September S&P 500 E-Mini futures (ESU26) are up +0.61% this morning, finding some relief as oil prices and bond yields retreated, with attention now turning to key U.S. inflation data for fresh clues on the Federal Reserve’s policy path.
Oil prices fell on Friday after the International Energy Agency warned of a worsening outlook for demand this year. Brent crude slipped toward $104 a barrel, while WTI crude dropped below $100 a barrel. Still, both benchmarks were on track for sharp weekly gains as the Middle East conflict showed few signs of easing. In the latest developments, Iran-backed Houthi militants captured the port city of Mokha on Yemen’s west coast on Thursday, bolstering their position near the Bab al-Mandeb Strait.
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Treasuries rose across the curve on Friday as a retreat in oil prices eased inflation concerns. The 10-year T-note yield fell three basis points to 4.94%.
Also aiding sentiment, Oracle (ORCL) climbed over +6% in pre-market trading after the company reported stronger-than-expected FQ1 cloud infrastructure revenue, signaling that its large investments in AI data center projects are paying off.
In yesterday’s trading session, Wall Street’s three main equity benchmarks closed lower after the continued climb in oil prices and fresh signs of sticky inflation fueled bets that the Fed will raise interest rates soon. Chip and AI infrastructure stocks slid, with Lam Research (LRCX) and Intel (INTC) falling over -5%. Also, Cooper Cos. (COO) plunged over -14% and was the top percentage loser on the S&P 500 after the contact lens maker posted weaker-than-expected FQ3 revenue and cut its full-year guidance. In addition, American Eagle Outfitters (AEO) tumbled more than -13% after the retailer reported weaker-than-expected Q2 same-store sales growth. On the bullish side, AeroVironment (AVAV) gained over +4% after the defense contractor reported better-than-expected FQ1 results.
Economic data released on Thursday showed that the U.S. producer price index for final demand rose +0.4% m/m and +5.4% y/y in August, compared with expectations of +0.4% m/m and +5.3% y/y. Also, the core PPI, which excludes volatile food and energy costs, rose +0.2% m/m and +4.6% y/y in August, compared with expectations of +0.3% m/m and +4.6% y/y. In addition, the number of Americans filing for initial jobless claims in the past week fell by -1K to 206K, compared with expectations of 205K. Finally, U.S. August existing home sales fell -2.0% m/m to a seasonally adjusted annual rate of 3.98 million units, in line with expectations.
“Inflation is still a problem, and while interest-rate movements can’t bring high oil prices down, the Fed’s job is to respond to inflationary pressures,” said Clark Bellin at Bellwether Wealth.
Meanwhile, U.S. rate futures have priced in a 67.1% chance of a 25-basis-point rate hike and a 32.9% chance of no rate change at the upcoming monetary policy meeting.
Today, all eyes are on the U.S. consumer inflation report for August, which will help shape expectations for next week’s Fed decision. Economists expect the consumer price index to rise +0.4% m/m in August, accelerating from a +0.1% m/m gain in the previous month, partly due to higher gasoline prices. On an annual basis, headline inflation is projected to hold steady at +3.4%. The core CPI, which strips out the more volatile food and energy prices, is expected to increase by a more modest +0.2% m/m, bringing the annual rate down to +2.4%, its lowest level since 2021. That compares with July’s figures of +0.2% m/m and +2.5% y/y.
A hotter-than-expected inflation print would reinforce bets on a Fed rate hike next week, weighing on stocks and bonds, while an in-line or softer print would support the case for a hold, providing relief to stocks and bonds. The S&P 500 Index is expected to move 0.7% in either direction today, based on 85% of the value of the at-the-money straddle, according to Barchart.
The University of Michigan’s U.S. consumer sentiment index will be released today as well. Economists forecast that the preliminary September figure will come in at 51.0, compared with 51.7 in August.
On the earnings front, grocery giant Kroger (KR) is set to report its quarterly results today.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.94%, down -0.58%.
