Markets Today: Stocks Lower on Concern about Hawkish Global Central Banks

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.32%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.33%.

Stock index futures this morning are mildly lower, following losses in European stocks, on speculation global central banks will keep interest rates higher for longer to combat inflation.  European stocks are under pressure after the 10-year German bund yield jumped to a 12-year high today of 2.811%, and the 10-year T-note yield rose to a new 16-year high of 4.509%.  The stock market is also concerned about a possible U.S. government shutdown this Sunday when the fiscal year begins on Oct 1.

U.S. and European stocks are also under pressure on concerns that China’s property debt crisis is worsening after China Evergrande Group canceled a creditor meeting today and said it must revisit its restructuring plan.  The ongoing debt crisis in China threatens to derail the country’s growth prospects and drag down the global economy.

Today’s news showed the U.S. Aug Chicago Fed national activity index fell -0.23 -0.16, weaker than expectations of 0.10.

Morgan Stanley warned today that risks are rising for U.S. consumer stocks on "slowing consumer spending, resumption of student loan payments, rising delinquencies in certain household cohorts, higher gasoline prices, and weakening data in the housing sector."  Also, 44% of stocks in the consumer discretionary sector are trading below their 200-day moving averages, pointing to additional weakness.

The markets are discounting a 19% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 47% 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 today are higher.  The 10-year T-note yield rose to a new 16-year high of 4.509% and is up +6.7 bp at 4.501%. The 10-year German bund yield climbed to a 12-year high of 2.811% and is up +5.6 bp at 2.795%.  The 10-year UK gilt yield is up +5.5 bp at 4.304%.  

Overseas stock markets are mixed today.  The Euro Stoxx 50 is down -1.15%.  China’s Shanghai Composite Index closed -0.54%.  Japan’s Nikkei 225 today closed +0.85%.

The Euro Stoxx 50 today tumbled to a 5-3/4 month low on speculation global central banks will keep interest rates higher for longer to combat inflation.  European government bonds retreated and weighed on stocks as the 10-year German bund yield rose to a 12-year high today. Weakness in mining stocks and metals producers are leading the overall market lower as China’s worsening property problems weighed on the outlook for commodities.  On the positive side, today’s economic news showed the Sep German IFO business climate index fell less than expected.

ECB Governing Council member Kazaks said the ECB's "very appropriate" +25 bp interest rate hike in September may allow for a pause in October.

The Sep German IFO business climate index fell by -0.1 to 85.7, stronger than expectations of 85.2.

China’s Shanghai Composite Stock Index today closed moderately higher.  Weakness in Chinese property developers led the overall market lower today on concerns that China’s property debt crisis is worsening. China Evergrande Group today scrapped a creditor meeting and said it must revisit its restructuring plan.  Also, China Oceanwide Holdings Ltd. disclosed it is facing liquidation after a Bermuda court issued a winding-up order against the company and involved a $175 million loan principal that wasn’t paid. In addition, concerns are growing that Chian Country Garden Holdings may suffer an imminent default.   There are fears that China’s property debt crisis will next hit China’s commercial banks and keep home prices under pressure, further hurting consumer confidence. 

Japan’s Nikkei Stock Index today posted moderate gains as weakness in the yen sparked a rally in exporter stocks.  The Japanese yen fell to a 10-3/4 month low against the dollar on negative carryover from last Friday after the BOJ held monetary policy steady, and BOJ Governor Ueda said the distance from being able to adjust the negative rate hasn't changed much.  Also, BOJ Governor Ueda said today that the BOJ needs to continue with monetary easing as uncertainties around wage gains and inflation are high, and therefore, the goal of achieving 2% inflation accompanied by wage gains hasn’t yet “come in sight.”

Pre-Market U.S. Stock Movers

Footwear companies are retreating today after Jeffries downgraded Nike, Foot Locker, and Urban Outfitters to hold from buy, citing slower spending by U.S. students and ongoing Chinese headwinds.  As a result, Foot Locker (FL) and Urban Outfitters (URBN) are down more than -2%, and Nike (NKE) is down more than -1%. 

Dexcom (DXCM) is down more than -1% in pre-market trading after a weekend article in Barron’s said the emergence of GLP-1 drugs to treat obesity has already started to hurt shares of companies treating obesity complications. 

HP Inc (HPQ) dropped more than -1% in pre-market trading after an SEC filing showed holder Berkshire Hathaway sold $129 million of shares over the past three sessions.

Morphic Holding (MORF) tumbled more than -4% in pre-market trading after BTIG downgraded the stock to neutral from buy. 

Film and entertainment stocks rallied in pre-market trading after striking screenwriters reached a tentative labor agreement with Hollywood Studios.  As a result, Warner Bros Discovery (WBD) and Paramount Global (PARA) are up more than +2%.  Also, Walt Disney (DIS) and Netflix (NFLX) are up more than +1%. 

Dow Inc (DOW) gained more than +1% in pre-market trading after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $55.

CarMax (KMX) climbed more than +2% in pre-market trading after Wedbush upgraded the stock to outperform from neutral with a price target of $90.

Earnings Reports (9/25/2023)

Thor Industries Inc (THO), Waldencast Plc (WALD).

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• Stocks Set to Open Lower as Investors Await Key U.S. Inflation Data and Fed Speak
• 3 Spinoff Companies That Are Seriously Undervalued
• GDP, Consumer Confidence and Other Can't Miss Items This Week

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.