Five things you need to know before the market opens on Monday, October 24:
1. -- Stocks Futures Slip, Dollar Steadies After China Market Slump
U.S. equity futures slipped lower Monday, while the dollar held gains against its global peers, as investors took a cautious stance on risk heading into what could be a make-or-break week for global stock markets.
Weekend data from China indicating a faster-than-expected reading for third quarter GDP in the world's second largest economy was met with skepticism as investors focused on the impact of Premier Xi Jinping's renewed grip on power -- and a third term as President -- following the Communist Party's twice-a-decade congress in Beijing.
China stocks slumped markedly lower in overnight trading, with stocks in Hong Kong suffering their biggest single-day decline since 2008 on the heels of Xi's authoritarian extension of power.
The region-wide MSCI ex-Japan index was marked 1.9% lower heading into the close of trading, while Japan's Nikkei 225 gained 0.31% amid more reported intervention in foreign exchange markets by the Ministry of Finance in order to support the beaten-down yen.
In Europe, bets on a potential easing in the pace of Federal Reserve tightening, suggested late Friday by San Francisco Fed President Mary Daly, offset a weaker-than-expected reading for economic activity around the region, which slumped below the 50 point mark which separates growth from contraction for a fourth consecutive month.
The region-wide Stoxx 600 was marked 0..6% higher in Frankfurt while London's FTSE 100 fell 0.33%, in part based on a firm overnight gain for the pound, which gained on reports of a likely clear winner in the Conservative Party contest to select a new Prime Minister.
In the U.S., Daly's indication Friday that "the time is now to start planning for stepping down" in terms of future rate hikes has not only eased bets on a 75 basis point rate hike for December -- with a similar move in November already locked-in -- but has also pared last week's rise in Treasury bond yields, with benchmark 10-year notes falling to 4.181% in overnight trading from last week's fifteen year high of 4.371%.
Still, with a National Association for Business Economics survey indicating that two thirds of respondents think the economy is either already in, or headed for, recession has stocks in a cautious mood ahead of a key weeks for markets, with more than 160 S&P 500 earnings reports, the first reading of third quarter GDP, October inflation data and central bank rate decisions in Europe and Canada.
Futures contracts tied to the S&P 500 are indicating an 20 point opening bell decline while those linked to the Dow Jones Industrial Average are priced for a 140 point pullback. The tech-focused Nasdaq is priced for a 70 point decline.
2. -- Week Ahead: Big Tech Earnings, GDP, Inflation Data In Focus
Big Tech earnings, the first look at third quarter growth, the last piece of inflation data prior to the Federal Reserve's November rate decision and the deadline for Elon Musk's Twitter takeover will highlight one of the busiest five-day stretches on Wall Street this week.
Around 163 companies are expected to report September quarter earnings this week, with focus likely falling on the market's four largest -- by index weight and overall influence -- tech companies: Alphabet (GOOGL) and Microsoft (MSFT), which publish on Tuesday, and Apple (AAPL) and Amazon (AMZN), which are scheduled for Thursday. Updates from bluechips such as Boeing (BA), Caterpillar (CAT) and General Electric (GE), as well as automakers Ford (F) and General Motors (GM) and oil majors Exxon (XOM) and Chevron (CVX) are also on tap.
On the data front, Thursday's session will begin with a first look at third quarter GDP growth, which is estimated at 2.1%, with a key reading of the Fed's preferred measure of inflation, the core PCE price index, slated for 8:30 am on Friday.
The deadline for Musk's $44 billion Twitter takeover also falls on this Friday, amid reports that many of the banks that provided funding needed to complete the deal are sitting on $13 billion in debt that they can't pass on to private investors.
3. -- Fed Begins 'Pivot' Messaging; Traders Pare Bets On Big Rate Hikes
Bets on another jumbo rate hike from the Federal Reserve by the end of the year are starting to fade amid gentle suggestions from policymakers that they need to be mindful of their impact on the broader economy.
With the Fed's November rate decision now just a week away, traders have effectively locked-in the chances of a 75 basis point rate hike, which would take the Fed Funds rate to between 3.75% and 4%, but are now paring the chances of a similar move in December following comments from San Francisco Fed President Mary Daly on Friday.
"We have to make sure we are doing everything in our power not to overtighten, and we can't pull up too fast, and say we are done," Daly told an event in Monterey, California, echoing suggestions from colleagues such as Chicago Fed President Charles Evans, who has warned that outsized rate hikes could result in businesses pulling back on investment.
Both remarks, while consistent with messaging in minutes of the Fed's September policy meeting, sparked a solid rally on Wall Street Friday and continue to clip Treasury bonds yields. Bets on a 75 basis point rate hike in December, meanwhile, have fallen to 52.6% from around 78% last week, according to the CME Group's FedWatch.
"Earnings expectations will suffer if the labor market really is softening as much as the early October data suggest," said Ian Shepherdson of Pantheon Macroeconomics. "But sight of the end of the tightening is a game-changer nonetheless, and it’s reasonable now to think that it is not far off."
4. -- Boris Johnson Exits Race For UK Prime Minister, Pound Jumps
Boris Johnson, the former U.K. Prime Minister forced to resign earlier this year amid a series of political and government scandals, said Sunday that he will not seek election as leader of the Conservative Party following last week's resignation of Liz Truss.
Johnson claimed to have found support from more than 100 Conservative Party lawmakers -- enough to put him on the party ballot to succeed Truss -- but said it was "not the right time" to challenge the leading contenders: former finance minister Rishi Sunak and Leader of the House of Commons Penny Mourdant.
“There is a very good chance that I would be successful in the election with Conservative Party members — and that I could indeed be back in Downing Street on Friday," Johnson said in a statement. "But in the course of the last days I have sadly come to the conclusion that this would simply not be the right thing to do."
The pound was marked firmly higher against the dollar at 1.1312 in overnight trading following Johnson's leadership withdraw, a move that leaves Sunak as the betting favorite to replace Truss following an all-party vote later this week.
5. -- Tesla Shares Slide After Surprise China EV Price Cut
Tesla (TSLA) shares extended declines in pre-market trading after it cut prices for its China-made cars for the first time this year, suggesting softening demand in the world's biggest market.
Tesla reduced the starter price of its Model 3 sedan by around 5.3%, and cut the cost of its Model Y by 9%, just days after its third quarter earnings reported echoed the impact of rising production costs and indicating narrowing profit margins for the world's most-valuable car company.
The group also said full-year deliveries may fall just shy of its 50% growth target as it "simplifies operations, reduce costs, and improve the experience of our customers."
Tesla shares were marked 3.15% lower in pre-market trading to indicate an opening bell price of $207.69 each.
