Markets Today: Stocks Erase Overnight Gains on a Strong Sep CPI Report

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.15%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.08%.

Stock index futures this morning erased most of their overnight gains after T-note yields jumped when U.S. Sep consumer prices rose more than expected.  Also, weekly U.S. initial unemployment claims were unchanged, stronger than expectations for a slight increase and a hawkish factor for Fed policy.  This morning’s hawkish reports keep in play the possibility of one more Fed rate hike this year. 

Positive corporate news is lifting stock index futures, with Delta Air Lines and Fastenal up more than +3% in pre-market trading after reporting better-than-expected Q3 adjusted EPS. Also, Target is up more than +2% after Bank of America upgraded the stock to a buy.

Concern that the conflict between Israel and Hamas will spread in the Middle East is another negative factor for stocks on reports that Israel carried out airstrikes on the main airports in Damascus and Aleppo in Syria.

U.S. Sep CPI rose +3.7% y/y, unchanged from Aug and stronger than expectations of a decline to 3.6% y/y. Sep CPI ex-food and energy eased to 4.1% y/y from +4.3% y/y in Aug, right on expectations and the smallest increase in 2 years.

U.S. weekly initial unemployment claims were unchanged at 209,000, showing a slightly stronger labor market than expectations of an increase to 210,000.

The markets are discounting a 10% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 40% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields are higher.  The 10-year T-note recovered from a 1-1/2 week low of 4.515% and is up +2.3 bp at 4.581%. The 10-year German bund yield rebounded from a 2-1/2 week low of 2.685% and is up +1.5 bp at 2.733%.  The 10-year UK gilt yield recovered from a 2-week low of 4.284% and is up +3.0 bp at 4.359%.  

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.23%.  China’s Shanghai Composite Index closed up +0.94%.  Japan’s Nikkei 225 today closed up +1.75 %.

The Euro Stoxx 50 today rallied to a 3-week high and is moderately higher.  Gains in energy and mining stocks are leading the overall market higher.  Advertising and media stocks also rallied, led by a +4% gain in Publicis after it upgraded its full-year organic growth target when Q3 sales growth came in stronger than expected.  On the negative side, bank stocks are on the defensive, led by a -3% decline in Barclays Plc after its CEO said stagnant deal activity, easing volatility, and peaking interest rates are set to weigh on bank sector earnings.

ECB Governing Council member Centeno said, "With the current level of interest rates, we will be making a substantial contribution to the 2% inflation objective. We will get there by continuing this monetary policy stance, holding on for a while until we are totally sure that inflation is coming down."

ECB Governing Council member Wunsch said, "If we keep seeing inflation numbers aligned with the forecast, then we don't have to hike interest rates anymore."

China’s Shanghai Composite Stock Index today closed moderately higher.  Chinese stocks rallied today after buying of bank stocks by state-linked entities lifted market sentiment.  Bank stocks rallied after China’s state-owned Central Huijin Investment Ltd increased its stake in the country’s biggest lenders, a sign that authorities are serious about efforts to support the equity market. The sovereign wealth fund increased its shares in China’s biggest banks for the first time since 2015.  On the negative side, HSBC cut its year-end 2023 index targets for onshore Chinese stocks by 5% to 8%, saying, “We were too optimistic about the pace of China’s economic recovery and underestimated the scale of stock outflows in August and September.”

Japan’s Nikkei Stock Index today extended this week’s rally to a 2-week high and closed moderately higher.  Japanese stocks found carryover support from strength in U.S. stocks after dovish Fed comments knocked bond yields lower and bolstered speculation the Fed is heading toward a pause in interest rate hikes.  Also, an easing of producer prices knocked Japanese government bond yields lower after Japan's Sep PPI eased to +2.0% y/y, the smallest increase in 2-1/2 years.  The 10-year Japan JGB bond yield fell to a 2-week low of 0.754%.  Chip stocks also rose after Asahi reported Japan’s Ministry of Economy, Trade and Industry is seeking 3.4 trillion yen ($22.8 billion) for funds to support the chip industry as part of Prime Minister Kishida’s economic package.

Japan Sep PPI eased to +2.0% y/y from +3.3% y/y in Aug, weaker than expectations of +2.4% y/y and the slowest pace of increase in 2-1/2 years.

Japan Aug core machine orders unexpectedly fell -0.5% m/m, weaker than expectations of +0.6% m/m.

Pre-Market U.S. Stock Movers

Delta Air Lines (DAL) climbed more than +3% in pre-market trading after reporting Q3 adjusted EPS of $2.03, better than the consensus of $1.94, and forecast Q4 adjusted EPS of $1.05-$1.30, the midpoint above the consensus of $1.11. 

Fastenal (FAST) climbed more than +4% in pre-market trading after reporting Q3 EPS of 52 cents, above the consensus of 50 cents. 

Energy stocks and energy service providers are climbing in pre-market trading, with WTI crude up more than +1% after Saudi Energy Minister Prince Abdulaziz bin Salman said oil producers will continue to work together and act preemptively to keep the oil market in balance.  As a result, ConocoPhillips (COP), Devon Energy (DVN), Exxon Mobil (XOM), Marathon Petroleum (MRO), Occidental Petroleum (OXY), Schlumberger (SLB), and Valero Energy (VLO) are up more than +1%.

Target (TGT) rose more than +2% in pre-market trading after Bank of America upgraded the stock to buy from neutral with a price target of $135. 

Albemarle (ALB) is up more than +2% in pre-market trading after being granted an extension for seven days to close its deal to acquire Liontown Resources Ltd for $4.2 billion. 

Core & Main Inc (CNM) rose more than +1% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform. 

Ford Motor (F) dropped more than -2% in pre-market trading after UAW autoworkers began a strike at the company’s largest plant in Kentucky. 

Domino’s Pizza (DPZ) dropped more than -2% in pre-market trading after reporting Q3 revenue of $1.03 billion, weaker than the consensus of $1.05 billion.

Commercial Metals (CMC) fell more than -2% in pre-market trading after reporting Q4 net sales of $1.90 billion, below the consensus of $2.12 billion. 

Carrier Global (CARR) slid more than -1% in pre-market trading after Wole Research downgraded the stock to underperform from peer perform.   

Jack Henry & Associates (JKHY) fell more than -2% in pre-market trading after Goldman Sachs downgraded the stock to sell from neutral with a price target of $140.

Walgreens Boots Alliance (WBA) fell more than -1% in pre-market trading after reporting Q4 adjusted EPS of 67 cents, weaker than the consensus of 69 cents, and forecasting 2024 adjusted EPS of $3.20-$3.50 below the consensus of $3.70. 

Carvana (CVNA) dropped more than -2% in pre-market trading after BNP Paribas Exane downgraded the stock to neutral from outperform.

Welltower (WELL) slid over 1% in pre-market trading after JPMorgan Chase downgraded the stock to market neutral from overweight.

ResMed (RMD) fell more than -2% in pre-market trading after RBC Capital Markets downgraded the stock to sector perform from outperform.

Earnings Reports (10/12/2023)

Commercial Metals Co (CMC), Comtech Telecommunications Cor (CMTL), Delta Air Lines Inc (DAL), Domino's Pizza Inc (DPZ), Fastenal Co (FAST), IDT Corp (IDT), Oil-Dri Corp of America (ODC), SMART Global Holdings Inc (SGH), Walgreens Boots Alliance Inc (WBA), Winmark Corp (WINA).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.