S&P Futures Decline as Investors Await U.S. Big Bank Earnings, Keep Watch on U.S. Rates


December S&P 500 futures (ESZ23) are seeing a dip of -0.24% this morning following a drop in three major U.S. benchmark indices on Thursday. The decline came in the wake of hotter-than-expected U.S. inflation data, which intensified expectations of Federal Reserve rate hikes. Investors are now gearing up for the quarterly earnings reports from major U.S. banks.

In Thursday’s trading session, Delta Air Lines Inc (NYSE:DAL) witnessed a more than -2% drop after revising down the high end of its 2023 profit guidance. This adjustment was attributed to rising fuel prices and larger-than-expected aircraft maintenance costs. Additionally, Ford Motor Company (NYSE:F) fell by over -2% after the United Auto Workers Union expanded its strike at the company’s largest Kentucky plant. Meanwhile, Beyond Meat Inc (NASDAQ:BYND) saw a decline of over -5% following a downgrade from Mizuho Securities, which shifted the stock’s rating from “Neutral” to “Underperform.” On a positive note, Fastenal Company (NASDAQ:FAST) rose by more than +7%, making it the top percentage gainer on the S&P 500. This climb came after the industrial supplies company reported better-than-expected Q3 earnings per share (EPS).

The Labor Department’s report for Thursday indicated a +0.4% month-on-month increase in consumer prices for September, slightly above the consensus expectation of +0.3%. Annually, headline inflation remained unchanged at +3.7% in September compared to August, aligning with economists’ forecasts of +3.6%. Concurrently, the U.S. core Consumer Price Index (CPI) eased to +4.1% year-on-year in September, down from +4.3% in August, marking the smallest increase in two years. Additionally, the number of Americans filing jobless claims remained steady at 209,000 for the past week, outperforming the expected 210,000.

Richard Flynn, Managing Director at Charles Schwab U.K., shared his perspective on the potential impact of these developments on interest rates, stating that “higher-for-longer” may be a more significant concern than “how high.” The current economic climate suggests that rates are unlikely to drop below their current levels as long as inflation remains a persistent concern.

In the realm of U.S. rate futures, there is a 9.7% probability of a 25 basis point rate increase at the next central bank meeting in November and a 30.5% chance of a similar rate hike at the December meeting.

On the earnings front, major banks and financial-sector companies, including JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), BlackRock (NYSE:BLK), PNC Financial (PNC), and health insurance giant UnitedHealth (UNH), are set to unveil their quarterly results today.

In other developments, crude oil prices rose by approximately +3% as tensions escalated in the Middle East, with Israel showing signs of preparing for a ground incursion into Gaza.

All eyes are now focused on the preliminary reading of the U.S. Michigan Consumer Sentiment index, with economists, on average, expecting it to stand at 67.2 for October, compared to the previous value of 68.1.

Additionally, the U.S. Export and Import Price Indexes for September will receive attention. Economists are anticipating a +0.5% month-on-month increase for the export price index and a similar +0.5% month-on-month rise for the import price index.

In the bond markets, United States 10-year rates are currently at 4.646%, showing a decrease of -1.36%.

In the European markets, Euro Stoxx 50 futures are down -0.50% this morning as investors digest inflation data from several Eurozone economies. Concerns about the global economy have been amplified by lackluster inflation data from China. Healthcare and financial stocks experienced the most significant declines on Friday, while energy and mining stocks outperformed. French annual inflation held steady in September, while the Spanish September annual inflation rate accelerated from August’s reading. Meanwhile, data published by the European Union statistics agency Eurostat showed that industrial output in the Eurozone rose more than expected month-on-month in August, though it remained more than 5% lower than the previous year. In corporate news, Sartorius Sted Bio (DIM.FP) experienced a decline of over -15% after the Franco-German lab supplies maker reduced its annual sales forecast and adjusted earnings margin.

Regarding economic data, France’s CPI for September was reported at -0.5% month-on-month and +4.9% year-on-year, in line with expectations. The Spanish September CPI stood at +0.2% month-on-month and +3.5% year-on-year, also aligning with expectations. Eurozone’s August Industrial Production arrived at +0.6% month-on-month and -5.1% year-on-year, compared to the anticipated +0.1% month-on-month and -3.5% year-on-year.

