Stocks Move Higher Before the Open as Investors Weigh Fed Minutes, Walmart Earnings on Tap

September S&P 500 futures (ESU23) are up +0.22%, and September Nasdaq 100 E-Mini futures (NQU23) are up +0.19% this morning as market participants digested the minutes of the Federal Reserve’s latest meeting while watching for fresh indications of weakness in China.

The minutes of the Federal Open Market Committee’s July 25-26 meeting revealed a split among Fed officials regarding the necessity for further interest rate hikes, as “some participants” voiced concerns about potential economic risks from excessive rate increases, while “most” policymakers continued to prioritize the battle against inflation. Also, during the policy outlook discussion, officials emphasized the significance of closely observing incoming economic data “to determine the extent of additional policy firming that may be appropriate to return inflation to 2% over time.” “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” according to the FOMC minutes released Wednesday.

“The FOMC minutes reiterated many of the core themes that Powell delivered at the July press conference. There was nothing here to derail our assumption that September will be another ‘skip,’ although another hike in November or December is firmly on the table if the data warrants,” said Ben Jeffery, a strategist at BMO Capital Markets. 

In Wednesday’s trading session, the benchmark S&P 500 dropped to a 5-week low, the blue-chip Dow posted a 4-week low, and the tech-heavy Nasdaq 100 notched a 1-1/2 month low. Progressive Corp (PGR) surged over +8% and was the top percentage gainer on the S&P 500 after reporting net premiums written for July rose +21% y/y to $5.95 billion. Also, TJX Companies Inc (TJX) climbed more than +4% after the company posted upbeat Q2 results and lifted its annual comparable sales forecast. In addition, Target Corporation (TGT) gained over +2% after the big-box retailer reported stronger-than-expected Q2 margins and adjusted EPS. On the bearish side, chip stocks retreated after the 10-year Treasury yield rose to a 9-1/2 month high, with Advanced Micro Devices Inc (AMD) dropping more than -3% and Marvell Technology (MRVL) slumping over -2%. Also, Agilent Technologies Inc (A) fell more than -3% after cutting its FY23 guidance amid a “softer macroeconomic environment.”

Economic data on Wednesday showed U.S. July Building Permits, a proxy for future construction, came in at 1.442M compared to a consensus of 1.463M. At the same time, U.S. Housing Starts rose +3.9% m/m to 1.452M, stronger than expectations of 1.448M. In addition, U.S. Industrial Production stood at +1.0% m/m in July, stronger than expectations of +0.3% m/m. 

Meanwhile, U.S. rate futures have priced in an 86.5% probability of no hike and a 13.5% chance of a 25 basis point rate increase at the next central bank meeting in September.

On the earnings front, major companies like Walmart (WMT), Applied Materials (AMAT), and Ross Stores (ROST) are slated to release their quarterly results today. 

Today, all eyes are focused on the U.S. Philadelphia Fed manufacturing index in a couple of hours. Economists, on average, forecast that the August Philadelphia Fed manufacturing index will stand at -10.0, compared to the previous value of -13.5.

Also, investors will likely focus on U.S. Initial Jobless Claims data. Economists estimate this figure to be 240K, compared to last week’s value of 248K.

In the bond markets, United States 10-Year rates are at 4.298%, up +0.94%.

The Euro Stoxx 50 futures are down -0.40% this morning as the minutes of the U.S. Federal Reserve’s July meeting sparked concerns the central bank will continue to raise interest rates to contain inflation while downbeat earnings also hurt risk appetite. Losses in construction and materials stocks are leading the overall market lower. Meanwhile, bond yields across Europe surged, with significant jumps observed in Italy and Germany, exerting pressure on equities. In corporate news, Bae Systems Plc (BA.L.EB) fell over -3% after Britain’s largest defense company agreed to acquire Ball Corp’s aerospace assets for about $5.55 billion in cash. Also, Adyen NV (ADYEN.A.DX) tumbled more than -23% after the Dutch payments processor reported weaker-than-expected first-half earnings.

