Markets Today: Stocks Slightly Higher on Prospects of Additional China Stimulus

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.05%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.04%.

Stock index futures this morning are slightly higher on the prospects for additional Chinese stimulus, which would be favorable for global growth after Bloomberg reported that China is preparing to unleash a new round of stimulus to support its economy. Stock gains were limited by ongoing Middle East turmoil and the IMF’s cut in its global 2024 GDP forecast and hike in its inflation forecast.

Stocks also have carryover support from Monday’s dovish Fed comments that the recent jump in long-term bond yields may mean less need for the Fed to raise short-term rates again.

The International Monetary Fund (IMF) today warned of persistent inflation and called on the world's central banks to keep policy tight until there's an easing of price pressures as it cut its 2024 global GDP forecast to 2.9% from a 3.0% forecast in July and raised its 2024 global inflation forecast to 5.8% from a July forecast of 5.2%. 

The markets are discounting a 14% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 33% 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 mixed.  The 10-year T-note yield fell to a 1-week low of 4.620% and is down -10.6 bp at 4.695%. The 10-year German bund yield fell to a 2-week low of 2.760% but recovered and is up +4.3 bp at 2.816%.  The 10-year UK gilt yield fell to a 1-week low of 4.451% but recovered and is up +3.5 bp at 4.511%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +1.54%.  China’s Shanghai Composite Index closed down -0.70%.  Japan’s Nikkei 225 today closed up +2.43%.

The Euro Stoxx 50 today rallied to a 1-week high and is moderately higher on economic optimism after Bloomberg reported China is considering fresh stimulus to revive its economic growth.  Basic resource companies, miners, and luxury goods makers moved higher on the news. Also, dovish remarks from Fed officials Monday bolstered the outlook for the Fed to pause its interest rate hikes and improved sentiment in the equity market.  In addition, an unexpected increase in Italy’s Aug industrial production supported stocks.  On the negative side, the IMF warned of persistent inflation as it cut its 2024 global GDP forecast and raised its 2024 inflation forecast. 

Italy Aug industrial production unexpectedly rose +0.2% m/m, stronger than expectations of -0.3% m/m.

China’s Shanghai Composite Stock Index today closed moderately lower but remained above Monday’s 6-week low.  Concerns about the strength of China’s economic recovery weighed on stocks on disappointing consumer spending figures and home sales during the Golden Week holiday. The turmoil in the Middle East weighed on Chinese construction stocks on concerns about the sector’s exposure to the Middle East through the Belt and Road projects.  Property developers retreated today after Country Garden Holdings, China’s former top builder, warned of a default.  The company said in a filing today that it will not be able to meet all of its future offshore payment obligations, including dollar bonds, an indication the company is headed for a restructuring that would be one of China’s largest.  After the Chinese markets closed today, Bloomberg reported the government is mulling new stimulus, which could boost Chinese stocks during Wednesday’s session.

Bloomberg reported that China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy reach its 5% growth target.  Policymakers may issue 1 trillion yuan ($137 billion) of additional sovereign debt for spending on infrastructure.

Japan’s Nikkei Stock Index rallied to a 1-week high today and closed sharply higher. Japanese stocks found carryover support from Monday’s rally in U.S. equity markets, which recovered from early losses and moved higher after dovish Fed comments improved the prospects for a pause in Fed interest rate hikes.  Japanese automakers rose as Toyota Motor climbed more than +2% after CLSA raised its price target on the world’s number one carmaker.  Also, defense stocks rallied, tracking overseas peers higher after Hamas’ attack on Israel raised fears of a wider conflict. In addition, energy stocks gained after crude oil prices on Monday surged more than +4%.  Finally, Japanese stocks found support after the IMF raised its Japan 2023 GDP forecast to 2.0% from a July forecast of 1.4%.

The Japan Sep eco watchers survey outlook indicator fell -1.9 to an 8-month low of 49.5, weaker than expectations of 51.3.

Pre-Market U.S. Stock Movers

PepsiCo (PEP) rose more than +1% in pre-market trading after reporting Q3 core EPS of $2.25, better than the consensus of $2.16, and raised its full-year core EPS growth constant currency forecast to +13% from a prior view of +12%. 

U.S.-listed Chinese stocks moved higher in pre-market trading after Bloomberg News reported that China is considering raising its 2023 budget deficit and adding a new round of stimulus measures.  As a result, Alibaba Group Holding (BABA) and JD.com (JD) are up more than +2%.  Also, NetEase (NTES), Baidu (BIDU), Trip.com (TCOM), and PDD Holdings (PDD) are up more than +1%.   

Coherent (COHR) jumped down more than +8% in pre-market trading after confirming that Denso and Mitsubishi Electric agreed to invest an aggregate of $1 billion in its silicon carbide business. 

Exact Sciences (EXAS) climbed more than +2% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral.

Electronic Arts (EA) rose more than +2% in pre-market trading after Bank of America upgraded the stock to buy from neutral with a price target of $150.   

Hyatt Hotels (H) climbed more than +5% in pre-market trading after S&P Dow Jones Indices announced the stock would replace National Instruments in the S&P MidCap 400 Index, effective Thursday. 

Rivian Automotive (RIVN) climbed more than +3% in pre-market trading after UBS upgraded the stock to buy from neutral with a price target of $24.

Akero Therapeutics (AKRO) plunged more than -60% in pre-market trading after study results from a mid-stage trial of its live disease drug disappointed. 

Corning (GLW) slid more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.

Skyworks Solutions (SWKS) and Qorvo (QRVO) fell more than -2% in pre-market trading after Citigroup downgraded both stocks to sell from neutral.

Starwood Property Trust (STWD) slipped more than -1% in pre-market trading after Keefe, Bruyette & Woods downgraded the stock to market perform from outperform.

Juniper Networks (JNPR) dropped more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.

Earnings Reports (10/10/2023)

AZZ Inc (AZZ), E2open Parent Holdings Inc (ETWO), Neogen Corp (NEOG), PepsiCo Inc (PEP), Presto Automation Inc PRST), VOXX International Corp (VOXX).

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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.