The December E-Mini S&P 500 futures (ESZ23) have dipped by -0.20%, while the December Nasdaq 100 E-Mini futures (NQZ23) are down by -0.05% as of this morning.

Market Overview

Stock index futures relinquished their overnight gains, reversing direction due to the ascent of bond yields, which weighed on equities. Initially, stock index futures had surged during overnight trading following a late-night deal reached by U.S. lawmakers on Saturday to avert a government shutdown, sparking a relief rally. Investors are now eagerly awaiting the U.S. September ISM manufacturing report and a speech from Federal Reserve Chair Jerome Powell later this morning for insights into market direction.

Adding to the positive sentiment is better-than-expected economic data from China, which supports global growth. In September, Chinese manufacturing and non-manufacturing activities expanded more than anticipated.

Goldman Sachs has expressed optimism for mega-cap U.S. tech stocks during the third-quarter earnings season. A recent selloff has led to lower valuations, presenting an opportunity for investors as improving fundamentals diverge from falling valuations.

Rate Hike Expectations 

Markets are currently pricing in a 33% probability of the Federal Open Market Committee (FOMC) raising the funds rate by +25 basis points at the upcoming FOMC meeting ending on November 1. There is a 50% chance for a +25 basis point rate hike at the following meeting, which concludes on December 13. Subsequently, markets anticipate the FOMC beginning to reduce rates in the second half of 2024, in response to an expected economic slowdown in the U.S.

Yield Movements

 U.S. and European bond yields have advanced today. The 10-year U.S. Treasury note yield has risen by +6.0 basis points to 4.631%, the 10-year German bund yield is up by +2.8 basis points at 2.867%, and the 10-year UK gilt yield has increased by +4.6 basis points to 4.484%.

Global Market Updates 

International stock markets are experiencing mixed trends. The Euro Stoxx 50 is down by -0.39%, with higher bond yields affecting the overall market sentiment. European government bond yields have risen, influenced by hawkish comments from ECB Vice President Luis de Guindos, who declared that discussions of rate cuts by the ECB are premature. Additionally, weakness in pharmaceutical stocks has added pressure to European markets.

European stocks initially opened higher today, particularly sectors linked to China, such as luxury goods manufacturers and mining companies, in response to signs of economic improvement in China’s manufacturing sector.

The Eurozone’s August unemployment rate fell by -0.1 point to match the record low of 6.4%, aligning with expectations. ECB Vice President Guindos noted that the current interest rates would assist in achieving the ECB’s 2% inflation target, emphasizing that talk of rate cuts is unwarranted.

China’s Shanghai Composite Stock Index remains closed for the weeklong Golden Week holidays. However, China’s September manufacturing PMI showed strength, rising by +0.5 to 50.2, surpassing expectations, and marking the fastest pace of expansion in six months. The September non-manufacturing PMI also exceeded expectations, rising by +0.7 to 51.7.

Japan’s Nikkei Stock Index retreated from early gains and closed moderately lower. Weakness in Japanese manufacturing activity contributed to the decline, with the Japan September Jibun Bank manufacturing PMI revised downward to its steepest contraction pace in seven months. Additionally, surging government bond yields negatively impacted stocks, as the 10-year JGB bond yield reached a 10-year high of 0.783%. Initially, Japanese stocks had opened higher due to optimism about the economy following better-than-expected results from the Q3 Tankan large manufacturing business conditions survey and positive momentum in U.S. stock index futures.

Currency Markets

The yen reached an 11-1/4 month low against the dollar following the announcement by the Bank of Japan (BOJ) of an extra bond-buying plan for five- to 10-year bonds this week. The BOJ plans to disclose the amounts of its purchases when the operations commence.

Japanese Economic Data

The Q3 Tankan large manufacturing business conditions index rose by +4 to 9, surpassing expectations of 6. However, the Japan September Jibun Bank manufacturing PMI was revised downward by -0.1 to 48.5 from the initial report of 48.6, marking the steepest contraction in seven months.

Pre-Market U.S. Stock Movers

• Discover Financial Services (NYSE:DFS) saw an increase of more than +3% in pre-market trading after agreeing to enhance its consumer compliance management system and related corporate governance as part of a consent order issued by the FDIC.
• Tesla (NASDAQ:TSLA) gained nearly +1% in pre-market trading after launching an updated version of the Model Y in China, featuring improved configurations at the same starting price.
• Datadog (NASDAQ:DDOG) jumped more than +3% in pre-market trading following an upgrade by Piper Sandler to overweight from neutral, with a price target of $115.
• Rivian Automotive (NASDAQ:RIVN) rallied more than +3% in pre-market trading after an upgrade by Evercore ISI to outperform from in line, with a price target of $35.
• FedEx (NYSE:FDX) rose almost +1% in pre-market trading after an upgrade by Susquehanna Financial to positive from neutral, setting a price target of $315.
• Xylem (NYSE:XYL) gained nearly +1% in pre-market trading after an upgrade by Melius Research to buy from hold, with a price target of $122.
• Macerich (NYSE:MAC) climbed more than +4% in pre-market trading following an upgrade by Piper Sandler to neutral from underweight.
• U.S. Steel (NYSE:X) gained more than +1% in pre-market trading after an upgrade by Morgan Stanley to overweight from neutral, with a price target of $40.

Cryptocurrency-Related Stocks

 Pre-market trading indicates that cryptocurrency-exposed stocks are moving higher, with Bitcoin’s price up more than +5% to a 1-1/2 month high. Consequently, Coinbase Global (NASDAQ:COIN), Marathon Digital (NASDAQ:MARA), Microstrategy (NASDAQ:MSTR), and Riot Platforms (NASDAQ:RIOT) are up more than +5%.

Other Market Updates

• United Parcel Service (NYSE:UPS) declined almost -1% in pre-market trading after Susquehanna Financial lowered its price target on the stock to $160 from $173.
• Fidelity National Financial (NYSE:FNF) dropped more than -3% in pre-market trading following a downgrade by Keefe, Bruyette & Woods to market perform from outperform.
• Chubb Ltd (NYSE:CB) fell more than -1% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.
• Toast (NYSE:TOST) slid more than -1% in pre-market trading after Mizuho Securities downgraded the stock to neutral from buy.

Upcoming Earnings Reports (October 2, 2023):

• Veradigm Inc (NASDAQ:MDRX)

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