S&P Futures Inch Up as Investors Weigh Interest Rate Prospects

S&P Futures

September S&P 500 futures (ESU23) have shown a modest uptick of +0.08% this morning, following a session where the S&P 500 and Nasdaq both closed in the red on Thursday. Technology stocks faced a decline amid concerns regarding Apple’s outlook, while the latest U.S. jobless claims data raised concerns about persistent inflation.

During Thursday’s trading session, the S&P 500 reached a 1-1/2 week low, and the tech-heavy Nasdaq 100 hit a 1-week low. Apple Inc (NASDAQ:AAPL) experienced a decline of over -2% following a Bloomberg report suggesting China’s intention to expand the iPhone ban to include government-backed agencies and state-owned companies. Shares of Apple suppliers, such as Skyworks Solutions Inc (NASDAQ:SWKS) and Qualcomm Incorporated (NASDAQ:QCOM), also witnessed losses exceeding -7%. Furthermore, C3.ai Inc (NYSE:AI) saw a significant drop of over -12% after announcing that it wouldn’t achieve profitability by the end of fiscal year 2024. Meanwhile, the blue-chip Dow outperformed the other two indices, primarily due to an impressive +3% gain in Intel Corporation (NASDAQ:INTC) following Citi’s speculation that a major customer could be a significant contributor. Additionally, McDonald’s Corporation (NYSE:MCD) saw an increase of over +1% after Wells Fargo upgraded the stock to “Overweight” from “Equal Weight.”

The Labor Department’s report on Thursday revealed an unexpected -13K drop in claims for state unemployment benefits, reaching a 7-month low of 216K. This stronger-than-expected data further supports the idea that the Federal Reserve may maintain higher interest rates for an extended period. Moreover, U.S. unit labor costs were revised upward to +2.2% q/q from +1.6% q/q in the second quarter. Additionally, U.S. Q2 nonfarm productivity was revised downward to +3.5% q/q from +3.7% q/q.

Ian Lyngen, Managing Director and Head of U.S. Rates Strategy at BMO Capital Markets, commented, “A solid round of employment data reinforces the perception that the jobs market will remain resilient for the time being. From here, the market will remain wary of corporate-hedging related flows as they have been the biggest driver of price action in US rates thus far in September.”

New York Fed President John Williams stated on Thursday that U.S. monetary policy is “in a good place,” but policymakers will carefully analyze data to determine the appropriate course of action regarding interest rates. Chicago Fed President Austan Goolsbee noted that the Fed’s debate is rapidly approaching a point where it’s no longer about how high rates should go.

Meanwhile, U.S. rate futures have priced in a 7.0% probability of a 25 basis point rate increase at the September FOMC meeting and a 41.7% chance of a 25 basis point rate hike at the November FOMC meeting.

Today, investors are expected to focus on U.S. Wholesale inventory data, which stood at -0.5% m/m in June. Economists anticipate the July figure to be -0.1% m/m.

In the bond markets, United States 10-year rates are at 4.240%, down -0.54%.

In European markets, Euro Stoxx 50 futures are down -0.90% this morning, reversing earlier gains and heading for an eighth consecutive day of losses. Losses in construction and chemical stocks are leading the overall market lower. The federal statistics office confirmed that German inflation fell slightly in August, while Citigroup downgraded its 2023 economic growth projection for the euro area to 0.4%, anticipating a “gentle” contraction in the region’s economy over the next three quarters. In corporate news, Computacenter Plc (CCC.LN) saw a rise of over +6% after reporting better-than-expected first-half results.

Germany’s CPI for August has been reported at +0.3% m/m and +6.1% y/y, in line with expectations. France’s July Industrial Production exceeded expectations at +0.8% m/m.

Spain’s July Industrial Production came in at -1.8% y/y, which was stronger than the expected -2.0% y/y.

In Asian markets, stocks settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.18%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.16%.

China’s Shanghai Composite closed lower, extending losses amid disappointing economic readings and a weakening yuan. The offshore yuan hit its lowest level since December 2007 due to a widening services trade deficit and yield gap with other economies, affecting capital flows and trade. However, semiconductor stocks outperformed due to the launch of Huawei’s Mate 60 Pro+ smartphone.

Japan’s Nikkei 225 Stock Index closed lower today due to concerns about tighter U.S. Federal Reserve policy and a Chinese iPhone ban, compounded by data revealing that Japan’s economy grew less than initially estimated in the second quarter. Revised government data showed that Japan’s economy expanded less than expected in the second quarter, primarily due to a decline in capital expenditure. The Ministry of Finance reported that the country’s current account surplus reached a record amount for July as the trade balance swung to surplus. Meanwhile, Japanese Finance Minister Shunichi Suzuki stated that swift currency fluctuations were undesirable, and authorities wouldn’t rule out any options against excessive swings. Tech and industrial stocks were among the biggest losers, with chip-making equipment giant Tokyo Electron declining by over -3%. The Nikkei Volatility, which measures the implied volatility of Nikkei 225 options, closed down -3.63% to 17.24.

Japanese GDP for the second quarter has been reported at +1.2% q/q and +4.8% y/y, weaker than expectations. The Japanese July Current Account n.s.a. stood at 2.772T, stronger than expectations.

In pre-market U.S. trading, several notable stock movers include:

  • DocuSign Inc (NASDAQ:DOCU), rose over +3% after posting upbeat Q2 results, raising its full-year sales guidance, and expanding its share buyback program.
  • Adobe Systems Incorporated (NASDAQ:ADBE), gained over +1% after Mizuho upgraded the stock to “Buy” from “Neutral.”
  • Smartsheet Inc (NYSE:SMAR), climbing more than +6% after reporting stronger-than-expected Q2 results and providing robust FY24 guidance.
  • Smith & Wesson Brands Inc (NASDAQ:SWBI), soaring over +9% after posting strong Q1 results.
  • Spruce Biosciences Inc (NASDAQ:SPRB), gained more than +8% after Leerink upgraded the stock to “Outperform” from “Market Perform.”
  • First Solar Inc (NASDAQ:FSLR), rose over +2% after Deutsche Bank upgraded the stock to “Buy” from “Hold.”

Today’s U.S. Earnings Spotlight for Friday, September 8th, includes Kroger (NYSE:KR), National Beverage (NASDAQ:FIZZ), Hooker Furniture (NASDAQ:HOFT), and Rent the Runway (NASDAQ:RENT).

Featured Image: Unsplash @ Tyler Prahm

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