The New York pre-market is trading with much smaller losses than those in Europe (Dow Jones futures -0.22%, S&P 500 -0.24%, Nasdaq -0.28%) and is awaiting a flurry of key indicators for the day. In sequence, we will see the August trade balance at 9:30 AM, service PMIs, S&P Global at 10:45 AM and ISM, which usually has a greater impact, at 11 AM, speeches by Fed officials throughout the day, and the Fed’s Beige Book at 3 PM, with a focus on regional activity, inflation, and the labor market.
A first piece of data has already been released and reinforces the impact of high interest rates on the real estate market: weekly requests for housing financing have dropped by 2.9%, reaching the lowest level since December 1996, despite a decrease in the average rate for standard 30-year financing from 7.31% to 7.21%. While awaiting the data, the DXY dollar index (-0.14%, 104.657 points) and Treasury yields are giving back very little of the surge from the previous day: 2-year and 10-year T-notes closed with increases of 9 basis points, indicating a bet on the maintenance of high interest rates for an extended period.
Currently, the 10-year yield is retracing by 1.6 basis points (at 4.252%), and the 2-year yield is down by 1.5 basis points (at 4.951%), hovering around 2023 highs.
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ANALYST RECOMMENDATIONS
- AES Corp (NYSE:AES): RBC Capital maintains its outperform rating with a reduced target price of $23.
- American Electric (NASDAQ:AEP): RBC Capital downgrades to hold from outperform. PT reduced from $103 to $90.
- American Water (NYSE:AWK): RBC Capital maintains its outperform rating with a reduced target price of $169.
- Amgen (NASDAQ:AMGN): HSBC maintains its buy recommendation with a target price of $320.
- Biogen (NASDAQ:BIIB): HSBC maintains its buy recommendation with a target price of $360.
- Broadcom (NASDAQ:AVGO): BNP Paribas Exane maintains its outperform recommendation with a raised target price from $1000 to $1030.
- Centerpoint Energy (NYSE:CNP): RBC Capital maintains its outperform rating with a reduced target price of $33.
- Cms Energy (NYSE:CMS): RBC Capital maintains its sector perform rating with a reduced target price of $64.
- Crowdstrike (NASDAQ:CRWD): Daiwa Securities maintains its buy recommendation with a target price raised from 187 to $194.
- Delta Air Lines (NYSE:DAL): BNP Paribas Exane maintains its outperform recommendation with a target price raised from $64 to $65.
- Dominion Energy (NYSE:D): BMO Capital Markets upgrades to outperform from market perform. PT down 7.4% to $50.
- Duke Energy (NYSE:DUK): RBC Capital maintains its sector perform rating with a reduced target price of $101.
- Edison International (NYSE:EIX): RBC Capital maintains its outperform rating with a reduced target price of $81.
- Enphase Energy (NASDAQ:ENPH): Morgan Stanley maintains its equal weight/in-line rating with a reduced target price of $159.
- Entergy Corp (NYSE:ETR): RBC Capital maintains its outperform rating with a reduced target price of USD 117.
- Exelon Corp (NASDAQ:EXC): RBC Capital maintains its sector perform recommendation with a reduced target price of $45.
- Fedex Corp (NYSE:FDX): JP Morgan maintains a neutral recommendation with a target price increase from 251 to $305.
- First Solar (NASDAQ:FSLR): Morgan Stanley maintains its underweight/in-line rating with a target price increase from 180 to $206.
- Firstenergy Corp (NYSE:FE): RBC Capital maintains its outperform rating with a reduced target price of $41.
- Gilead Sciences (NASDAQ:GILD): HSBC downgrades to reduce from hold. Target price lowered from 122 to $71.
- Intercontinental (NYSE:ICE): Morgan Stanley maintains its equalwt/in-line rating with a reduced target price of $118.
- Johnson & Johnson (NYSE:JNJ): HSBC maintains its hold recommendation with a target price of $175.
- Lululemon (NASDAQ:LULU): Daiwa Securities maintains a neutral recommendation with a target price increase from 365 to $405.
- Nextera Energy (NYSE:NEE): RBC Capital maintains its outperform rating with a reduced target price of $89.
- PPL (NYSE:PPL): RBC Capital downgrades to hold from outperform. PT reduced from USD 33 to $30.
- Salesforce (NYSE:CRM): Daiwa Securities maintains its buy recommendation with a target price increase from $255 to $275.