In Asian stock markets, China’s Shanghai Composite Index (SHCOMP) closed down -0.64%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.55%. The Shanghai Composite closed lower due to the latest data highlighting ongoing weaknesses in China’s economy. Official data indicated that China’s consumer inflation rate remained flat in September, while factory-gate deflation persisted, suggesting that the path to economic growth remains fragile and requires further support. Additionally, customs data showed that China’s exports and imports contracted at a slower rate for the second consecutive month in September. Meanwhile, there were reports that China is considering forming a state-backed stabilization fund to boost confidence in its $9.5 trillion stock market. On Friday, most sectors trended downward, with consumer stocks leading the decline. Tech stocks in Hong Kong also saw a slump, with JD.com Inc experiencing a decline of over -11% after multiple Wall Street brokerages revised their outlook for the e-commerce retailer. On a positive note, bank stocks outperformed, building on previous gains after Beijing’s state fund purchased shares of the country’s “Big Four” lenders.

Zhaopeng Xing, Senior China Strategist at Australia & New Zealand Banking Group Ltd, commented on the situation, stating that “September inflation data came out below consensus, suggesting a long way to go for the PBOC’s fight against deflation. The government has announced hundreds of counter-cyclical measures to boost domestic demand. But consumer confidence remains weak.”

China’s September CPI was reported at +0.2% month-on-month and 0.0% year-on-year, falling short of expectations of +0.3% month-on-month and +0.2% year-on-year. The Chinese September PPI was at -2.5% year-on-year, weaker than expectations of -2.4% year-on-year. The Chinese September Trade Balance reached $77.71 billion, surpassing expectations of $70.00 billion. The Chinese September Exports stood at -6.2% year-on-year, stronger than expectations of -7.6% year-on-year. The Chinese September Imports came in at -6.2% year-on-year, slightly weaker than expectations of -6.0% year-on-year.

Japan’s Nikkei 225 Stock Index closed lower today, following the decline in Wall Street’s indices after the release of hotter-than-expected U.S. inflation data. All sectors of the Nikkei 225 recorded losses, with real estate and financial stocks experiencing the most significant declines. Meanwhile, a central bank quarterly survey indicated a marginal increase in inflation expectations among Japanese households for the three months ending in September. In corporate news, Seven & I Holdings Co Ltd saw a decline of over -4% after releasing its financial results. On a positive note, Fast Retailing Co Ltd rose more than +5% after the owner of the Uniqlo brand posted strong earnings.

The Nikkei Volatility, which considers the implied volatility of Nikkei 225 options, closed up by +1.40% at 20.97.

Pre-Market U.S. Stock Movers:

  • Dollar General Corporation (NYSE:DG) climbed over +7% in pre-market trading after announcing the appointment of Todd Vasos, a former Chief Executive Officer and current Board member, as the new CEO.
  • Netflix Inc (NASDAQ:NFLX) fell more than -1% in pre-market trading following a downgrade by Wolfe Research, shifting the stock’s rating from “Outperform” to “Peer Perform.”
  • Comtech Telecommunications Corp (NASDAQ:CMTL) surged by about +20% in pre-market trading after reporting strong Q4 results and the divestment of the Power Systems Technology product line for $40 million in cash.
  • Belden Inc (NYSE:BDC) witnessed a decline of more than -14% in pre-market trading after lowering its Q3 revenue guidance due to softer-than-expected end demand.
  • Arcutis Biotherapeutics Inc (NASDAQ:ARQT) slid by over -5% in pre-market trading after Goldman Sachs downgraded the stock from “Buy” to “Neutral.”
  • Fortinet Inc (NASDAQ:FTNT) fell by more than -2% in pre-market trading following a downgrade by Barclays, which adjusted the stock’s rating from “Overweight” to “Equal Weight.”
  • Applied Materials Inc (NASDAQ:AMAT) gained more than +1% in pre-market trading after an upgrade from Needham, shifting the stock’s rating from “Hold” to “Buy.”

Today’s U.S. Earnings Spotlight:

  • UnitedHealth (NYSE:UNH)
  • JPMorgan (NYSE:JPM)
  • Wells Fargo & Co (NYSE:WFC)
  • BlackRock (NYSE:BLK)
  • Citigroup (NYSE:C)
  • PNC Financial (NYSE:PNC).

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