Daily Markets: Markets Gear Up For Fed Meeting

Today’s Big Picture

Asia-Pacific equity indexes ended today’s session up across the board, with Japan’s Nikkei gaining 0.33%, India’s Sensex 0.62%, Taiwan’s TAIEX 0.68%, Australia’s ASX All Ordinaries 1.63%, South Korea’s KOSPI 1.81%, and China’s Shanghai Composite 2.62%. Hong Kong’s Hang Seng had a big day, up 5.23% on a broad rally led by Consumer Services on speculation of the easing of covid restrictions. Of the 50 stocks in the index that represent approximately 60% of Hong Kong’s total market capitalization, only one name was down today, a bank holding company.

By mid-day trading, European equity indices are up across the board and U.S. futures point to a positive start to the month of November.

Yields on Treasuries have moved lower but investors are waiting for the final set of economic data before the Fed’s monetary policy meeting concludes tomorrow afternoon. Of late the market has been in a tug of war between whether the Fed will continue with its current pace of interest rate hikes or reduce the size of their December and February hikes. It has been noted that while the 2-year and 10-year part of the yield curve has been inverted for some time, that inversion is starting to creep into the shorter end of the curve. This is beginning to fuel speculation the Fed may be closer to winding down its tightening efforts as shorter parts of the curve inverting indicate a stronger signal.

What does that signal? An inverted yield curve is usually interpreted as a signal of an impending recession and readers should remember Powell and other Fed officials acknowledged the potential for some pain as part of its inflation-taming efforts. Today’s economic data could give the Fed sufficient cover to remain on its current path, but as we enter 2023, the odds of smaller monetary policy steps are increasingly likely.

Data Download

International Economy

The au Jibun Bank Japan Manufacturing PMI was at 50.7 in October, unchanged from the flash reading and slightly lower than September’s 50.8 final reading. The October final print was the softest pace in factory activity since a fall in January 2021, with output and new orders falling for the fourth straight month.

The Caixin China General Manufacturing PMI rose to 49.2 in October from September's 4-month low of 48.1 and a tad better than the market consensus of 49.0. Even so, the October figure marketed the third consecutive month of declines amid COVID restrictions. Output and new orders fell at softer paces, while buying levels grew for the first time since July. Overseas demand, however, dropped for the third month in a row.

The S&P Global/CIPS UK Manufacturing PMI was revised slightly higher to 46.2 in October from a preliminary estimate of 45.8 but still pointed to the steepest contraction for the data since May 2020. New orders dropped the most in two-and-a-half years, with new export business decreasing for the ninth month in a row.

Domestic Economy

At 9:45 AM ET, S&P Global will publish the final reading for its October U.S. Manufacturing PMI. Following the recent flash reading, the market is expecting a print of 49.9, down from September’s final reading of 52. Soon thereafter at 10 AM ET, the Institute of Supply Management will publish its take on the domestic manufacturing economy during October. As that report is released so will the one for September Construction Spending as well as the September JOLTs Job Openings report.

A week ahead of midterm elections and with U.S. gasoline prices still up more than 10% vs. year-ago levels according to AAA, President Joe Biden said he’d seek to impose higher taxes on oil companies that record “windfall” profits without reinvesting in production.

Markets

Yesterday saw the markets take a slight pause as the Russell 2000 closed essentially flat, up a mere 0.003% while the Dow was off 0.39%, the S&P 500 was down 0.75% and the Nasdaq Composite fell 1.03%. All sectors except for Energy were down, led by Communications Services and Technology names. Individual companies breaking out yesterday included Wynn Resorts (WYNN) which jumped 9.61% on an SEC filing that Houston Rockets and Golden Nuggets Casino owner Tilman Fertitta acquired a 6.1% stake in the company.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -9.92%
• S&P 500: -18.76%
• Nasdaq Composite: -29.77%
• Russell 2000: -17.75%
• Bitcoin (BTC-USD): -55.80%
• Ether (ETH-USD): -57.28%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, AGCO Corp. (AGCO), Commvault Systems (CVLT), Eaton (ETN), Eli Lilly (LLY), Fox Corp. (FOXA), Idexx Labs (IDXX), Leidos (LDOS), LGI Homes (LGIH), Molson Coors (TAP), SoFi Technologies (SOFI), Triton International (TRTN), (Uber), and Zebra Tech (ZBRA) are expected to be among the companies reporting their latest quarterly results.

