 1.3% in pre-market trading due to a downgrade by TD Cowen to “market-perform” from “outperform,” citing concerns about the Chinese same-store sales outlook in light of macroeconomic and competitive pressures.
• CVS Corp (CVS) is up by 1.0% in pre-market trading following an upgrade by Evercore ISI, driven by improving operational issues and an attractive valuation.
• Rackspace Technology (RXT) has surged by 9.4% in pre-market trading after an upgrade by Raymond James to “outperform” from “market-perform,” reflecting an improved outlook for its turnaround plan.
• Rocket Lab USA (RKLB) has experienced a steep decline of 23% in pre-market trading due to the company’s forced termination of its latest rocket launch mission and the postponement of an upcoming mission.
• Royal Caribbean Cruises (RCL) and Carnival (CCL) have both risen by more than 1.5% in pre-market trading following upgrades by Truist Securities to “Buy” and “Hold,” respectively, citing strong trends and more attractive valuations.

Market participants will also be keeping an eye on the performance of AutoZone Inc (AZO), Apogee Enterprises Inc (APOG), Ispire Technology Inc (ISPR), Steelcase Inc (SCS) during the trading day.

Featured Image: Unsplash @ Chris Liverani

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