Market Wraps
Watch For:
ADP National Employment Report for October; ISM Report on Business Manufacturing PMI for October; Interest-rate decision; EIA Weekly Petroleum Status Report; Earnings from CVS Health, Kraft Heinz, Mondelez International
Today’s Top Headlines/Must Reads:
– Fed Officials Debate Whether They Have Raised Rates Enough
– UAW Deal Shows Unions Are Winning. How Long Will It Last?
– The Economy Is Great. Why Are Americans in Such a Rotten Mood?
Opening Call:
Stock futures were lower on Wednesday as investors eyed the latest Federal Reserve interest rate decision and comments.
The market is placing a 99.7% chance of the central bank leaving borrowing costs at a range of 5.25% to 5.50%, so it’s the Fed’s accompanying statement and answers from Jerome Powell at his press conference which will carry the heft.
“Powell’s comments will be closely scrutinized for indications of just how long rates are set to stay higher, given the resilience of the economy,” Hargreaves Lansdown said.
“Equities have rallied in the last few sessions, but renewed wariness is set to slink in on Wall Street ahead of the rates decision.”
Swissquote Bank reckons investors may be disappointed if they expect to get a more dovish tone from Powell.
“We know that Powell won’t call the end of the policy tightening after seeing a blowout growth data… The chances are that we won’t hear anything soothingly dovish. ‘The higher yields help us do the job’ is the best it will get,” Swissquote said.
The Treasury’s quarterly refunding statement will also be revealed on Wednesday. Many investors have partly blamed the move of late in benchmark bond yields to 16-year highs on the market’s fear about increased supply of Treasurys.
“Normally this doesn’t get too much attention but given the massive runup in rates over recent months, especially since the last refunding announcement, the concern is that any surprises could help push long-dated yields even higher, although this risk will be much better priced now than it was in August,” Deutsche Bank said.
Premarket Movers
Advanced Micro Devices reported third-quarter adjusted earnings of 70 cents a share, beating analysts’ estimates by 2 cents, but its revenue forecast for the fourth quarter was shy of expectations. Shares fell 2.5%.
Caesars Entertainment was up 4.6% after the company reported third-quarter profit higher than a year earlier as revenue rose 3.7% to $2.99 billion, beating analysts’ estimates.
First Solar reported third-quarter earnings that topped estimates but revenue of $801.1 million that missed forecasts of $904.1 million. The company raised the lower end of its 2023 earnings guidance. The stock rose 4.4%.
Tuesday’s Post-Close Movers
Match Group said it was expecting weaker fourth-quarter results and full-year revenue growth at the low end of its guidance range. The company said that its outlook included more foreign exchange headwinds, as well as deterioration of its business due to challenging macro conditions. Shares fell 7.5%.
Paycom Software issued fourth-quarter and 2024 guidance below analysts’ estimates, with revenue forecast to grow next at around half the rate Wall Street was expecting. Shares fell 32%.
WeWork is planning to file for bankruptcy as soon as next week, WSJ reported late Tuesday. The company, which is considering seeking chapter 11 protections in New Jersey, missed interest payments earlier this month. Shares fell 43%.
Forex:
The dollar could extend gains ahead of the Fed decision, where the central bank is fully expected to leave interest rates on hold but is likely to reiterate that it could raise rates further in the future, MUFG said.
“Powell needs more hard evidence of slowdown before discounting the chance of more rate hikes,” it said.
“With dollar momentum more positive again after yesterday’s rebound, we could see this extend further from here.”
Powell could stress risks of rising inflation and labor market strength, though he could point to rising bond yields tightening financial conditions, MUFG added.
Bonds:
Long-end government bond yields and financial conditions will likely get attention at the Fed’s meeting on Wednesday, but there is still little Powell can say or do on that front, RBC Capital Markets said.
Powell will most likely repeat that “it’s hard to say exactly what drove yields higher, but that it will likely accomplish some tightening for them,” RBC said.
More in-depth discussion about the drivers of the rise in yields is possible, “but we doubt this will translate to a major shift in the Fed’s stance,” it added.
Commerzbank Research said bond investors are hoping for a year-end recovery.
“As sentiment remains shaky, hopes among bond investors are running high that a dreadful September/October will give way to a positive year-end performance, similar to last year.”
The backdrop seems conducive to core inflation coming down and central banks weary of external and real-yield driven tightening of financial conditions, while elevated supply and deficits are well documented, Commerzbank said.
Energy:
Oil prices steadied, having lost further ground on Tuesday, as the war in Gaza for now looked to be confined to the region.
ANZ said that sentiment was weakening on poor Chinese manufacturing data and lower retail margins for refiners.