For its September quarter, NXP Semiconductor (NXPI) reported EPS of $2.79, besting the consensus forecast by $0.04 per share. Revenue for the quarter rose 20.4%YoY to $3.44 billion, slightly ahead of the consensus forecast. The company shared that while it remains capacity-constrained it is seeing “uncertainties in the macro environment" and guided current quarter revenue to $3.2-3.4 billion vs. the $3.41 billion consensus.

Even though Herbalife (HLF) reported quarterly EPS that topped expectations on revenue that matched consensus forecasts, the company withdrew its prior 2022 guidance “given the rapidly shifting macroeconomic sentiment and backdrop, as well as increased volatility in the marketplace.”

September quarter results at Goodyear Tire (GT) fell short of consensus expectations, moreover, it shared that it now expects ”the continuation of many of the same underlying trends we saw during the third quarter.” In addition, the company shared it now sees cost inflation peaking in the December quarter, not the recently completed September one. Based on today's spot rates, it is now forecasting YoY cost increases of $300-$400 million in 1H 2023, with the majority coming in the March quarter.

Existing and potential investors in gaming companies like Las Vegas Sands (LVS) and Wynn Resorts will want to note the Macau Gaming Inspection and Coordination Bureau reported October 2022 gross revenue fell 10.7% YoY and 49.6% MoM to HKD 3.899 billion.

XPeng (XPEV) reported deliveries of 5,101 Smart EVs in October, down ~40% MoM and ~50% YoY. NIO (NIO) delivered 10,059 vehicles in October, up 174.3% YoY but down 7.5% MoM. Li Auto (LI) delivered 10,052 vehicles in October, up 31.4% YoY but 13% lower compared to September.

Pilots at Delta Air Lines (DAL) voted to authorize a strike if negotiators cannot reach an agreement on a new employment contract. According to Delta, "significant progress" has been made in the contract negotiations and only a few issues have been left to resolve.

GameStop (GME) announced the official launch of the GameStop NFT Marketplace with ImmutableX Pty Limited, which unlocks access to web3 games and NFT gaming assets to GameStop players.

Reuters reports Tesla (TSLA) intends to start mass production of its Cybertruck at the end of 2023

IPOs

As of now, it looks like a quiet week on the IPO front. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Airbnb (ABNB), Caesars Entertainment (CZR), Cheesecake Factory (CAKE), Chegg (CHGG), Cirrus Logic (CRUS), Citrix Systems (CTXS), Denny’s (DENN), Electronic Arts (EA), Freshpet (FRPT), Freshworks (FRSH), Match Group (MTCH), OneSpan (OSPN), and Yum China (YUMC) are slated to be among the dozens of companies reporting quarterly results after today’s market close. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, November 2

• Eurozone: S&P Global Final Eurozone Manufacturing PMI – October
• US: Weekly MBA Mortgage Applications
• US: ADP Employment Change Report – October
• US: Weekly EIA Crude Oil Inventories
• US: FOMC Rate Decision

Thursday, November 3

• China: Caixin China General Services PMI – October
• S&P Global/CIPS UK Services PMI – October
• UK: Bank of England Interest Rate Decision
• US: Challenger Job Cuts Report – October
• US: Weekly Initial & Continuing Jobless Claims
• US: Productivity – 3Q 2022
• US: S&P Global Final US Services PMI – October
• US: Factory Orders – September
• US: ISM Non-Manufacturing Index – October
• US: Weekly EIA Natural Gas Inventories

Friday, November 4

• Japan: Au Jibun Bank Japan Services PMI – October
• Eurozone: S&P Global Eurozone Composite PMI
• Eurozone: Producer Price Index - September
• US: Employment Report – October

Thought for the Day

“The key is not to prioritize what's on your schedule, but to schedule your priorities.” ~ Stephen Covy

Disclosures

• Varonis (VRNS) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Tesla (TSLA), XPeng (XPEV), Nio (NIO), Li Auto (LI), are constituents of the Tematica BITA Cleaner Living Index
• Tesla (TSLA), XPeng (XPEV), Nio (NIO), Li Auto (LI), are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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