Daily Markets: Keep Eye on Treasuries After Data Comes In

Today’s Big Picture

Asia-Pacific equity markets finished the day down across the board, except for Chinese markets, which remain closed until Friday as the country celebrates Golden Week. India’s SENSEX declined 0.44%, Hong Kong’s Hang Seng fell 0.78%, Australia’s ASX All Ordinaries gave back 0.82%, Taiwan’s TAIEX dropped 1.10%, and Japan’s Nikkei closed 2.28% lower. South Korea’s KOSPI played catch up as Korean markets re-opened following the Chuseok and National Day Holidays and saw selling, pushing the index down 2.41% in a broad decline led by Electronic Technology names. European markets are mixed in midday trading and U.S. equity futures point to a mixed open later this morning.

The direction of equity futures could change subject to ADP’s September Employment Change Report, which showed that private payrolls rose much less than expected. ADP reported that private job growth totaled just 89,000 for the month, down from 180,000 in August and below the 160,000 estimate. Soon after stocks begin trading, the market could take another turn depending on what is learned about the services economy and inflationary pressures via back to back reports from S&P Global (SPGI) and the Institute for Supply Management. While the headline figures are expected to paint a slower picture for September, insights on employment and inflation pressures could be a greater focus.

The market’s reaction to that data will be gauged by the response in Treasury yields, especially the 10-year yield, which has been zooming higher over the last few weeks, pressuring stocks, especially small-caps and utilities. Early this morning, the 10-year Treasury yield rose to 4.88% after closing near 4.75% yesterday, and as we prepare today’s Daily Markets, it sits at 4.829%. The growing thought is that yield will continue to close in on 5.0%, adding another layer of pressure to stocks. Investors will want to assess if today’s data as well as Friday’s September Employment Report indicates the move in the 10-year Treasury yield has gotten ahead of itself. If that happens, we could see equities attempt to end the first week of October trading on a positive note.

Looking ahead, the market faces other hurdles including next week’s September CPI and PPI reports, the pickup in September quarter earnings, the resumption of student debt repayments, and questions over the ouster of Kevin McCarthy as speaker and what that could mean for a government shutdown next month.

Data Download

International Economy

While the au Jibun Bank Japan Services PMI was revised higher to 53.8 in September from the 53.3 flash estimate the final September figure declined from a final three-month high of 54.3 in August. Even so, the September data is the 13th consecutive month of growth in Japan’s service sector.

The S&P Global South Korea Manufacturing PMI rose to 49.9 in September 2023 from 48.9 in August, posting the highest reading in 15 months.

Services PMI In the Euro Area increased to 48.70 points in September from 47.90 points in August of 2023. New business fell solidly and at the quickest pace since February 2021 and the September data signaled the strongest rise in input prices in the last four months. Producer prices in the Euro Area fell by 11.5% YoY in August, following the 7.6% decrease in July, and was broadly in line with market expectations of an 11.6% drop. This marked the steepest decline in producer prices on record, driven primarily by tumbling costs for both energy (-30.6% in August). Excluding energy, producer price inflation decelerated to 1.0% year-on-year in August, down from 1.6% in July. Following a 1% decrease in July, retail sales in the Euro Area fell by 2.1% YoY in August, missing the expected decline of 1.2%. For those keeping track, the August print was the 11th consecutive month of contraction for the data.

The S&P Global/CIPS UK Services PMI was revised higher to 49.3 in September 2023 from a preliminary of 47.2, but still pointing to the lowest since January. On the inflation front, the rate of input price inflation eased for the third time in the past four months to its lowest since April 2021 and the rate of prices charged inflation also eased again and was the weakest for 29 months.

Ahead of OPEC+ concluding its meeting today, Saudi Arabia's energy ministry confirmed it will continue its voluntary 1 million barrel per day (bpd) crude supply cut until the end of this year.

Domestic Economy

The House of Representatives made history yesterday when it voted to remove Kevin McCarthy as speaker. North Carolina Rep. Patrick McHenry was named acting Speaker but all business in Congress will be halted until a new speaker is named. While the federal government is funded through November 17, this ouster adds another layer of complication in what is expected to be another funding fight, raising the risk of a government shutdown next month.

