Stocks Set to Open Lower as Investors Await U.S. Economic Data and Fed Speak, Chinese Data Disappoints

September S&P 500 futures (ESU23) are down -0.12%, and September Nasdaq 100 E-Mini futures (NQU23) are down -0.35% this morning as subdued economic data from China weighed on sentiment, while investors looked ahead to a fresh batch of U.S. economic data and speeches from Fed officials.

In Friday’s trading session, Wall Street’s major averages ended mixed, with the benchmark S&P 500 rising to a 4-week high. Dell Technologies Inc (DELL) surged over +21% after the company reported stronger-than-expected Q2 results. Also, Lululemon Athletica Inc (LULU) rose about +6% after the yoga wear maker posted upbeat Q2 results and raised its FY23 net revenue guidance. On the bearish side, Tesla Inc (TSLA) plunged more than -5% after the EV maker cut the prices for its premium Model S and Model X in China and the U.S. In addition, Walt Disney Company (DIS) fell over -2% after several of its channels, including ESPN, became unavailable to Charter’s Spectrum cable service customers on Thursday due to a dispute over cable fees.

The U.S. Labor Department’s report on Friday showed that the U.S. economy added 187K jobs last month, above the expected figure of 170K. Also, the U.S. August ISM manufacturing index rose to a 6-month high of 47.6, stronger than expectations of 47.0. At the same time, the U.S. unemployment rate unexpectedly rose to a 1-1/2 year high of 3.8% in August, weaker than expectations of 3.5%. In addition, U.S. August average hourly earnings came in at +0.2% m/m and +4.3% y/y, weaker than expectations of +0.3% m/m and +4.4% y/y.

“The data makes the case for the Fed becoming more dovish as we head into the fall. If the end of tightening comes sooner than later, that could lead to a substantial rally in stocks,” said Keith Buchanan, portfolio manager at GLOBALT Investments.

Cleveland Fed President Loretta Mester stated Friday that although there has been some progress, inflation remains “too high,” and the labor market continues to demonstrate strength.

Meanwhile, U.S. rate futures have priced in a 7.0% probability of a 25 basis point rate increase at the September FOMC meeting and a 35.7% chance of a 25 basis point rate hike at the November FOMC meeting.

In other news, Goldman Sachs Group Inc. reduced its estimate of the likelihood of a recession in the United States. “Continued positive inflation and labor market news has led us to cut our estimated 12-month U.S. recession probability further to 15%, down 5pp from our prior estimate,” Goldman Sachs chief economist Jan Hatzius wrote in a note.

In the coming week, investors will be monitoring a spate of economic data, including U.S. ISM Non-Manufacturing PMI, ISM Non-Manufacturing Prices, S&P Global Composite PMI, S&P Global Services PMI, Exports, Imports, Trade Balance, Initial Jobless Claims, Nonfarm Productivity, Unit Labor Costs, Crude Oil Inventories, Wholesale Inventories, and Wholesale Trade Sales.

In addition, several Fed officials will be making appearances this week, including Dallas Fed President Lorie Logan, Philadelphia Fed President Patrick Harker, New York Fed President John Williams, Fed Governor Michelle Bowman, and Chicago Fed President Austan Goolsbee.

Today, investors will likely focus on U.S. Factory Orders data. Economists, on average, forecast that July Factory Orders will stand at -2.5% m/m, compared to the previous value of +2.3% m/m.

In the bond markets, United States 10-year rates are at 4.220%, up +1.09%.

The Euro Stoxx 50 futures are down -0.33% this morning as market participants digested soft Chinese services PMI data while also weighing important data on regional services activity. China-exposed stocks are under pressure today after a private-sector survey showed China’s services sector expanded at its slowest rate in 8 months in August. Data on Tuesday showed that the decline in Eurozone business activity worsened more rapidly than initially estimated last month, with the region’s dominant services industry slipping into contraction. Meanwhile, the ECB’s Consumer Expectations Survey indicated that inflation expectations for the period three years ahead increased from 2.3% in June to 2.4% in July. In corporate news, Partners Group Holding Ag (PGHN.Z.IX) climbed over +6% after reporting better-than-expected first-half revenue. Also, Roche Holding Ag (ROG.Z.IX) fell more than -1% after Berenberg downgraded the stock to Hold from Buy.