Eurozone’s Trade Balance data was released today.

Eurozone June Trade Balance stood at 23.0B, stronger than expectations of 18.3B.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.43%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.44%.

China’s Shanghai Composite today closed higher, supported by the robust performance of technology stocks. The People’s Bank of China intensified its efforts to stem losses in the yuan Thursday by providing the most forceful guidance since October through its daily reference rate for the managed currency. Meanwhile, concerns over China’s economy and its precarious debt burden persisted. Reuters reported on Thursday that Zhongzhi Enterprise Group informed its investors about a liquidity crisis and its intention to conduct debt restructuring as the Chinese asset manager contends with a worsening property market downturn. Also, a unit of China Evergrande Group stated that the Chinese securities regulator had built a case against it regarding suspected violations of information disclosure. In other news, the ratings agency Fitch told Bloomberg on Wednesday that any extension of government debt was likely to prompt a reassessment of China’s A+ credit rating.

Japan’s Nikkei 225 Stock Index closed lower today as worries about more U.S. Federal Reserve interest rate hikes and a gloomy outlook for China’s economy weighed on market sentiment. Data on Thursday revealed that the country logged an unexpected trade deficit in July. Also, Japan’s exports experienced a decline in July for the first time in almost 2-1/2 years, underscoring worries about a potential global recession. Meanwhile, Japan's 20-year bond yield experienced a sharp increase following an auction of debt that received lackluster investor demand. In corporate news, tourism-related stocks retreated even after data showed that the number of visitors to Japan in July reached its highest level since the pandemic. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -2.05% to 19.56.

“Investors were reacting only to negative market cues - rising global yields and ongoing worries about China's economy,” said Takehiko Masuzawa, a trading head at Phillip Securities Japan.

The Japanese July Trade Balance has been reported at -78.7B, weaker than expectations of +24.6B.

The Japanese July Exports came in at -0.3% y/y, stronger than expectations of -0.8% y/y.

The Japanese July Imports stood at -13.5% y/y, stronger than expectations of -14.7% y/y.

The Japanese June Core Machinery Orders arrived at +2.7% m/m and -5.8% y/y, weaker than expectations of +3.6% m/m and -5.5% y/y.

Pre-Market U.S. Stock Movers

Wolfspeed Inc (WOLF) plunged over -12% in pre-market trading after the company reported mixed Q4 results and provided weaker-than-expected Q1 guidance.

Cisco Systems Inc (CSCO) gained more than +3% in pre-market trading after the networking giant reported upbeat Q4 results.

Chegg Inc (CHGG) rose over +3% in pre-market trading after the company announced that its board of directors had authorized an increase of $200 million as part of its securities repurchase program.

The Lovesac Company (LOVE) fell more than -2% in pre-market trading after the company disclosed in an SEC filing Wednesday that it identified errors related to last mile freight expenses.

Avnet Inc (AVT) climbed about +6% in pre-market trading after reporting upbeat Q4 results and issuing a solid Q1 outlook.

Adobe Systems Incorporated (ADBE) rose over +2% in pre-market trading after BofA upgraded the stock to Buy from Neutral.

You can see more pre-market stock movershere 

Today’s U.S. Earnings Spotlight: Thursday - August 17th

Walmart (WMT), Applied Materials (AMAT), Ross Stores (ROST), Bill Com (BILL), Tapestry (TPR), Globant SA (GLOB), Bilibili (BILI), Lumentum Holdings Inc (LITE), Arcos Dorados (ARCO), Corporacion America Airports (CAAP), Farfetch A (FTCH), SFLoration Ltd (SFL), SGHC Limited (SGHC), Dole (DOLE), Ehang (EH), SpartanNash Co (SPTN), Despegar.com (DESP), Nano X (NNOX), Gambling.com Group (GAMB), LSI Industries (LYTS).

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