At 8:15 AM ET, ADP will publish its September Employment Change Report and the market consensus sees the economy adding 153,000 jobs during the month, down from 177,000 in August.

At 9:45 AM ET, S&P Global will publish its final U.S. Service PMI for September, and it is expected to come in at 50.2, down from 50.5 the prior month. Shortly thereafter at 10 AM ET, ISM will share the findings of its September Non-Manufacturing Index and it is expected to dip to 53.6 from 54.5 the month before. Inside both of those data sets from S&P and ISM, we expect folks will be looking closely at new orders, input and output pricing comments as well as further insights on job creation ahead of Friday’s September Employment Report.

At 10:25 a.m. ET, Fed Governor Michelle Bowman will be speaking at a St. Louis Fed event, and you can rest assured what she says about the path of monetary policy will be of interest.

Markets

Equities continued to trade off as all sectors ended yesterday lower except for Utilities (1.16%), which bounced off of its 4%+ drop from Monday. Consumer Discretionary (-2.43%) fell the most as Nike (NKE) [0.56%] was the only name in the Consumer Discretionary Select SPDR Fund (XLY) to close more than 0.01% higher. Real Estate (-1.82%), Technology (-1.70%), and Financials (-1.58%) followed as relative safety was found in Materials (-0.27%) and Energy, which closed nearly flat down a mere -0.07%. Given the sector price action, it should come as no surprise that all broad indexes were lower. The Dow fell 1.29% and with that result joined the Russell 2000 in being lower for the TYD period ending yesterday. The S&P 500 declined 1.37%, the Russell 2000 gave back 1.69% and the Nasdaq Composite closed 1.87% lower. Shares of Robert Half (RHI) bucked yesterday's downward trend and were bid up 2.49% as markets apparently enjoyed reading through the company’s newly released 2024 Salary Guide.

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

• Dow Jones Industrial Average: -0.44%
• S&P 500: 10.16%
• Nasdaq Composite: 24.77%
• Russell 2000: -1.94%
• Bitcoin (BTC-USD): 65.43%
• Ether (ETH-USD): 38.31%

Stocks to Watch

Before U.S. equity markets begin trading today, AngioDynamics (ANGO), Helen of Troy (HELE), RPM Inc. (RPM), and Tilray (TLRY) are expected to report their latest quarterly results.

Company shares seeing buying in pre-market action include ASML Holdings (ASML), Intel (INTC), and Accenture (ACN) while Nucor Corporation (NUE), Domino’s Pizza (DPZ), and ON Semiconductor Corporation (ON) are coming under some selling pressure.

Intel announced plans to separate its Programmable Solutions Group operations into a standalone business. Shares are being bid up about 2% in pre-market trading.

Shares of Cal-Maine (CALM) were under pressure after the company reported August quarter results that missed top and bottom line “eggspectations.” The quarter’s results were impacted by the outbreak of HPAI, which continued into the start of its current quarter which ends in November.

United Airlines (UAL) ordered 50 Boeing (BA) 787-9 aircraft with an option for an additional 50. United also ordered 60 additional Airbus (EADSY) A321 neo aircraft.

More than 75,000 healthcare workers are preparing for the largest healthcare strike in US history after talks between Kaiser Permanente and a coalition of employee unions failed to produce a resolution. The strike could interrupt health services for nearly 13 million people, primarily in western states as well as the Mid-Atlantic and Washington, DC area.

IPOs

Near-term the calendar for such activity looks rather thin. Readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Accolade (ACCD) and Resources Connection (RGP) are slated to report their quarterly results and share their latest guidance. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Thursday, October 5

• Germany: Imports/Exports – August
• Open: Conagra (CAG), Constellation Brands (STZ), Lamb Weston (LW)
• Close: Levi Strauss

Friday, October 6

• Japan: Leading Economic Index (Preliminary) – August
• US: Employment Report – September
• US: Consumer Credit – August
• US: Total Vehicle Sales, Used Car Prices - September

Thought for the Day

“Life is very short and anxious for those who forget the past, neglect the present, and fear the future.” – Seneca

Disclosures

• Intel Corp (INTC) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity 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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Stocks Economy Earnings Politics Central Banks