As the trading day looms, September S&P 500 futures (ESU23) have dipped by -0.58%, while September Nasdaq 100 E-Mini futures (NQU23) are down -0.88%. These declines follow a session where major U.S. benchmark indices closed lower, driven by unexpected growth in a critical U.S. services activity indicator. This development has fueled speculation that the Federal Reserve might need to maintain higher interest rates for an extended period.
During Wednesday’s trading session, the S&P 500, Nasdaq 100, and Dow Jones Industrial Average hit 1-week and 1-1/2 week lows, respectively. Apple Inc (NASDAQ:AAPL) faced a significant setback, with its stock plummeting over -3%, making it one of the top losers on the Nasdaq 100. This drop came after reports from The Wall Street Journal revealed that China had directed government agencies to stop using Apple’s iPhones and other foreign electronic devices for work purposes.
Lockheed Martin Corporation (NYSE:LMT) also experienced a sharp decline of over -4% due to a downward revision of its F-35 jet delivery outlook and delayed deliveries of its updated Technology Refresh 3 jets. In addition, Johnson & Johnson (NYSE:JNJ) saw a drop of more than -1% after HSBC initiated coverage of the stock with a Hold rating. On a more positive note, AeroVironment Inc (NASDAQ:AVAV) surged by over +20% following the release of upbeat Q1 results and an upward revision of its FY24 revenue guidance.
Economic data from Wednesday revealed that the U.S. ISM services index unexpectedly rose to a 6-month high of 54.5 in August, surpassing expectations of 52.5. The U.S. Trade Balance for July also showed strength at -$65.00B, better than the expected -$68.00B. However, the U.S. August S&P Global composite PMI fell slightly short of expectations at 50.2, compared to the projected 50.4.
Quincy Krosby, chief global strategist at LPL Financial, commented on the situation, stating, The ISM Services Sector report underscores the resilience of the largest portion of the economy. Regrettably, the prices-paid component has shifted unfavorably, resembling the increased costs observed in the manufacturing report, and has significantly risen. This development is undoubtedly concerning for a data-dependent Federal Reserve.
Boston Fed President Susan Collins emphasized the need for patience among policymakers as they analyze economic data to determine their next steps. She noted that if the improvement in inflation data proves to be temporary, “further tightening could be warranted.” Currently, U.S. rate futures indicate a 7.0% probability of a 25 basis point rate increase at the upcoming September monetary policy meeting and a 43.4% chance of a 25 basis point rate hike in November.
In other news, the Federal Reserve’s Beige Book report, released on Wednesday, indicated modest economic activity in July and August, with subdued job growth across the United States and slowing price growth in most districts.
Today, market attention is focused on U.S. Initial Jobless Claims data, with economists predicting a figure of 234K, compared to last week’s 228K. Investors are also keeping an eye on U.S. Unit Labor Costs data, expected to be +1.6% q/q for the second quarter, as well as U.S. Nonfarm Productivity data, projected to stand at +3.7% q/q for the same period. Additionally, U.S. Crude Oil inventory data is on the radar, with economists estimating -2.064M, compared to last week’s -10.584M.
Market participants are keenly awaiting speeches from New York Fed President John Williams and Atlanta Fed President Raphael Bostic. In the bond markets, United States 10-year rates currently sit at 4.281%, down -0.28%.
On the international front, Euro Stoxx 50 futures have rebounded by +0.09%, recovering from earlier losses driven by weak German data. The market is being led higher by gains in utility and construction stocks. Eurostat’s latest data indicates meager growth in the Eurozone economy in the second quarter, falling short of earlier projections due to stagnant domestic consumption and weakened exports. Additionally, German industrial production declined in July, signaling a slowdown in Europe’s largest economy. Direct Line Insurance Group Plc (DLG.LN) saw a notable increase of over +17% after projecting improved operating profit in 2024.
Economic data from various regions includes the U.K.’s Halifax House Price Index, Germany’s Industrial Production, Eurozone’s GDP, and Eurozone’s Employment Change data. The U.K.’s August Halifax House Price Index reported -1.9% m/m and -4.6% y/y, below expectations. German July Industrial Production came in at -0.8% m/m, also weaker than expected. Eurozone Employment Change arrived at +0.2% q/q and +1.3% y/y in the second quarter, slightly below forecasts. Eurozone GDP reported +0.1% q/q and +0.5% y/y for the second quarter, falling short of expectations.
