Morning Markets
December E-Mini S&P 500 futures (ESZ23) are up +0.59%, and Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.48%, both at 23-month highs.
Stock index futures this morning are extending Wednesday’s gains after the Fed signaled an end to its tightening campaign. The Fed also pivoted toward reversing its rate hikes with projections for three 25 bp rate cuts next year. In addition, Fed Chair Powell did not push back against market expectations for 2024 rate cuts as opposed to the Fed’s previous theme that another rate hike was possible.
Gains in European stocks are also giving U.S. stocks a boost as expectations for easier policies from the ECB and BOE have knocked government bond yields lower and fueled a rally in equities. The Euro Stoxx 50 climbed to a 22-year high today after the ECB and BOE kept interest rates unchanged.
Stronger-than-expected U.S. weekly jobless claims and Nov retail sales failed to curb the bullish euphoria in asset markets.
U.S. weekly initial unemployment claims unexpectedly fell -19,000 to an 8-week low of 202,000, showing a stronger labor market than expectations of no change at 220,000.
U.S. Nov retail sales unexpectedly rose +0.3% m/m, stronger than expectations of -0.1% m/m. Also, Nov retail sales ex-autos rose +0.2% versus expectations of a -0.1% m/m decline.
U.S. Nov import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of a -0.2% m/m decline.
The markets are discounting the chances for a -25 bp rate hike at 18% at the Jan 30-31 meeting and 97% at the following March 19-20 meeting.
U.S. and European government bond yields today are lower. The 10-year T-note yield dropped to a 4-1/2 month low of 3.930% and is down -6.6 bp at 3.951%. The 10-year German bund yield fell to an 8-1/2 month low of 2.029% and is down -7.2 bp at 2.101%. The 10-year UK gilt yield fell to a 7-1/4 month low of 3.664% and is down -9.0 bp at 3.740%.
Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.75%. China’s Shanghai Composite Index closed down -0.33%. Japan’s Nikkei Stock Index closed down -0.73%.
The Euro Stoxx 50 today is moderately higher and climbed to a 22-year high. The Fed’s signal for rate hikes next year sparked a risk-on mood in European equity markets, with interest rate-sensitive real estate stocks leading gains. Also, optimism that the ECB and BOE will signal easier policies has lowered government bond yields and is bullish for stocks. The 10-year German bund yield dropped to an 8-1/2 month low today, and the 10-year UK gilt yield fell to a 7-1/4 month low. European stocks maintained their gains after the ECB and BOE kept interest rates unchanged following their policy meetings.
The ECB, as expected, kept its deposit rate unchanged at 4.00% and said it would accelerate its balance-sheet reduction by allowing some bonds maturing from its pandemic emergency purchase program (PEPP) to roll off before the end of next year. The ECB will reduce its PEPP portfolio by 7.5 billion euros a month on average over the second half of 2024 and intends to discontinue reinvestment under PEPP at the end of 2024.
The ECB cut its 2023 Eurozone GDP estimate to 0.6% from a Sep estimate of 0.7% and cut its 2023 core CPI estimate to 5.0% from 5.1%.
The BOE voted 6-3 to keep its benchmark rate unchanged at 5.25% and said "restrictive" policy will likely be needed for an extended period. Three policymakers wanted to raise rates by +25 bp, and BOE Governor Bailey said there are "still some ways to go" on inflation.
Swaps tied to ECB meeting dates have now priced in a 72% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting.
China’s Shanghai Composite index today closed moderately lower on economic concerns. Chinese economic reports due Friday for Nov industrial production and property investment are expected to weaken from October, signaling the economy lost momentum. Also, deflationary concerns may weigh on retail sales growth. The ongoing property slump is still likely to weigh on investment, offsetting any strength in manufacturing activity. Weakness in the reports will likely boost calls for more government stimulus. The PBOC is expected to hold the rate on its one-year policy loans, the medium-term lending facility, at 2.5% on Friday. On the positive side, tourism-related stocks rose after the government said it would launch a 3-year plan to promote inbound tourism.
Japan’s Nikkei Stock Index closed moderately lower as a surge in the yen undercut Japanese exporter stocks. The yen jumped to a 4-1/2 month high against the dollar today after the Fed on Wednesday signaled an end to its interest rate hikes. Japanese bank stocks retreated today as falling bond yields dampened expectations for higher profitability. Japanese stocks also fell due to political turmoil after Japanese Prime Minister Kishida said he would reshuffle his cabinet following the deepening political funding scandal within his ruling party. On the positive side, Japan Oct core machine orders unexpectedly rose, and Oct industrial production was revised higher.
Japan Oct core machine orders unexpectedly rose +0.7% m/m, stronger than expectations of -0.4% m/m.
Japan Oct industrial production was revised upward by +0.3 to +1.3% m/m from the initially reported +1.0% m/m.
Pre-Market U.S. Stock Movers
Moderna (MRNA) jumped more than +10% in pre-market trading after results from a study showed patients with severe melanomas who received a vaccine developed by Moderna and used Merck’s Keytruda were 49% less likely to die or have their cancer return than those who got Keytruda alone.
Mining stocks are climbing today, with the price of gold jumping more than +2%. As a result, Newmont (NEM) and Freeport McMoran (FCX) are up more than +1%.
Illumina (ILMN) climbed more than +3% in pre-market trading after Wolfe Research initiated coverage of the stock with an outperform recommendation and a price target of $175.
Live Nation Entertainment (LYV) rose more than +2% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $110.
Paychex (PAYX) gained more than +1% in pre-market trading after Barclays upgraded the stock to equal weight from underweight.
Beacon Roofing Supply (BECN) rose more than +1% in pre-market trading after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $103.
Adobe (ADBE) tumbled more than -5% in pre-market trading after forecasting 2024 Digital Media net new annualized recurring revenue of about $1.90 billion, weaker than the consensus of $2.02 billion.
Nucor (NUE) fell more than -2% in pre-market trading after forecasting Q4 EPS of $2.75-$285, below the consensus of $3.11.
Mueller Water Products (MWA) dropped more than -5% in pre-market trading after forecasting Q1 2024 consolidated net sales of $245 million-$255 million, weaker than the consensus of $283 million.
AerSale (ASLE) tumbled more than -5% in pre-market trading after holders offered 4 million shares via RBC Capital Markets. Morgan Stanley downgraded the stock to equal weight from overweight.
Stanley Black & Decker (SWK) slid more than -1% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from equal weight.
Northrop Grumman (NOC) fell more than -1% in pre-market trading after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $450.
Earnings Reports (12/14/2023)
Costco Wholesale Corp (COST), DZS Inc (DZSI), Jabil Inc (JBL), Lennar Corp (LEN), Quanex Building Products Corp (NX), RCI Hospitality Holdings Inc (RICK), Scholastic Corp (SCHL).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
