Stock Index Futures Climb Ahead of Fed Speak, U.S. Inflation Data and Earnings Awaited

December S&P 500 E-Mini futures (ESZ24) are up +0.36%, andDecember Nasdaq 100 E-Mini futures (NQZ24) are up +0.40% this morning, signaling a partial rebound from yesterday’s slump, while investors awaited further comments from Federal Reserve officials, with all eyes on Thursday’s key U.S. inflation report and the start of earnings season.

In yesterday’s trading session, Wall Street’s major indexes closed lower. Amazon.com (AMZN) fell over -3% after Wells Fargo Securities downgraded the stock to Equal Weight from Overweight. Also, insurance companies offering property and casualty insurance in Florida slumped as Hurricane Milton strengthened to a Category 5 storm, with Heritage Insurance Holdings (HRTG) plummeting more than -23% and HCI Group (HCI) plunging over -17%. In addition, Apple (AAPL) dropped more than -2% after Jefferies downgraded the stock to Hold from Buy with a price target of $212.92. On the bullish side, Super Micro Computer (SMCI) surged over +15% and was the top percentage gainer on the S&P 500 and Nasdaq 100 after the server company reported strong shipments of its graphics processing units, fueled by artificial intelligence demand. Also, Pfizer (PFE) rose more than +2% after the Wall Street Journal reported that activist investor Starboard Value acquired a roughly $1 billion stake in the drugmaker.

Economic data released on Monday showed that U.S. consumer credit rose +$8.93B in August, weaker than expectations of +$11.80B.

Minneapolis Fed President Neel Kashkari stated on Monday that he believes the economy remains resilient and the labor market, despite showing some signs of softening, is still strong, with the Fed’s rate cuts intended to maintain these conditions. “The balance of risks has shifted away from high inflation towards maybe higher unemployment,” Kashkari said. “And that’s why I thought dialing back policy was the right move.” Also, St. Louis Fed President Alberto Musalem said he backed the U.S. central bank’s decision to lower interest rates by a half point last month but emphasized that he would prefer any further reductions to be gradual. “I believe it will likely be appropriate to further reduce the target range for the federal funds rate over time toward a neutral posture,” Musalem said. In addition, Fed Governor Adriana Kugler stated on Tuesday that the central bank should maintain its focus on returning inflation to its 2% target, albeit with a “balanced approach” that prevents an “undesirable” slowdown in employment growth and economic expansion. Kugler said she would support further cuts “if progress on inflation continues as I expect.”

U.S. rate futures have priced in an 88.7% chance of a 25 basis point rate cut and an 11.3% chance of no cut at the conclusion of the Fed’s November meeting.

Meanwhile, the crisis in the Middle East continued to unsettle investors, with fighting intensifying on Monday on multiple fronts after a year of war. The Israel Defense Forces stated that it intercepted the majority of a barrage of rockets launched toward Tel Aviv by Hamas and other groups backed by Iran.

Market participants are keenly awaiting U.S. inflation data, the Fed’s minutes from the September meeting, and the start of the third-quarter earnings season this week.

Financial sector earnings begin on Friday, with reports from JPMorgan Chase (JPM), Wells Fargo (WFC), and Blackrock (BLK). Food and beverage giant PepsiCo (PEP) is set to announce its Q3 earnings results today.

Today, investors will also focus on U.S. Trade Balance data, which is set to be released in a couple of hours. Economists forecast this figure to stand at -$70.10B in August, compared to the previous figure of -$78.80B.

In addition, market participants will be anticipating speeches from Atlanta Fed President Raphael Bostic, Boston Fed President Susan Collins, and Fed Vice Chair Philip Jefferson.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.018%, down -0.28%.