- Sempra (NYSE:SRE): RBC Capital maintains its outperform rating with a reduced target price of $82.
- Solaredge (NASDAQ:SEDG): Morgan Stanley maintains its equal weight/in-line rating with a reduced target price of $240.
- Southern Copper (NYSE:SCCO): RBC Capital maintains its outperform rating with a target price increased from $78 to $80.
- Southwest Air (NYSE:LUV): BNP Paribas Exane maintains its outperform recommendation with a reduced target price of $34.
- United Airlines (NASDAQ:UAL): BNP Paribas Exane maintains its outperform recommendation with a raised target price from $80 to $88.
- United Health (NYSE:UNH): HSBC maintains its hold recommendation with a target price of $540.
- Walgreens Boots (NASDAQ:WBA): Morningstar maintains its buy recommendation with a reduced target price of $36.
- Zscaler (NASDAQ:ZS): RBC Capital maintains its outperform rating with a raised target price from $162 to $185.
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Oil reverses course after touching $90
Oil prices slipped on Wednesday, but still hovered around nine-month highs, weighed down by a stronger dollar and the waning impact of new supply cuts from two major crude producers.
Saudi Arabia is due to extend its output cut of 1 million barrels per day (bpd) until the end of December, according to a report from a state news agency. Separately, Russia’s Deputy Prime Minister Alexander Novak also said in a statement that Moscow would bring down oil exports by 300,000 bpd until the end of 2023.
Tuesday’s announcements, which surprised traders looking for extensions only until the end of October, sparked a jump in international benchmark Brent crude to above $90 a barrel for the first time this year. The higher prices threatened to ignite renewed global inflation concerns that could influence central bank monetary policy.
Yet the gains were ultimately mitigated by the U.S. dollar, which is exchanging hands near a six-month peak following a string of disappointing economic data releases from China and Europe.
By 05:25 ET, the U.S. crude futures traded 0.7% lower at $86.08 a barrel, while the Brent contract dropped 0.8% to $89.34. Both contracts remain close to their highest level since mid-November.
U.S. services data ahead
U.S. services industry data are set to be released on Wednesday morning, giving Fed policymakers and investors alike fresh insight into the trajectory of the world’s largest economy.
The ISM non-manufacturing purchasing managers’ index is projected to come in at 52.5 in August, down from 52.7 in the prior month. A reading above 50 indicates expansion; below 50, contraction.
The figure serves as a gauge of activity in the services industry, a crucial sector that accounts for over two-thirds of the U.S. economy. At current levels, it hints at U.S. economic resilience despite an unprecedented spike in interest rates since March 2022.
Fed officials will likely be keeping a particularly close eye on any movements in service sector prices. These are typically less responsive to interest rate increases, but still play a crucial role in the central bank’s fight to cool inflation down to its 2% target. A measure of prices paid by services businesses ticked up to 56.8 in July.
Evergrande soars amid stimulus hopes
Shares in real estate giant China Evergrande Group (HK:3333) surged by more than 82%, leading gains in the stocks of other Chinese developers, as hopes grew that Beijing would roll out more measures to support the country’s ailing property industry.
In a commentary published on Wednesday, state-owned newspaper Securities Times backed the removal of policies that restrict property purchases in smaller cities, arguing that there has been a “significant change” in the sector’s supply and demand dynamics.
Over the past week, China has relaxed regulations on home purchases in several major cities in a bid to reinvigorate its domestic property market.
Real estate was the top performing sector on the Hang Seng Index, with Country Garden Holdings (HK:2007) and Logan Property Holdings (HK:3380) rallying by about 21% and 29%, respectively.
Tencent to unveil AI chatbot
Tencent Holdings Ltd (HK:0700) is gearing up to release a new artificial intelligence chatbot this week, the Chinese internet behemoth said on Wednesday, as Beijing continues to bolster its presence in generative AI.
Chinese officials approved AI chatbots for public release last month, firing the starting gun on a race among China’s tech firms to develop these automated services. Tencent peers SenseTime Group, Baidu (NASDAQ:BIDU) and ByteDance launched their own ChatGPT-like services last week.
In a social media post, Shenzhen-based Tencent featured a demo conversation that shows the chatbot helping a user draft promotional materials. The company added that its cloud division will unveil the chatbot at its upcoming Global Digital Ecosystem Summit on Thursday.
Tencent’s Hong Kong-listed shares closed 0.4% lower on Wednesday.