The Euro Stoxx 50 Index is up +0.58% this morning as oil prices retreated, providing some relief to investors. Bank and industrial stocks outperformed on Friday. Still, the benchmark index is on track for a steep weekly loss. Data from the Office for National Statistics released on Friday showed that the U.K. economy unexpectedly grew in July, with activity remaining resilient despite higher energy prices stemming from the Middle East conflict. Meanwhile, European Central Bank Governing Council member Joachim Nagel said on Friday that the central bank may need to raise interest rates further and move them to a level that modestly restrains the economy if the Iran war-driven surge in energy prices continues. The ECB raised the deposit rate by 25 basis points to 2.50% on Thursday, as expected, and policymakers reportedly anticipate further policy tightening, with another increase possible as early as next month. European government bond yields edged higher on Friday. Investor attention now shifts to the August U.S. inflation report, due later in the day. In corporate news, Novo Nordisk (NOVOB.C.DX) fell over -2% after Morgan Stanley downgraded the stock to Underweight from Equal Weight.
U.K. GDP data was released today.
U.K. July GDP rose +0.4% m/m and +1.6% y/y, stronger than expectations of no change m/m and +1.2% y/y.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -1.18%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.93%.
China’s Shanghai Composite Index closed lower and hit a 1-month low today, tracking losses in regional peers as elevated oil prices sapped risk appetite. Non-ferrous metal stocks led the declines on Friday. Semiconductor and other AI-related stocks also slid. In addition, battery stocks fell after Caixin reported that China has temporarily halted construction of new power and energy-storage battery manufacturing projects, pending a year-end review of industry capacity. A separate report from Shanghai Securities News said that projects already approved or under construction are expected to continue, while those still in the planning stage could be suspended. The benchmark index posted a weekly loss. In corporate news, Shanghai Enflame Technology, the last of China’s “four little GPU Tigers,” jumped +179% in its Shanghai debut after the Tencent-backed chipmaker raised 6.12 billion yuan ($911 million) in an initial public offering. Investors are now looking ahead to China’s economic activity data for August, due next week, for further insight into the strength of domestic demand.
Japan’s Nikkei 225 Stock Index closed sharply lower today following a surge in oil prices that sent global bond yields soaring and dampened investor sentiment. Japanese government bond yields climbed to near multi-decade highs on Friday, with the 10-year yield rising seven basis points to 2.985%. Chip-related stocks led the declines on Friday, tracking overnight losses in their U.S. peers. Memory chipmaker Kioxia Holdings tumbled about -7% and chip equipment maker Advantest dropped more than -6%, weighing heavily on the Nikkei. The benchmark index notched a weekly loss. Data released on Friday showed that Japan’s annual wholesale inflation remained elevated in August, strengthening the case for the Bank of Japan to keep raising interest rates to contain upside inflation risks. Separately, a government survey showed that Japanese business sentiment improved in the third quarter to its highest level since 2021. Meanwhile, Reuters reported on Friday that the BOJ is poised to raise interest rates next week, most likely by 25 basis points, and could signal a faster pace of future tightening if price pressures increase the risk of an inflation overshoot. Elsewhere, Japanese Finance Minister Satsuki Katayama said the government will maintain close communication with the U.S. to help ensure orderly foreign exchange markets. The yen edged higher against the dollar on Friday. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed down -2.45% to 29.80.
The Japanese August PPI fell -0.2% m/m and rose +7.6% y/y, compared with expectations of no change m/m and +7.4% y/y.
The Japanese BSI Large Manufacturing Conditions Index stood at 7.6 in the third quarter, stronger than expectations of 2.5.
Pre-Market U.S. Stock Movers
Chip and AI infrastructure stocks edged higher in pre-market trading, with Intel (INTC) and Marvell Technology (MRVL) rising over +1%.
Oracle (ORCL) climbed over +6% in pre-market trading after the company reported stronger-than-expected FQ1 cloud infrastructure revenue.
Adobe (ADBE) fell over -3% in pre-market trading after the Photoshop maker issued soft FQ4 revenue guidance.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Friday - September 11th
The Kroger Co. (KR), Mesabi Trust (MSB), Hooker Furnishings (HOFT).
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.
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