The Euro Stoxx 50 futures are down -0.80% this morning, tracking an overnight drop on Wall Street, while China’s pledge to bolster its economy disappointed investors hoping for new stimulus. Mining and luxury stocks tumbled on Tuesday. Data from the Federal Statistical Office showed on Tuesday that Germany’s monthly industrial production increased at its fastest pace this year in August, primarily driven by a recovery in the automotive industry. Meanwhile, the European Central Bank is set to meet next week and is widely expected to ease policy again, having already cut rates twice this year in response to easing inflationary pressures. Bundesbank President Joachim Nagel said on Monday that he is open to considering another ECB rate cut during next week’s meeting. In corporate news, Vistry Group Plc (VTY.LN) plummeted over -28% after the British homebuilder slashed its full-year profit guidance.

Germany’s Industrial Production data was released today.

The German August Industrial Production came in at +2.9% m/m, stronger than expectations of +0.8% m/m.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed up +4.59%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.00%.

China’s Shanghai Composite Index closed sharply higher today as trading resumed after a week-long holiday, with investor sentiment remaining upbeat. The benchmark index extended a historic rally that began in late September when China introduced its most aggressive monetary stimulus package since the COVID-19 pandemic to bolster the economy. Semiconductor and software stocks led the gains on Tuesday. Data from the Ministry of Culture and Tourism released Tuesday showed that tourists in China made 765 million domestic trips during the just-ended seven-day National Day holiday, marking a 5.9% increase from the previous year and 10.2% higher than the same period in 2019, while tourism revenue reached 700.82 billion yuan, up 6.3% year-over-year and 7.9% above the pre-pandemic level in 2019. Meanwhile, Chinese officials at the National Development and Reform Commission said Tuesday they would speed up spending while largely reaffirming plans to boost investment and provide more direct support for low-income groups and new graduates, though they refrained from introducing additional stimulus. They stated that China would continue to issue ultra-long sovereign bonds next year to fund major projects and invest 100 billion yuan ($14 billion) in key strategic areas. In other news, Goldman Sachs upgraded Chinese stocks to Overweight, with strategists including Tim Moe highlighting a further 15% to 20% upside potential. In corporate news, COSCO Shipping gained over +5% after the shipping group provided a robust Q3 net profit forecast.

Japan’s Nikkei 225 Stock Index closed lower today, snapping a three-day winning streak and tracking overnight losses on Wall Street. Japanese stocks also retreated as the yen regained some losses amid lingering uncertainty about the Bank of Japan’s monetary policy. Automobile and bank stocks led the declines on Tuesday. Meanwhile, data from the Ministry of Health, Labour and Welfare released Tuesday showed that Japan’s inflation-adjusted wages and household spending fell in August. However, analysts noted that underlying trends suggest a gradual recovery in pay and consumption, which should bolster the BOJ’s plans for further rate increases. Separately, data released by the Finance Ministry showed that Japan’s current account surplus reached a record high in August, marking the 19th consecutive month of surplus in the current account. Investor attention is now directed toward earnings reports from major Japanese firms set for later 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 +11.10% to 33.54.

The Japanese August Household Spending stood at +2.0% m/m and -1.9% y/y, stronger than expectations of +0.5% m/m and -2.6% y/y.

The Japanese August Current Account n.s.a. came in at 3.804T yen, stronger than expectations of 2.921T yen.

The Japanese September Economy Watchers Current Index arrived at 47.8, weaker than expectations of 49.3.

Pre-Market U.S. Stock Movers

DocuSign (DOCU) climbed over +5% in pre-market trading after S&P Dow Jones Indices announced that the company would replace MDU Resources Group in the S&P MidCap 400 index, effective October 11th.

Qualcomm (QCOM) fell more than -1% in pre-market trading after KeyBanc downgraded the stock to Sector Weight from Overweight.

Affirm (AFRM) gained over +4% in pre-market trading after BTIG upgraded the stock to Buy from Neutral with a $68 price target.

Microsoft (MSFT) dropped about -0.5% in pre-market trading after Oppenheimer downgraded the stock to Perform from Outperform.

American Express (AXP) slid nearly -1% in pre-market trading after BTIG and HSBC downgraded the stock.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Tuesday - October 8th

PepsiCo (PEP), IDT (IDT), Saratoga Investment Corp (SAR), Accolade (ACCD).

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