Metals:
Base metals and gold prices were falling, with all eyes on the Fed meeting.
Gold prices are likely to slip further according to MKS Pamp, who said that “without significant escalation in the Middle East, fatigue sets in and haven prices are at risk of a pullback.”
Today’s Top Headlines
Chipotle’s Labor Costs Are Rising. Customers Will See It in Pricing.
Chipotle Mexican Grill is expecting a significant bump in labor costs next year because of a new law in California. For some of the fast-food chain’s customers, this means higher menu prices.
Starting in April, minimum wage for fast-food workers in California will increase to $20 an hour, up from the state’s current hourly minimum wage of $15.50. The law applies to fast-food chains with at least 60 national locations and will come as the state’s minimum wage is set to rise to $16 an hour in January. Chipotle currently pays California workers in the high teens, around $17 to $18 an hour, said Chief Financial Officer Jack Hartung.
The ‘Ozempic Effect’ on Wall Street Has Gone Overboard
America leads developed nations when it comes to obesity. Those paying close attention to the stock market and recent corporate earnings calls might be forgiven for thinking the problem has been solved.
Call it the Ozempic effect. A new generation of highly effective weight-loss and diabetes drugs known as GLP-1s has led to fanciful assumptions on Wall Street that spell doom for companies that have profited from America’s obesity problem. It has also led to speculation that gigantic opportunities await those that would benefit from the aggregate weight loss.
GSK PLC Raises Guidance After RSV Vaccine Lifts Earnings
GSK PLC raised its guidance after third-quarter net profit rose mainly due to the U.S. launch of its Arexvy vaccine, although it missed analysts’ forecasts.
The British pharmaceutical giant said Wednesday that net profit from continuing operations for the third quarter was 1.46 billion pounds ($1.77 billion), boosted by the vaccine for respiratory syncytial virus, or RSV, compared with GBP759 million a year earlier and a company-compiled consensus of GBP1.87 billion.
China Factory Activity Slides Into Contraction, Caixin PMI Shows
A private gauge of China’s factory activity fell into contraction in October, suggesting continued economic headwinds despite Beijing’s recent efforts to shore up growth.
The Caixin manufacturing purchasing managers index fell to 49.5 in October from 50.6 in September, falling into contractionary territory for the first time in three months, according to data released Wednesday by Caixin Media Co. and S&P Global. The 50-mark separates expansion from contraction.
China’s Economy May Be Getting Back on Its Feet. Investors Are Still Cautious.
China’s economy has showed signs of stabilizing, making fears it could implode seem less realistic. But longer term economic challenges and geopolitical tensions are keeping investors wary, which could limit any recovery in battered Chinese stocks.
Citi Global Chief Economist Nathan Sheets raised the bank’s forecast for 2023 growth in China to 5.3%-even better than Beijing’s official target of 5%-from the 4.7% he expected earlier in the year. In a briefing last week, Sheets said China’s economy looks to be near its worst point for the current cycle as the government steps up monetary and fiscal stimulus.
Trump Disqualification Challenges Face Tests in Two States
A pair of cases unfolding this week will provide an early test of novel legal arguments that Donald Trump should be disqualified from the 2024 presidential race because of his actions surrounding the Jan. 6, 2021 riot at the Capitol.
Courts in Colorado and Minnesota are considering claims that a little-invoked constitutional provision prevents Trump from holding office again. Section 3 of the 14th Amendment, enacted after the Civil War, disqualifies from public office those who swore to defend the Constitution and then “engaged in insurrection or rebellion” against the U.S.
Why a 2023 Virginia Election Is a Proving Ground for 2024
THE PLAINS, Va.-For clues about the strength of both parties’ messages heading into 2024, look no further than this suburban Northern Virginia enclave, where Democrats and Republicans are betting big on a hotly contested state Senate race.
Typically, such local elections don’t have a major impact outside their direct communities. But this one could decide control of the Virginia legislature and Republican Gov. Glenn Youngkin’s ability to enact conservative policies on abortion, taxes and education-making it closely watched in the run up to next year’s presidential race.
U.S. All but Stopped Spying on Hamas in Years After 9/11
WASHINGTON-U.S. intelligence agencies all but stopped spying on Hamas and other violent Palestinian groups in the years after the Sept. 11, 2001, terrorist attacks on the U.S., instead directing resources to the hunt for the leaders of al Qaeda and, later, Islamic State, according to U.S. officials familiar with the shift.
Calculating that Hamas had never directly threatened the U.S. and burdened with other spying priorities, Washington ceded the responsibility to Israel, confident that its aggressive security services would detect any threat, the U.S. officials said. It should have been “a well-placed bet,” said one senior counterterrorism official.
Source: Dow Jones Newswires