Stocks Set to Open Lower as Investors Await U.S. Inflation Data and FOMC Minutes, Oil Soars on Middle East Conflict

December S&P 500 futures (ESZ23)are down -0.59%, and December Nasdaq 100 E-Mini futures (NQZ23) are down -0.68% this morning as the military conflict in the Middle East dampened risk appetite, while market participants looked ahead to the release of U.S. inflation data and the minutes of the Federal Reserve’s latest policy meeting later in the week.

Oil climbed about +3% after Hamas’s unexpected attack on Israel raised concerns of a wider conflict. The Israeli-Palestinian conflict escalated into a full-fledged war over the weekend as members of the Islamist group Hamas launched attacks on multiple Israeli towns, resulting in the deaths of hundreds of Israelis and the abduction of dozens more. In response, Israeli airstrikes heavily targeted various sites in Gaza, and on Sunday, the Israeli government declared war. Prime Minister Benjamin Netanyahu pledged retribution and cautioned that a protracted and challenging fight lay ahead.

In Friday’s trading session, Wall Street’s major averages closed higher, with the tech-heavy Nasdaq 100 rising to a 2-week high. Pioneer Natural Resources Co (PXD) climbed over +10% following a report from the Wall Street Journal indicating that Exxon Mobil is in advanced talks to acquire the company in a deal valued at about $60 billion. Also, megacap growth stocks advanced, with Microsoft Corporation (MSFT) and NVIDIA Corporation (NVDA) rising more than +2%. In addition, Eli Lilly and Company (LLY) soared over +4% after Bank of America raised its price target on the stock to $700 from $600. On the bearish side, The AES Corporation (AES) fell more than -1% after UBS downgraded the stock to Neutral from Buy.

The U.S. Labor Department’s report on Friday showed that nonfarm payrolls rose by 336K jobs last month, powering past the 170K expected and increasing from the 227K jobs added in August. Also, the U.S. September unemployment rate was unchanged at 3.8% versus the expected 3.7% level. In addition, U.S. average hourly earnings came in at +0.2% m/m and +4.2% y/y in September, weaker than expectations of +0.3% m/m and +4.3% y/y.

“The overall picture is rather ‘goldilocks’-like, with strong jobs growth coming alongside continued disinflation. We continue to think the fed funds rate has peaked and that July was the last hike of the cycle. If anything, the recent jump in bond yields adds to our conviction that the Fed will refrain from further hikes, as the rise in yields represents a major additional tightening of financial conditions,” according to the economics desk at ABN Amr.

U.S. rate futures have priced in a 21.2% probability of a 25 basis point rate increase at the November meeting and a 31.9% chance of a 25 basis point rate hike at the December FOMC meeting.

In the coming week, U.S. CPI data for September will be the main highlight. Also, market participants will be eyeing a spate of economic data, including U.S. Wholesale Inventories, PPI, Core PPI, Core CPI, Initial Jobless Claims, Crude Oil Inventories, Export Price Index, Import Price Index, and Michigan Consumer Sentiment (preliminary).

In addition, investors will be paying close attention to the release of the Federal Reserve’s minutes from the September meeting to discern any indications of whether policymakers are inclining toward another interest rate increase before the end of the year.

Meanwhile, earnings season kicks off this week, with big banks and financial-sector companies such as JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), and PNC Financial (PNC) scheduled to release their earnings reports. PepsiCo (PEP), Delta Air Lines (DAL), Walgreens Boots Alliance (WBA), and UnitedHealth (UNH) will also report earnings.

The U.S. economic data slate is mainly empty on Monday. However, investors will likely focus on speeches from Dallas Fed President Lorie Logan and Fed Governor Philip Jefferson.

In the bond markets, United States 10-year rates are at 4.734%, down -1.02%.

The Euro Stoxx 50 futures are down -0.34% this morning as Hamas’s surprise attack on Israel raised concerns about escalating tensions in the Middle East, dampening risk sentiment. Retail and travel & leisure stocks underperformed on Monday, while energy and defense stocks gained ground. The Federal Statistics Office said on Monday that German industrial output contracted in August for the fourth consecutive month, marking another unfavorable development for the key manufacturing base of Europe’s largest economy. Meanwhile, the European Central Bank’s Vice-President Luis de Guindos said on Monday that both headline and core inflation are anticipated to decline further in the forthcoming months, but he urged for caution due to the uncertainty regarding the trajectory of oil prices. In corporate news, Schaeffler Ag (SHA.D.DX) plunged over -5% on news it is seeking to acquire Vitesco Technologies Group AG. Also, Metro Bank Plc (MTRO.LN) climbed more than +24% after the British retail and commercial bank secured a 925 million pound financing package.

Germany’s Industrial Production and Eurozone’s Sentix Investor Confidence data were released today.

The German August Industrial Production stood at -0.2% m/m, weaker than expectations of -0.1% m/m.

Eurozone October Sentix Investor Confidence came in at -21.9, stronger than expectations of -24.0.

China’s Shanghai Composite Index (SHCOMP) closed down -0.44%, while the Japanese market was closed for a holiday.

China’s Shanghai Composite today closed lower upon resuming trading after an extended holiday, with mixed holiday tourism data failing to instill confidence in a robust economic recovery, while concerns from overseas further subdued investor sentiment. According to the Ministry of Culture and Tourism, domestic tourism revenue amounted to 753.4 billion yuan during the eight-day holiday period, marking a 1.5% increase compared to the equivalent level in 2019. The number of people traveling increased by 4.1% compared with 2019, reaching a total of 826 million travelers. The figures fell below the ministry’s projection of nearly 900 million travelers who were expected to spend over 780 billion yuan. Meanwhile, tourism-related and real estate stocks underperformed on Monday, while energy stocks gained ground on the back of elevated oil prices. In other news, a survey showed that China’s average daily home sales by floor area during the Golden Week holiday were 17% lower compared to the previous year. On the positive side, Citigroup and J.P. Morgan revised their projections for China’s annual growth upward last week, citing stabilizing economic indicators and the supportive policy measures implemented by Beijing.

“The National Day Golden Week tourism data, together with the still above-50 September services PMIs, suggest the services recovery has decelerated but continues. We believe additional policy easing will be necessary for further recovery in consumption and services, especially given the continued property downturn and still-dampened confidence,” Goldman Sachs analysts said in a note.

Pre-Market U.S. Stock Movers

Energy stocks are climbing in pre-market trading, with the price of WTI crude up about +3%. Exxon Mobil (XOM), Devon Energy (DVN), and Occidental Petroleum (OXY) gained more than +2%.

Tesla Inc (TSLA) fell over -1% in pre-market trading following data from the China Passenger Car Association, which revealed that the U.S. automaker sold 74,073 China-made electric vehicles in September, reflecting a 10.9% decrease from a year earlier.

On Holding Ltd (ONON) rose more than +1% in pre-market trading after Baird upgraded the stock to Outperform from Neutral.

Spotify Technology SA (SPOT) dropped over -2% in pre-market trading after Redburn Atlantic downgraded the stock to Neutral from Buy.

Aramark Holdings (ARMK) gained about +1% in pre-market trading after Jefferies upgraded the stock to Buy from Hold.

Oracle Corporation (ORCL) rose over +1% in pre-market trading after Evercore ISI upgraded the stock to Outperform from In Line.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - October 9th

Saratoga Investment Corp (SAR), Lifecore Biomedical (LFCR), Trilogy Metals (TMQ).

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