Markets Today: Stocks Little Changed as FOMC Expected to Announce a Hawkish Pause

Morning Markets

December E-Mini S&P 500 futures (ESZ23) and Dec Nasdaq 100 E-Mini futures (NQZ23) this morning are little changed.

Stock index futures this morning are little changed but are seeing downward pressure from this morning’s weak U.S. housing starts report and today’s +3.8 bp rise in the 10-year T-note yield. There is also downward pressure from the possibilities of an expanding UAW strike and a U.S. government shutdown on September 30.  Oil prices rallied to a new 10-1/2 month high today, which boosted oil company stocks but was negative for the inflation outlook and hawkish for Fed policy.

Stocks are trading lower on a cautious note ahead of the 2-day FOMC meeting that begins today.  The markets are fully expecting the FOMC this week to leave its funds rate target unchanged at 5.25/5.50%.  However, the markets are expecting the FOMC to maintain a hawkish bias and keep in play the possibility of one more rate hike later this year.

Specifically, the markets are discounting a 31% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 14% 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 2024 in response to an expected slowdown in the U.S. economy.

U.S. and German bond yields today are higher, but UK yields are lower.  The 10-year T-note yield is up +3.8 bp at 4.341%.  The 10-year German bund yield is up +0.3 bp at 2.708%.  The 10-year UK gilt yield is down -4.2 bp at 4.349%.  

October WTI crude oil prices this morning are up +0.81 (+0.89%) at $92.29 per barrel, posting a new 10-1/2 month high on the nearest-futures chart.  Oil prices have rallied sharply in the past two months on a tight supply outlook through year-end after Saudi Arabia and Russia both announced that they will extend their production cuts through year-end.  The continued rally in oil prices is putting upward pressure on inflation expectations, with the 10-year breakeven inflation expectations rate today up +0.2 bp at 2.365%.

The OECD today cut its global GDP forecast for 2024 to +2.7% from +3.0%, with the comment that “While high inflation continues to unwind, the world economy remains in a difficult place. We’re confronting the double challenges of inflation and low growth.”

U.S. Aug housing starts fell -11.3% to 1.283 million, much weaker than expectations for a decline of about -1%.  However, Aug building permits rose +6.9% m/m to 1.542 million, stronger than expectations for a small decline.

The Eurozone final-Aug CPI was revised slightly lower to +0.5% m/m and +5.2% y/y from the preliminary report of +0.6% m/m and +5.3% y/y.  The final-core CPI was left unrevised at +5.3% y/y.

Overseas stock markets are mixed today.  The Euro Stoxx 50 is up +0.05%.  China’s Shanghai Composite Index closed -0.03%.  Japan’s Nikkei 225 today closed down -0.87%.

Pre-Market U.S. Stock Movers

Grocery-delivery business Maplebear Inc, doing business as Instacart (CART), will start trading today after its IPO was priced on Monday at $30 per share, at the high end of its marketed range. CART raised $660 million of cash at the IPO and had an IPO valuation of $9.9 billion.

The UAW today said that more autoworkers will go on strike at noon on Friday if there isn’t substantial progress on contract talks.  GM (GM) is up +0.3% in pre-market trading, Ford (F) is up +0.2%, and Stellantis NV (STLA) is up +2.4%.

Oil stocks are seeing support as WTI crude oil prices today rallied to a new 10-1/2 month high.  Exxon (XOM) is up +0.5% in pre-market trading, Chevron (CVX) is up +0.4%, and Conoco Phillips (COP) is up +0.3%.

Dell Technologies (DELL) is up +1.1% in pre-market trading on an upgrade by Daiwa Securities to outperform from neutral on an improved demand outlook.

Starbucks (SBUX) is down -1.3% in pre-market trading on a downgrade by TD Cowen to market-perform from outperform due to a “worrisome” outlook for Chinese same-store sales tied to macroeconomic and competitive pressures.

CVS Corp (CVS) is up +1.0% in pre-market trading on an upgrade by Evercore ISI due to improving operational issues and an attractive valuation.

Rackspace Technology (RXT) is up +9.4% in pre-market trading on an upgrade by Raymond James to outperform from market-perform on an improved outlook for its turnaround plan.

Rocket Lab USA (RKLB) plunged -23% in pre-market trading after the company was forced to end its latest rocket launch mission and postponed an upcoming mission.

Royal Caribbean Cruises (RCL) and Carnival (CCL) are up more than +1.5% in pre-market trading after upgrades by Truist Securities to Buy and Hold, respectively, due to strong trends and more attractive valuations.

 (9/19/2023)

AutoZone Inc (AZO), Apogee Enterprises Inc (APOG), Ispire Technology Inc (ISPR), Steelcase Inc (SCS).

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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.