Here are five things you must know for Tuesday, September 20:
1. — Stock Futures Lower As Bond Yields Leap
U.S. equity futures edged lower again Tuesday, while Treasury bond yields jumped to multi-year highs, as investors looked to the start of the Federal Reserve’s two-day policy meeting in Washington.
The chances of a 75 basis point rate hike tomorrow, the third in succession, have been largely cemented by interest rate traders, according to the CME Group’s FedWatch. The Fed’s next moves, however, and the level at which it will begin considering a ‘pause’ in rate hikes early next year, continues to elevate following last week’s faster-than-expected August inflation report and concerns that prices pressures have become imbedded into the world’s biggest economy.
That concern is being expressed in the bond market, which 2-year note yield are trading at 3.973%, the highest since November of 2007, in anticipation of a Fed Funds rate that could reach as high as 4.5% early next year.
That move has put the extra yield, or spread, over benchmark 10-year notes at around 46 basis points, even with that paper trading at a 2011 high of 3.514%, raising the prospect of near-term recession as a result of the Fed’s inflation fight.
Elevated bond yields also act as a circuit-breaker for stocks, as the returns challenge the falling dividend yield levels for the S&P 500 and provide an investment alternative for risk-averse fund managers.
The prospect of hawkish rate signaling later this week, with interest rate decisions expected from the Bank of England and the Bank of Japan, was further stoked Tuesday by a surprise 100 basis point rate hike from the Swedish National Bank, which took its key lending rate to 1.75% this morning in Stockholm.
A faster-than-expected inflation reading in Japan, where core prices hit an 8-year high of 2.8% last month, also raised the prospect of currency intervention from the BoJ, with the yen now trading at 24-year lows against the dollar and stoking import price pressures.
The moves have had little impact on the greenback so far, with the U.S. dollar index trading near 20-year highs against its global peers at 109.773, but are pushing stocks lower in both Europe and the United States heading into the Fed’s policy debate.
In Europe, the Stoxx 600 was marked 0.3 % lower in early Frankfurt trading, following on from a 0.97% gain for the MSCI ex-Japan index in Asia.
On Wall Street, futures contracts tied to the S&P 500 are indicating a 13 point opening bell decline while linked to the Dow Jones Industrial Average are priced for a 55 point dip. Futures tied to the tech-focused Nasdaq are indicating a 65 point move to the downside.
2. — Ford Slides On Supply Chain Hit To Q3 Earnings
Ford Motor (F) shares slumped lower in pre-market trading Tuesday after the carmaker cautioned that gummed-up supply chains would clip its third quarter bottom line.
Ford reiterated its full-year its full-year profit forecast, which includes operating earnings of between $11.5 billion and $12.5 billion, even amid what it called “limits on availability of certain parts as well as higher payments made to suppliers to account for the effects of inflation.”
However, Ford said it would likely have as many as 45,000 vehicles that were missing certain components, thus ultimately delaying their sale until the final three months of the year.
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That will mean a hit to both third quarter revenues, as well as its adjusted earnings, which it sees in the region of $1.4 billion to $1.7 billion.
Ford shares were marked 4.76% lower in pre-market trading to indicate an opening bell price of $14.22 each..
3. — United Health Gains As Court OKs Change Healthcare Purchase
UnitedHealth Group (UNH) shares edged higher in pre-market trading after a federal judge denied a request from the Department of Justice to block its proposed merger with healthcare technology group Change (CHNG) .
The DoJ had argued that the $8 billion deal, first unveiled in January, would give UnitedHealth access to healthcare plans offered by rival such as Humana (HUM) and Anthem, while allowing the combined group to service around 95% of the top health insurance companies in the country.
Judge Carl Nichols of the U.S. District Court for the District of Columbia, however, allowed the deal go ahead, provided UnitedHealth agreed to the sale of Change’s claims edit subsidiary, ClaimsXten.
UnitedHealth Group shares were marked 0.45% higher in pre-market trading to indicate an opening bell price of $525.93 each. Change Healthcare shares jumped 7.3% to $27.33 each.
4. — Apple Unveils App Store Prices Hikes in Europe and Asia
Apple (AAPL) shares edged lower in pre-market trading after the group unveiled plans to boost App Store prices in Europe and Asia.
Just weeks after launching its news suite of iPhone 14s, which were priced at the same levels as the iPhone 13 for U.S. customers, Apple said it would increase App Store prices in Europe by around 20%, with a starting level of €1.19. which hikes planned for markets in Japan, east and central Asia and South America.
Apple said earlier this year that it paid App developers around $60 billion over the course of 2021, up from $45 billion the previous year, suggesting it took in around $75 billion in total App Store revenues, retaining around $15 billion for the company itself.
Apple shares were marked 0.41% lower in pre-market trading to indicate an opening bell price of $153.85 each.
5. — Housing Starts Data In Focus As Mortgage Rates Surge
Housing data will be in focus again Tuesday following figures from the National Association of Home Builders indicating the weakest sector sentiment since 1985.
Data on housing starts and building permits for the month of August will be released at 8:30 am Eastern time, with investors expected to see slowdowns in the annual rate of construction, which tends to lag mortgage demand trends.
Last week’s Mortgage Bankers Association data showed new applications were down 1.2%, and are down 30% from their December peak, thanks in part to sticky selling prices and the first bump for 30-year mortgage rates over 6% since the 2008 housing crisis.
The NAHB’s index of builder sentiment, meanwhile, fell to 46 points this month, well below the 50 mark that generally signals growth and extending a decline of nine consecutive months for the benchmark survey, the longest losing streak since 1985.