Asian stock markets closed in the red, with China’s Shanghai Composite Index (SHCOMP) down -1.13% and Japan’s Nikkei 225 Stock Index (NIK) down -0.75%. China’s Shanghai Composite Index declined after trade data revealed ongoing economic weakness, while renewed Sino-U.S. tensions also weighed on sentiment. Customs data showed that China’s imports and exports contracted more slowly than anticipated in August but remained near historic lows due to sluggish demand both domestically and abroad. Semiconductor stocks saw a decline, with China’s top chipmaker, Semiconductor Manufacturing International Corp, slumping over -7%. Mainland property developers traded in Hong Kong also experienced losses.
In response to these challenges, four major state banks in China announced plans to lower interest rates on existing mortgages for first-home loans, bringing them down to the levels applicable at the time of home purchase. UBS analysts observed that although the data exceeded expectations, there remains a need for additional stimulus measures to stimulate economic growth and bolster market confidence.
China’s August Trade Balance was reported at $68.36B, below expectations of $73.90B. Chinese August Exports showed a decline of -8.8% y/y, while Imports contracted at -7.3% y/y. Japan’s Nikkei 225 Stock Index closed lower today, ending an eight-day winning streak. Rising U.S. yields and concerns over a slowing Chinese economy weighed on investor sentiment. Bank of Japan Board Member Junko Nakagawa suggested that maintaining monetary easing is appropriate for the time being, especially as the inflation target has not yet been met. In corporate news, computer-chip testing equipment maker Advantest fell over -6% in response to an overnight drop in customer Nvidia. Additionally, NTN Corp experienced a decline of more than -5% after issuing a zero-coupon convertible bond. The Nikkei Volatility, reflecting the implied volatility of Nikkei 225 options, closed up +4.38% at 17.89.
Pre-Market U.S. Stock Movers
In pre-market trading, Apple Inc (AAPL) saw a drop of over -2% following reports that China plans to extend the ban on Apple’s iPhones to government-backed agencies and state-owned enterprises.
On the positive side, WestRock Co (NYSE:WRK) surged by more than +8% in pre-market trading due to reports suggesting discussions about a potential merger with Europe’s Smurfit Kappa.
GameStop Corp (NYSE:GME) experienced a significant increase of over +6% in pre-market trading after reporting better-than-expected Q2 results.
UiPath Inc (NYSE:PATH) gained more than +4% in pre-market trading following the release of upbeat Q2 results and solid FY24 revenue guidance.
Conversely, C3.ai Inc (NYSE:AI) plunged by over -9% in pre-market trading after announcing it would not achieve profitability by the end of fiscal year 2024.
Sportsmans (NASDAQ:SPWH) tumbled more than -14% in pre-market trading after reporting disappointing Q2 results.
Dell Technologies Inc (NYSE:DELL) fell approximately -3% in pre-market trading following a downgrade by Barclays from Equal Weight to Underweight.
Today’s U.S. Earnings Spotlight for Thursday, September 7th
Several companies are in the earnings spotlight today, including DocuSign (NASDAQ:DOCU), Toro (NYSE:TTC), Guidewire (NYSE:GWRE), Science Applications (NYSE:SAIC), BRP Inc (NASDAQ:DOOO), Smartsheet (NYSE:SMAR), Braze (NASDAQ:BRZE), ABM Industries (NYSE:ABM), Korn Ferry (NYSE:KFY), John Wiley&Sons (NYSE:WLY), Semtech (NASDAQ:SMTC), Methode Electronics (NYSE:MEI), Planet Labs PBC (NYSE:PL), G-III Apparel (NASDAQ:GIII), Avid Bioservices (NASDAQ:CDMO), Tsakos Energy (NYSE:TNP), Secureworks (NASDAQ:SCWX), Smith & Wesson (NASDAQ:SWBI), Concrete Pumping A (NASDAQ:BBCP), Zumiez (NASDAQ:ZUMZ), and Limoneira (NASDAQ:LMNR).
Featured Image: Unsplash
Author Faith Yakubu 
