U.S. stocks are lower as the new week kicks off, even as China took further measures to ease COVID restrictions. The global markets are digesting a host of November services sector reports that suggested activity around the globe is mostly slowing, but U.S. output surprisingly accelerated. In other economic news, factory orders grew at a faster pace than expected. The data appears to be fostering uncertainty regarding how aggressive the Fed may be next week with its monetary policy decision. Treasury yields are gaining ground, and the U.S. dollar has reversed to the upside. Crude oil prices are choppy after OPEC+ left its production target unchanged, and new restrictions on Russian oil kick in, including an imposed $60 per barrel price cap on Russian oil from the G-7. Gold prices are seeing noticeable pressure. Equity news is relatively light, but Science Applications International topped earnings estimates, and raised its guidance, though V.F. Corp lowered its 2023 outlook. Asia finished mixed, but mainland China and Hong Kong markets rallied, and European stocks are diverging.
At 10:58 a.m. ET, the Dow Jones Industrial Average is down 0.6%, while the S&P 500 Index and the Nasdaq Composite are decreasing 0.9%. WTI crude oil is ticking $0.15 higher to $80.13 per barrel, and Brent crude oil is rising $0.34 at $85.91 per barrel. The gold spot price is trading $19.20 lower to $1,790.40 per ounce, and the Dollar Index is advancing 0.3% to 104.83.
Science Applications International Corp. (SAIC $116) reported adjusted Q3 earnings-per-share (EPS) of $1.90, above the $1.73 FactSet estimate, as revenues rose 1.0% year-over-year (y/y) to $1.91 billion, slightly topping the $1.86 billion that the Street had anticipated. The science, engineering, and technology application consulting services company noted momentum in new business capture and on-contract growth during the quarter. SAIC raised its full-year guidance. Shares are trading solidly higher.
V.F. Corporation (VFC $31) lowered its 2023 guidance, citing the impact of weaker-than-anticipated consumer demand across its categories, notably in North America, which is resulting in a more elevated-than-expected promotional environment. VFC also named Benno Dorer as its interim President and CEO. Shares are trading noticeably to the downside
As the curtain comes down on Q3 earnings season, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Disappearing Act: Earnings, how earnings weakness is starting to materialize across a broader swath of industries, with hits coming from a strong dollar, weaker demand, and aggressive monetary policy.
November services sector activity reports top forecasts
The Institute for Supply Management (ISM) Services Index (chart) for November showed an unexpected acceleration in growth (a reading above 50) for the key services sector. The index increased to 56.5, compared to the Bloomberg consensus estimate of a decline 53.5 from October's 54.4 reading. Business activity jumped above the 60 level, and employment also expanded. Prices dipped but remained elevated at 70.0.
The ISM said, supplier deliveries continued to improve due to increased capacity and shorter lead times that led to improved supply chain and logistics performance, while a new fiscal period and the holiday season have contributed to stronger business activity and increased employment.
The final read on the S&P Global U.S. Services PMI Index for November was revised slightly higher but remained in contraction territory (a reading below 50). The index was adjusted to 46.2, versus expectations to be unrevised at the preliminary 46.1 reading. The services PMI was below October's 47.8 level.
Factory orders (chart) for October rose 1.0% month-over-month (m/m), above forecasts of a 0.7% gain, and versus the prior month's unrevised 0.3% rise. Durable goods orders—preliminarily reported two weeks ago—was adjusted higher to a 1.1% gain from the previously reported 1.0% m/m increase for October, where it was expected to remain, and excluding transportation, orders were unrevised at a 0.5% increase, matching forecasts. As well, October's final read on nondefense capital goods orders excluding aircraft—considered a proxy for capital spending—was downwardly adjusted to a 0.6% m/m increase from a 0.7% rise in the preliminary reading.
Treasury bond rates are moving higher, as the yield on the 2-year note is gaining 5 basis points (bps) to 4.35%, the yield on the 10-year note is rising 6 bps to 3.57%, and the 30-year bond rate is up 3 bps to 3.59%.
