Stocks Set to Open Lower as Investors Await U.S. Inflation Data and Big Bank Earnings, Fed Speak on Tap

December S&P 500 E-Mini futures (ESZ24) are down -0.48%, andDecember Nasdaq 100 E-Mini futures (NQZ24) are down -0.67% this morning as Treasury yields extended their rise after Friday’s strong jobs report spurred a sharp paring of rate-cut expectations, while investors awaited U.S. inflation data, the start of the third-quarter earnings season, and a parade of Federal Reserve speakers.

In Friday’s trading session, Wall Street’s major averages ended in the green. Albemarle (ALB) surged over +8% and was the top percentage gainer on the S&P 500 after The Australian reported that mining giant Rio Tinto might be considering an acquisition in the lithium sector. Also, chip stocks gained ground, with Advanced Micro Devices (AMD) climbing nearly +5% and Broadcom (AVGO) rising more than +2%. In addition, CVS Health (CVS) advanced over +2% after TD Cowen upgraded the stock to Buy from Hold with a price target of $85. On the bearish side, Spirit Airlines (SAVE) plummeted more than -24% after the Wall Street Journal reported that the budget airline and its bondholders had discussed a potential bankruptcy filing following its failed merger with JetBlue Airways.

The U.S. Labor Department’s report on Friday showed that nonfarm payrolls increased by 254K in September, significantly surpassing expectations of 147K and marking the largest gain in six months. Also, the U.S. September unemployment rate unexpectedly declined to 4.1%, stronger than expectations of no change at 4.2%. In addition, U.S. average hourly earnings came in at +0.4% m/m and +4.0% y/y in September, stronger than expectations of +0.3% m/m and +3.8% y/y.

“Coming off a string of relatively weak jobs data over the summer months, the September jobs report was just what the doctor - or in this case the Fed - ordered,” Jim Baird, chief investment officer at Plante Moran Financial Advisors. “It broke the recent trend and provided a reason for optimism in the underlying resiliency of the labor economy.”

U.S. rate futures have priced in a 94.5% chance of a 25 basis point rate cut and a 5.5% chance of a 50 basis point rate cut at the next FOMC meeting in November.

Meanwhile, investors remain cautious about rising geopolitical risks as the world anticipates Israel’s possible retaliation to Iran’s missile attack last week. Israel bombed Hamas targets across Gaza on Monday to prevent what it described as an “immediate” threat of planned rocket fire by the group to commemorate its devastating attack a year ago.

Third-quarter earnings season kicks off this week, with big banks such as JPMorgan Chase (JPM) and Wells Fargo (WFC) set to release their earnings reports on Friday. PepsiCo (PEP) and Delta Air Lines (DAL) are among other major names scheduled to deliver quarterly updates during the week.

On the economic data front, the U.S. consumer inflation report for September will be the main highlight. Also, market participants will be keeping an eye on other economic data releases, including U.S. PPI, Core PPI, Exports, Imports, Trade Balance, Wholesale Inventories, Crude Oil Inventories, Initial Jobless Claims, and Michigan Consumer Sentiment Index (preliminary).

In addition, investors will closely monitor the release of the Federal Reserve’s minutes from the September 17-18 meeting on Wednesday, watching for insights into how policymakers are considering the future pace of easing.

A host of Fed officials will be making appearances throughout the week, including Bowman, Kashkari, Bostic, Kugler, Collins, Jefferson, Logan, Goolsbee, Barkin, Daly, Cook, and Williams.

In other news, Tesla (TSLA) is anticipated to unveil its self-driving “robotaxi” at a Thursday event, where the company might offer further details about several of its products. Also on Thursday, semiconductor company Advanced Micro Devices (AMD) will share updates on its artificial intelligence products during its “Advancing AI” event, where its chief executive officer, Lisa Su, is scheduled to speak.

Today, investors will focus on U.S. Consumer Credit data, which is set to be released later in the day. Economists, on average, forecast that August Consumer Credit will stand at $11.80B, compared to the previous figure of $25.45B.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.016%, up +0.84%.

The Euro Stoxx 50 futures are down -0.04% this morning as tensions in the Middle East and rising bond yields weighed on risk appetite. Real estate and utility stocks slumped on Monday. Data from the Federal Statistical Office released on Monday showed that Germany’s monthly factory orders fell more than expected in August, increasing pressure on the struggling sector, which shows few signs of recovery. Separately, data from Eurostat revealed that consumers in the Eurozone increased their spending slightly in August, signaling a modest recovery in consumer expenditure. Meanwhile, French Central Bank Governor Francois Villeroy de Galhau told an Italian newspaper that the European Central Bank is likely to reduce interest rates on October 17th due to weak economic growth and the associated risk of inflation falling below its 2% target. “Yes, quite probably,” Villeroy told La Repubblica when asked if a reduction is expected this month. In corporate news, Cie Financiere Richemont Sa (CFR.Z.IX) gained about +1% after agreeing to sell its Yoox Net-A-Porter online fashion and accessories business to Mytheresa.

Germany’s Factory Orders, Eurozone’s Sentix Investor Confidence Index, and Eurozone’s Retail Sales data were released today.

The German August Factory Orders stood at -5.8% m/m, weaker than expectations of -1.9% m/m.

Eurozone October Sentix Investor Confidence Index arrived at -13.8, stronger than expectations of -14.6.

Eurozone August Retail Sales came in at +0.2% m/m, in line with expectations.

Japan’s Nikkei 225 Stock Index (NIK) closed up +1.80%, while mainland Chinese markets were closed for a holiday.

China’s Shanghai Composite Index was closed for the week-long National Day holiday. Mainland China’s financial markets will reopen on Tuesday.

Japan’s Nikkei 225 Stock Index closed higher today, surpassing the key 39,000 level, buoyed by Friday’s gains on Wall Street. Financial stocks outperformed on Monday. Preliminary data from the Cabinet Office released on Monday showed that Japan’s leading economic index, which is used to gauge the economic outlook for a few months ahead on data such as job offers and consumer sentiment, fell in August to its lowest level since October 2020. Meanwhile, Japan’s new finance minister vowed to consider policy actions against sharp currency fluctuations based on their impact on the real economy. “We need to take necessary measures while closely watching the effects on people’s lives and economic activities, rather than responding to the foreign exchange market itself,” Katsunobu Kato said in an interview on Monday. In corporate news, Konami Group climbed over +8% and Nintendo gained more than +4% following a local media report that Saudi Arabia’s sovereign wealth fund is contemplating boosting its stakes in Japanese gaming firms. Investors are bracing for earnings reports from major Japanese companies this week, including AEON, Fast Retailing, and Seven & I Holdings. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +20.33% to 30.19.

The Japanese August Leading Index was at 106.7, weaker than expectations of 107.2.

Pre-Market U.S. Stock Movers

Arcadium Lithium (ALTM) surged about +27% in pre-market trading after announcing that Rio Tinto approached the company about a possible takeover.

Pfizer (PFE) rose over +2% in pre-market trading after the Wall Street Journal reported that activist investor Starboard Value acquired a roughly $1 billion stake in the company and is urging management to implement changes.

Apple (AAPL) fell more than -1% in pre-market trading after Jefferies downgraded the stock to Hold from Buy with a price target of $212.92.

Amazon.com (AMZN) slid over -2% in pre-market trading after Wells Fargo downgraded the stock to Equal Weight from Overweight with a price target of $183.

Netflix (NFLX) dropped about -1% in pre-market trading after Barclays downgraded the stock to Underweight from Equal Weight with an unchanged price target of $550.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Monday - October 7th

Duckhorn Portfolio (NAPA).

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