U.S. stocks are trading modestly lower in pre-market action with the markets awaiting tomorrow's key September nonfarm payroll report. Inflation pressures that have forced central bank tightening across the world remain a focus of the global markets though optimism has appeared to emerge regarding a potential easing of the pace of tightening, boosting the markets early in the week. Treasury yields are a bit subdued, and the U.S. dollar is regaining some of its footing after stumbling to begin the week. Crude oil prices are modestly lower with the markets digesting yesterday's OPEC+ oil production cut, and gold is trading slightly to the upside. In earnings news, Constellation Brands topped estimates, and Conagra also bested profit projections. In economic news, jobless claims accelerated slightly more than expected. Asia finished mostly higher and Europe is mostly lower as the markets in the region contend with the myriad of headwinds.
As of 9:02 a.m. ET, the December S&P 500 Index future is 12 points below fair value, the DJIA future is 139 points south of fair value, and the Nasdaq Index future is 28 points below fair value. WTI crude oil is decreasing $0.14 to $87.62 per barrel and Brent crude oil is declining $0.05 to $93.32 per barrel. The gold spot price is advancing $3.80 to $1,724.60 per ounce. Elsewhere, the Dollar Index is rising 0.4% to 111.46.
Constellation Brands Inc. (STZ $236) reported adjusted fiscal Q2 earnings-per-share (EPS) of 3.17, topping the $2.82 FactSet estimate, with revenues rising 12.0% year-over-year (y/y) to $2.7 billion, north of the Street's $2.5 billion forecast. The parent of Modelo and Corona beers said it saw continued strength in these businesses, while its wine and spirits unit also grew, driven by U.S. shipment volume growth.
Conagra Brands Inc. (CAG $34) posted adjusted fiscal Q1 EPS of $0.57, above the projected $0.52, with revenues rising 9.5% y/y to $2.9 billion, roughly in line with estimates. The consumer food company said it saw an unfavorable impact from foreign exchange, while its organic sales—excluding divestitures, acquisitions, and foreign exchange—rose 9.7% y/y. CAG reaffirmed its full-year guidance, which includes expected supply chain inefficiency and some incremental volume weakness tied to the new inflation-driven pricing that went into effect early in the quarter.
Despite yesterday's dip, the S&P 500 Index remains higher for the week after rallying on Monday and Tuesday, bouncing back from a string of weekly declines that took the index to levels not seen since 2020. Inflation pressures have persisted, forcing the Fed to aggressively tighten monetary policy and boosted concerns about the economy as discussed in the article, Stock Market Volatility: Recession Worries Flare. Meanwhile, as the markets gear up for the start of Q3 earnings season in a couple weeks, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Earnings: Trampled Under Foot? how the bear market has been driven by multiple compression, making valuations look relatively compelling, but expected weakness in earnings may limit the upside potential for stocks. You can follow Liz Ann on Twitter: @LizAnnSonders.
Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.
Jobless claims accelerate somewhat
Weekly initial jobless claims (chart) came in at a level of 219,000 for the week ended October 1, above the Bloomberg consensus estimate of 204,000 and the prior week's downwardly revised 190,000 level. The four-week moving average ticked higher by 250 to 206,500, and continuing claims for the week ended September 24 rose by 15,000 to 1,361,000, north of estimates of 1,350,000. The four-week moving average of continuing claims fell by 10,250 to 1,370,750.
Treasury yields are nudging higher, with the yield on the 2-year note gaining 3 basis points (bps) to 4.16%, and the yield on the 10-year note up 2 bps to 3.78%, while the 30-year bond rate is little changed at 3.76%.
Bond yields and the U.S. dollar have been bolstered as of late by the Fed's aggressive monetary policy actions as discussed by Schwab's Chief Fixed Income Strategist Kathy Jones in her article, With Inflation Offsides, the Fed Keeps Hiking. The Fed has hiked rates by 75 bps for three-straight meetings, downgraded economic growth forecasts, and increased unemployment rate outlook, as inflation remains the Central Bank's primary concern.