Spain’s Services PMI, Italy’s Services PMI, France’s Services PMI, Germany’s Composite PMI, Germany’s Services PMI, Eurozone’s Composite PMI, Eurozone’s Services PMI, U.K’s Composite PMI, U.K’s Services PMI, and Eurozone’s PPI were released today.

The Spanish August Services PMI came in at 49.3, weaker than expectations of 51.5.

The Italian August Services PMI arrived at 49.8, weaker than expectations of 50.2.

The French August Services PMI stood at 46.0, weaker than expectations of 46.7.

The German August Composite PMI has been reported at 44.6, weaker than expectations of 44.7.

The German August Services PMI came in at 47.3, in line with expectations.

Eurozone August Composite PMI arrived at 46.7, weaker than expectations of 47.0.

Eurozone August Services PMI stood at 47.9, weaker than expectations of 48.3.

U.K. August Composite PMI has been reported at 48.6, stronger than expectations of 47.9.

U.K. August Services PMI came in at 49.5, stronger than expectations of 48.7.

Eurozone July PPI stood at -0.5% m/m and -7.6% y/y, compared to expectations of -0.6% m/m and -7.6% y/y.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.71%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.30%.

China’s Shanghai Composite today closed lower as disappointing service sector data renewed concerns over the country’s fragile economic recovery. A private-sector survey showed on Tuesday that China’s services activity expanded at the slowest pace in 8 months in August, providing further evidence that the economic recovery is losing momentum. Meanwhile, property and technology stocks retreated on Tuesday as some investors opted to book profits following the gains in previous sessions. In more positive news, Reuters reported that Country Garden managed to make interest payments on its U.S. dollar bonds just hours before a grace period deadline, averting a default situation for the second time in four days.

The Chinese August Caixin Services PMI stood at 51.8, weaker than expectations of 53.6. 

“The miss in China’s Caixin services PMI has offset some of the sentiment shift we got yesterday. To be fair, China’s measures so far are a mere relaxation of over-regulation that can merely stop or slow down further damage, and not particularly stimulus actions that can reverse the damage,” said Charu Chanana, market strategist at Saxo. 

At the same time, Japan’s Nikkei 225 Stock Index closed higher today, hitting a 1-month high as investors digested stronger-than-expected services activity data. A private-sector survey showed on Tuesday that Japan’s service sector activity expanded at its fastest rate in 3 months in August, supported by strong consumer spending as inbound tourism regained momentum. Separately, data on Tuesday showed that Japanese household spending experienced its most significant decline in nearly 2-1/2 years, primarily due to the impact of rising prices. In corporate news, JFE Holdings plunged over -6% following the announcement that the Japanese steel giant’s board approved a fundraising plan involving a public share offering and convertible bond issuance to overseas investors, amounting to 211.4 billion yen. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +2.45% to 17.56.

The Japanese July Household Spending has been reported at -2.7% m/m and -5.0% y/y, weaker than expectations of +0.7% m/m and -2.5% y/y.

The Japanese August Services PMI came in at 54.3, in line with expectations.

Pre-Market U.S. Stock Movers

Airbnb Inc (ABNB) climbed over +5%, and Blackstone Group Inc (BX) gained more than +4% in pre-market trading on news that the stocks would join the S&P 500.

Keysight Technologies Inc (KEYS) rose about +1% in pre-market trading after Goldman Sachs upgraded the stock to Buy from Neutral. 

Oracle Corporation (ORCL) gained over +1% in pre-market trading after Barclays upgraded the stock to Overweight from Equal Weight.

Olin Corporation (OLN) rose more than +1% in pre-market trading after KeyBanc upgraded the stock to Overweight from Sector Weight.

Corteva Inc (CTVA) rose over +1% in pre-market trading after UBS upgraded the stock to Buy from Neutral.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Tuesday - September 5th

Zscaler (ZS), Gitlab (GTLB), Healthequity Inc (HQY), Ascendis Pharma AS (ASND), Asana (ASAN), AeroVironment (AVAV), Brady (BRC), Americas Car-Mart (CRMT), Procaps (PROC).

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On the date of publication, Oleksandr Pylypenko 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.