Stock futures higher as inflation test looms; CPI data likely mixed, but trending slowly downward; Taiwan semi posts robust earnings, muted outlook; Applied Materials cuts profit forecast on U.S.-China export rules and Delta Air lines earnings in focus amid solid travel demand.
Here are five things you must know for Thursday, October 13:
1. — Stock Futures Higher As Inflation Test Looms
U.S. equity futures bumped higher Thursday, while the dollar held steady against its global peers and Treasury yields ticked lower ahead of what could be a crucial reading for September inflation in the world’s biggest economy.
Minutes from the Federal Reserve’s September policy meeting, where officials agreed to their third consecutive 75 basis point rate hike, revealed discussions that focused on the need to tame the fastest inflation in four decades even if it were to trigger a slowdown in broader economic growth.
The Fed’s determination in seeing through its inflation fight, even as it conceded the need to monitor the impact of future rate hikes on growth prospects, puts even more emphasis on today’s CPI reading, which is expected to show a modest deceleration in the headline rate but an uptick in core price pressures.
The CME Group’s FedWatch tool still suggests at least an 83% chance of another jumbo hike next month, which would take the Fed Funds rate to a range of between 3.75% and 4%, although bets on smaller moves in December are also beginning to materialize.
The Fed’s reaction function remains the market’s most potent concern, however, even with bank earnings slated for Friday that are set to kick-off the third quarter reporting season.
Profits for S&P 500 companies are expected to grow by 4.1% to a collective $464 billion before rising modestly to around 5.2% over the final three months of the year, according to data from Refinitiv.
Central bank action remains pivotal for markets in Europe, as well, with traders focused on the Bank of England’s emergency bond buying program in Britain, which is set to conclude Friday, and the European Central Bank’s hawkish signaling on rates and quantitative tightening following the confirmation of the fastest rate for inflation in Germany in more than seven decades.
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500, which is riding a six day losing streak, are indicating a 16 point opening bell gain, while those linked to the Dow Jones Industrial Average are priced for a 140 point advance. Contracts tied to the tech-focused Nasdaq are indicating a 22 point gain.
Benchmark 10-year note yields eased to 3.910% in overnight trading while the dollar index, which tracks the greenback against a basket of its global peers, was marked 0.13% lower at 113.140.
Overnight in Asia, the region-wide MSCI ex-Japan benchmark fell 1%, paced by declines for China-based tech stocks following new rules that restrict U.S. chip exports, while the Nikkei 225 was marked 0.6% lower on the session in Tokyo as the yen tested a fresh 24-year low of 146.79 against the U.S. dollar.
In Europe, the region-wide Stoxx 600 index was down 0.13% with Britain’s FTSE 100 trading little-changed from last night’s close in London.
2. — CPI Data Likely Mixed, But Trending Slowly Downward
The Commerce Department’s September inflation report, expected prior to the start of trading Thursday, is unlikely to provide clarity on the direction of consumer prices pressures heading into the final months of the year.
Analysts are expecting a mixed set of figures from the 8:30 am Eastern time data release, with headline inflation slowing to an annual pace of 8.1%, but showing a modest month-on-month increase thanks in part to rent and airline ticket price increase.
Core consumer prices, which strip out volatile costs such as food and energy, are likely to indicate the opposite: a faster year-on-year trend and slowing monthly components.
Investors, then, are likely to focus on the broader trends evident from today’s release, which appear to suggest that inflation is moderating — but only very slowly — from the June peak of 9.1%
Any suggestion of a move back towards that pace, however, will be seen as cementing the case for not only a fourth consecutive 75 basis point rate hike from the Fed next month, but a ‘higher for longer’ Fed Funds rate heading into the start of next year.
3. — Taiwan Semi Posts Robust Earnings, Muted Outlook
Taiwan Semiconductor Mfg. Co. Ltd., (TSM) – Get Taiwan Semiconductor Manufacturing Company Ltd. Report the world’s biggest contract chipmaker and a lead supplier for Apple Inc. (AAPL) – Get Apple Inc. Report iPhones, posted its strongest quarterly profits in two years, but struck a downbeat note for the chip sector heading into 2023.
TSMC said its net profit for the three months ending in September was pegged at T$280.9 billion, with revenues rising 36% from last year to $20.23 billion. That growth rate will slow to around 29% over the final months of the year, TSMC said, thanks in part to a slowdown in global demand and the broader impact of U.S. export restrictions of high-tech chips to China-based companies.
That compelled the group to lower its 2022 capex forecast to around $36 billion, from a summer estimate of between $40 billion and $44 billion, citing supply chain challenges and the softer near-term outlook.
TSMC’s U.S.-listed shares were marked 3.1% higher in pre-market trading Thursday to indicate an opening bell price of $66.10 each.
4. — Applied Materials Cuts Profit Forecast On U.S.-China Export Rules
Applied Materials (AMAT) – Get Applied Materials Inc. Report shares slumped lower in pre-market trading after the semiconductor equipment maker cut its current quarter sales outlook following changes to U.S. rules on chip exports to China.
Applied Materials said it sees adjusted earnings in the region of $1.54 to $1.78 per share, down from its prior range of 1.82 to $2.18 per share. Revenues were seen at around $6.4 billion, with margin for error of $250 million on either side, down from its prior forecast of $6.65 billion.
“Applied is pursuing additional export licenses and authorizations where needed,” the Santa Clara, California-based group said. “The company currently expects the new regulations will impact net sales in the first quarter of fiscal 2023 by a similar amount as in the current quarter.”
Applied Materials shares were marked 0.7% lower in pre-market trading to indicate an opening bell price of $75.47 each.
5. — Delta Air Lines Earnings In Focus Amid Solid Travel Demand
Analysts expect Delta to post a bottom line of $1.54 per share, up from a narrow profit of 30 cents per share over the same period last year. Group revenues are expected to benefit from the ongoing surge on post-pandemic travel demand, with a top line of $12.88 billion, a gain of more than 2% from third quarter 2019 levels.
Earlier this week, rival American Airlines AAL said it expects third quarter revenues to be firmly higher than pre-pandemic levels, as higher ticket prices look to offset a decline in overall flight capacity.
Total revenue per available seat mile for American Airlines, a key industry metric, is expected to rise 25% from 2019 levels, offsetting a 9.6% reduction in overall capacity, American Airlines said in an investor update ahead of its formal earnings release on October 20.
Delta shares were marked 1.7% higher in pre-market trading to indicate an opening bell price of $29.70 each.