Daily Markets: What Will a Fed Pivot Look Like?

Today’s Big Picture

Asia-Pacific equity markets ended today’s session mixed. Japan’s Nikkei rose 0.24%, and China’s Shanghai Composite and India’s SENSEX ended the day essentially flat, up 0.02% and down 0.05%, respectively. Hong Kong’s Hang Seng fell 0.40%, Australia’s ASX All Ordinaries declined 0.53% and South Korea’s KOSPI was 1.08% lower. Taiwan’s TAIEX set the pace, down 1.68% on a broad decline with only Consumer Services gaining on the day but even that was anemic at 0.02%.

By mid-day trading, major European equity indices are down across the board except for the UK, and U.S. futures point to a mixed open later this morning.

Yesterday’s sell-off was sparked by the November ISM Services report’s upside surprise. With little in the way of fresh U.S. economic data and just a handful of earnings reports today investors' focus is once again back on the Fed and its inflation-taming efforts. That puts speculation on the size of its December rate hike back in the mix following the recent string of stronger than expected November data points. We have several pieces of inflation data and other barometers of the economy to be released before the Fed concludes its monetary policy meeting next week. As that data is absorbed, we’ll not only have a better sense of how big next week’s expected rate hike will be but perhaps a clearer picture of what the terminal rate could be.

Data Download

International Economy

Household spending in Japan rose by 1.2% in real terms from the prior year in October, easing from a 2.3% increase a month and compared with the market consensus of 1.0%.

Factory orders in Germany increased by 0.8% MoM in October, after a downwardly revised 2.9% fall in September, easily exceeding market forecasts of a 0.1% rise and expanding for the first time since July. On a YoY basis, November factory orders were down 3.2%.

Domestic Economy

There are no major economic data points being published today. That will change tomorrow with the October Consumer Credit report and Productivity and Unit Labor Cost data for 3Q 2022. Ahead of those reports, the Atlanta Fed GDPNow model sees 2.8% for the current quarter. According to the CME FedWatch Tool, the fed funds futures market is pricing in a 64.1% probability of the terminal rate hitting 5.00-5.25% by mid-2023 compared to a 46.9% probability late last week.

Bloomberg reports the U.S. and European Union are weighing new tariffs on Chinese steel and aluminum as part of a bid to fight carbon emissions and global overcapacity,

Markets

Equities traded off yesterday as investors and some pundits are beginning to float the idea that a Fed pivot might look more like a shift in their inflation target rather than an about-face on rate hikes. Economic numbers continue to point to strength in certain parts of the economy creating worries about the Fed potentially overshooting the final rate target and creating an even larger issue. The Dow was down 1.40%, the S&P 500 fell 1.79%, the Nasdaq Composite declined 1.93% and the Russell 2000 closed 2.78% lower. Sectors were all lower with Energy, Consumer Discretionary, and Financials taking the biggest hits. In individual names, Target Corp (TGT) sold off 5.62% as investors reacted to the retailer’s 10% discount on in-store gift card sales.

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

• Dow Jones Industrial Average: -6.58%
• S&P 500: -16.10%
• Nasdaq Composite: -28.16%
• Russell 2000: -18.04%
• Bitcoin (BTC-USD): -63.43%
• Ether (ETH-USD): -65.86%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, AutoZone (AZO), Conn’s (CONN), Couchbase (BASE), and Signet Jewelers (SIG) will be among the few companies reporting their latest quarterly results.

The Wall Street Journal reports PepsiCo (PEP) is laying off “hundreds” of workers at the headquarters of its North American snacks and beverages divisions.

Axios reports a round of layoffs has begun at GameStop (GME), heavily impacting the company’s blockchain wallet team.

Keurig Dr. Pepper (KDP) reaffirmed its 2022 guidance that calls for mid-single-digit EPS growth from the $1.60 it earned in 2021 and the $1.68 market consensus for 2022. On a constant currency basis, the company sees low-double-digit revenue growth vs. 2021.

Speaking at a UBS conference, Intel’s (INTC) CFO David Zisner said the company did not have "pristine" visibility going into the first quarter and is dealing with inventory digestion from its customers.

SS&C Technologies (SSNC) acquired Complete Financial Ops Fund Services, a Colorado-based fund administration firm that targets private equity funds and family offices.

S&P Global (SPGI) acquired the Norway-based Shades of Green business from the Center for International Climate Research.

NRG Energy (NRG) will acquire 100% of the outstanding equity of Vivint Smart Homes (VVNT) for a total transaction value of $5.2 billion, which consists of approximately $2.8 billion in cash and the assumption of $2.4 billion of debt (net of cash).

Taiwan Semiconductor Manufacturing (TSM) boosted its planned Arizona chip investment to $40 billion up from the previously disclosed $12 billion investment plan.

IPOs

As we head into the holiday season the near-term IPO calendar is fairly light so there are no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

AeroVironment (AVAV), Dave & Buster’s (PLAY), Guidewire Software (GWRE), SentinelOne (S), Sprinkler (CXM), Stitch Fix (SFIX), and Toll Brothers (TOL) are expected to report quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, December 7

• China: Imports/Exports – November
• Japan: Leading Indicators – October
• Eurozone: Employment Change Report, GDP – 3Q 2022
• US: Weekly MBA Mortgage Applications
• US: Productivity & Unit Labor Costs – 3Q 2022
• US: Weekly EIA Crude Oil Inventories
• US: Consumer Credit – October

Thursday, December 8

• Japan: GDP – 3Q 2022
• US: Weekly Initial & Continuing Jobless Claims
• US: Weekly EIA Natural Gas Inventories

Friday, December 9

• China: CPI, PPI - November
• US: Producer Price Index – November
• US: University of Michigan Consumer Sentiment (Preliminary) – December

Thought for the Day

“Tuesday isn’t so bad... it’s a sign I’ve somehow survived Monday.” ~ Anonymous

Disclosures

• Intel (INTC) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• PepsiCo (PEP) is a constituent of the Tematica Research Thematic Dividend All-Stars 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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