U.S. equities are declining, struggling to continue the past two week’s positive momentum. The moves come amid a slow day on the economic and earnings fronts, but both are set to heat up as the week progresses. Global Payments bested estimates and reaffirmed its guidance, and Emerson Electric also beat the Street, while also announcing the sale of a majority stake in its climate unit to Blackstone. Meanwhile, a couple of reads on regional manufacturing showed activity continued to contract. Treasury yields are trading higher and the U.S. dollar is gaining ground, continuing to rebound from a recent drop. Gold and crude oil prices are lower. Stocks in Asia were mixed amid a slew of economic data in the region, and Europe ended higher as investors continued to digest last week’s 75 basis point rate hike by the European Central Bank.
At 12:50 a.m. ET, the Dow Jones Industrial Average is down 0.5%, the S&P 500 Index is declining 0.8%, and the Nasdaq Composite is decreasing 1.1%. WTI crude oil is falling $0.1.39 to $86.51 per barrel, and Brent crude oil is losing $1.13 at $92.64 per barrel. The gold spot price is trading $3.40 lower to $1,641.40 per ounce, and the Dollar Index is advancing 0.8% to 111.51.
Global Payments Inc. (GPN $117) reported adjusted Q3 earnings-per-share (EPS) of $2.48, matching the FactSet estimate. Revenues rose 2.9% year-over-year (y/y) to $2.06 billion, topping the Street's forecast of $2.04 billion on the backs of a 10% increase in its merchant solutions segment and a near 16% jump in sales out of its issuer solutions unit. The payment technology company reaffirmed its full-year guidance of revenue growth of between 10% to 11% and adjusted EPS within a range of $9.52 and $9.75. Shares are lower.
Emerson Electric Co. (EMR $87) posted adjusted fiscal Q4 EPS of $1.53, above the anticipated $1.39, with revenues rising 8.3% y/y to $5.36 billion, mostly in line with forecasts. The industrial conglomerate also said it will raise its quarterly dividend by 1.0% to $0.52 per share. Separately, EMR said it will sell a majority stake in its climate technologies business to Blackstone Inc. (BX $92) in a deal valued at $14 billion, including the assumption of debt, giving BX a 55% stake in the unit. EMR is slightly higher, while BX is lower.
Stocks are falling short of adding to last week's sharp rise, with bond yields and the U.S. dollar pulling back a bit. Elevated Treasury yields and the U.S. dollar have added to global economic pressure and are threatening corporate profits as discussed in the latest Schwab Market Perspective: No Stopping the Fed. Meanwhile, Q3 earnings season has hit a higher gear, and Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her 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.
Additionally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, The End of Earnings Growth?, how the earnings outlook is dimming as the economy slows, which could result in cuts to earnings forecasts and downside for stocks. However, Jeff points out that U.K. earnings have been a surprising outperformer.
Manufacturing activity continues to disappoint
The Dallas Fed Manufacturing Index unexpectedly moved further into contraction territory—a reading below zero—for October. The index fell to -19.4 from -17.2 in September, and compared to the Bloomberg consensus estimate calling for an improvement to -16.8. The index surprisingly deteriorated as the contraction for new orders increased, while growth in production moderated and shipments turned negative. Employment increased slightly and remained comfortably in expansion territory, and inflation pressures were mixed and remained severely elevated, with prices paid moderating, but prices received rising.
The Chicago PMI declined during October, falling further into contraction territory (a reading below 50). The index fell to 45.2 from 45.7 in September—the lowest since June 2020—versus forecasts of a slight rise to 47.7.
Treasury yields are higher, with the yield on the 2-year note gaining 6 basis points (bps) to 4.48%, the yield on the 10-year note rising 2 bps to 4.03%, and the 30-year bond rate increasing 1 bp to 4.14%.
Elevated bond yields and the U.S. dollar have fostered volatility in the markets, with the Fed leading a global monetary policy tightening charge. Schwab's Chief Fixed Income Strategist Kathy Jones discusses this in her article, Markets to Fed: Slow Down, You Move Too Fast, and how, if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it.
Shortly after the opening bell, the economic calendar will bring the Chicago PMI, forecasted to tick higher to a level of 47.7 for October, with a level below 50 the demarcation point between expansion and contraction, as well as the Dallas Fed Manufacturing Activity Index, with economists calling for a level of -16.8 for this month, an improvement from September's -17.2 print, but remaining in contraction territory as denoted by a reading below zero.
Europe higher in cautious trading
Stocks in Europe were higher, as investors appeared cautious amid a number of economic reports, and as the markets absorbed last week's monetary policy decision from the European Central Bank (ECB) to raise its benchmark interest rate by 75 bps for a second time. Eurozone GDP showed growth of 0.2% for Q3, matching expectations but well below the 0.8% expansion posted last quarter, while consumer prices for the region jumped to a record high this month, and above estimates. Meanwhile, retail sales in Germany slipped in October, but much less than forecasts and an improvement from last month's shortfall.
Schwab's Jeffrey Kleintop notes in his latest article, Revenge of the Markets, how markets can have more sway over policymakers than vice versa, as demonstrated in the U.K. recently, as the U.K. announced a new prime minister last week after its former leader resigned following a failed tax-cutting plan that rocked the financial markets, particularly bonds and currencies. Jeff offers three ideas for what markets may compel other policymakers to do next. Mounting inflation worries have also added to the market uneasiness and have been exacerbated by the persistent energy crisis in the region due to the continued war in Ukraine. The euro and British pound were noticeably lower versus the U.S. dollar, while bond yields in the Eurozone and the U.K. gained ground.
The U.K. FTSE 100 Index rose 1.1%, France's CAC-40 Index was up 0.2%, Germany's DAX Index gained 0.4%, Spain's IBEX 35 Index increased 0.3%, while Italy's FTSE MIB Index and Switzerland's Swiss Market Index ended 0.7% higher.
Asia mixed with economic data the focus
Stocks in Asia finished mixed amid a host of economic data in the region. China's official manufacturing PMI for October slipped back into contraction territory—a level below 50—posting a reading of 49.2 from the prior month's 50.1, and the nation's services PMI also fell into contraction for the first time in five months. The country continues to try to stabilize its economy that has been hampered by COVID-induced lockdowns. 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 other economic news, industrial production in Japan was weaker than expected, but retail sales beat estimates. Elsewhere, industrial production out of South Korea deteriorated, while retail sales in Australia were upbeat and above projections.
Japan's Nikkei 225 Index rose 1.8% to its highest level since the end of September, with the yen showing some weakness and remaining at multi-decade lows versus the U.S. dollar. South Korea's Kospi Index gained 1.1%, Australia's S&P/ASX 200 Index increased 1.2%, and India's S&P BSE Sensex 30 Index was 1.3% higher. However, China's Shanghai Composite Index fell 0.8%, and the Hong Kong Hang Seng Index lost 1.8%.
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