Schwab’s Liz Ann Sonders discusses the impact of the greenback’s recent rise in her latest article, Ripple(s) From Surging Dollar, discussing how while a spike in global market volatility has prompted some investors to think a Fed response is imminent, we caution against thinking that intervention is a bullish development.
Europe lower as volatility continues
Stocks in Europe are trading mostly lower in afternoon action as the currency and bond markets remain volatile, with the euro and British pound continuing to decline versus the U.S. dollar, while bond yields in the U.K. are rising solidly. The choppiness has come from recent monetary policy tightening from central banks around the world, led by the Fed, while the Bank of England said it will buy long-term bonds to try to stabilize its financial markets and the U.K. government scrapped plans to cut taxes for the highest income earners recently to add to the volatility. The markets are also digesting yesterday's oil production cut of 2 million barrels per day by OPEC+, along with the festering inflation backdrop that has seen pricing pressures remain elevated. In economic news, German factory orders fell much more than expected for August, Eurozone retail sales declined in line with estimates for August, and U.K. construction output returned to expansion territory for September. Bond yields in the Eurozone are mixed in choppy trading.
The worrisome inflation picture is being exacerbated by an ensuing energy crisis in the region due to the ongoing war in Ukraine. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, What's Next: Good, Bad, & Ugly, that the persistence of global inflation could determine which of the three paths central banks may follow and which market qualities investors might consider for their portfolios.
The U.K. FTSE 100 Index is down 0.9%, France's CAC-40 Index is declining 0.4%, Germany's DAX Index is dipping 0.1%, Italy's FTSE MIB Index is decreasing 0.5%, Spain's IBEX 35 Index is dropping 1.0%, and Switzerland's Swiss Market Index is trading 0.6% lower.
Asia mostly higher despite host of headwinds
Stocks in Asia finished mostly higher even as the U.S. markets dipped yesterday after a two-day rally. The global markets appeared to continue to find support from the prospect of a deceleration in monetary policy tightening from central banks across the globe. Last week the Bank of England announced that it will purchase longer-term bonds, and earlier this week the Reserve Bank of Australia (RBA) raised its benchmark interest rate by a smaller amount than expected. The tightening monetary policies has caused financial conditions to firm up across the globe. The equity markets showed some resiliency in the face of volatility in the currency and bond markets across the globe, with the U.S. dollar regaining some momentum after dropping sharply earlier in the week. The Japanese yen and China's currency of late have fallen to exacerbate global recession concerns, along with a spike in global bond yields. Adding further downside pressure on currencies in Japan and China, the Bank of Japan and China's central bank have bucked the trend, as China even loosened policy to try to boost the world's second-largest economy that has also been hampered by the impact of COVID-related lockdowns, regulatory crackdowns, real estate issues, and elevated geopolitical tensions with the U.S. The energy markets moved higher after yesterday's OPEC+ decision to cut production by 2 million barrels, while Technology stocks helped lead the markets higher.
Schwab's Jeffrey Kleintop provides commentary on China's situation in his article, China Q&A: Top 5 Questions, discussing various topics including inflationary concerns, currency movements, government policies, and more. In economic news in the region, Australia's export growth rebounded in August.
Japan's Nikkei 225 Index increased 0.7%, with the yen remaining soft versus the U.S. dollar, continuing to sit near multi-decade lows versus the greenback given the divergence of monetary policies. Australia's S&P/ASX 200 Index was little changed, and South Korea’s Kospi Index gained 1.0%. The Hong Kong Hang Seng Index cooled off a bit, declining 0.4% after yesterday's near 6.0% jump, and India's S&P BSE Sensex 30 Index traded 0.3% higher. Volume remained lighter than usual as markets in mainland China remained closed for the Golden Week holiday.
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