Inflation and a tight labor market have been driving factors behind the aggressive monetary policy from the Federal Reserve. However, last week Fed Chairman Jerome Powell suggested that the Central Bank may decelerate the pace of aggressive rate hikes after raising rates by 75 bps for four-straight meetings. Schwab's Liz Ann Sonders notes in her latest article, U.S. Outlook: How Many More Times, Fed?, that Powell, among other Fed officials, has seemingly shifted his attention from the rear-view mirror to the windshield. Inflation is a lagging indicator, but the impact of monetary policy changes is in the future. Additionally, as noted in the latest . Additionally, as noted in the latest Schwab Market Perspective: Stress Cracks, as the Federal Reserve continues to ratchet up the pressure with higher interest rates, cracks are beginning to appear beneath the surface of the U.S. economy.
Today's data kicked off the economic week that will offer some key data points that could shape market action. The first look at the November inflation picture will likely take on added interest, particularly with the Fed's December monetary policy decision on the horizon, with the Producer Price Index (PPI) set to get the ball rolling. Meanwhile, initial jobless claims for the week ended December 3, the MBA Mortgage Applications Index for the week ended December 2, the final read on Q3 nonfarm productivity and unit labor costs, October's trade balance, and consumer credit are all scheduled for release. Rounding out the docket will be the preliminary University of Michigan Consumer Sentiment Index for December.
Europe mixed following data and with oil in focus
Stocks in Europe are mixed in late-day action as the global markets monitor the latest events in China, while also digesting a host of economic data. November Services PMIs out of the Eurozone and the U.K. both showed that output contracted, while Eurozone retail sales for October fell more than anticipated. Moreover, Eurozone December investor confidence improved more than expected but remained solidly in negative territory. Signs of slowing economic growth amid the backdrop of aggressive monetary policy tightening have emerged and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks. You can follow Jeff on Twitter: @JeffreyKleintop. The oil markets are in focus and are rising after OPEC and its allies, known as OPEC+, held its production plans steady, while the G-7 imposed a $60 per barrel price cap on Russian oil. Additionally, Europe's new sanctions on Russian oil are set to kick in today. The euro is nearly unchanged versus the U.S. dollar, and the British pound has turned lower, while bond yields in the Eurozone are mixed and rates in the U.K. are falling.
The U.K. FTSE 100 Index is up 0.3%, and Switzerland's Swiss Market Index and Spain's IBEX 35 Index are little changed, while France's CAC-40 Index is down 0.6%, Germany's DAX Index is declining 0.5%, and Italy's FTSE MIB Index is decreasing 0.2%.
Asia mixed but China and Hong Kong stocks rally
Stocks in Asia traded mixed as mainland Chinese and Hong Kong stocks jumped after China reportedly further relaxed some of its COVID-related restrictions. In his latest article, Risk for 2023: China Reopening, Schwab's Jeffrey Kleintop notes that Chinese officials may be preparing to bring an end to China's zero-COVID policy but reopening the world's second-largest economy could bring inflationary challenges. Meanwhile, the markets reacted to Friday's stronger-than-expected U.S. November labor report and what the implications are for the Fed's aggressive monetary policy tightening campaign as optimism increased last week that the Central Bank may slow down the pace of rate hikes.
China has also delivered more stimulus measures recently, including lowering the reserve requirements for its largest banks and more measures to try to help its struggling property market. A flood of November Services PMIs in the region dominated the economic calendar, with Japan's output clinging to expansion territory, and growth out of India accelerating, though output in Australia and China remained in contraction territory.
Japan's Nikkei 225 Index rose 0.2%, with the yen holding onto last week's gains versus the U.S. dollar. China's Shanghai Composite Index rallied 1.8%, the Hong Kong Hang Seng Index led the way, jumping 4.5% to extend last week's strong rally, and Australia's S&P/ASX 200 Index advanced 0.3%. However, South Korea's Kospi Index dropped 0.6%, and India's S&P BSE Sensex 30 Index dipped 0.1%.
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