Morning Markets
March E-Mini S&P 500 futures (ESH24) are down -0.07%, and March Nasdaq 100 E-Mini futures (NQH24) are down -0.09%.
Stock index futures this morning erased most of their overnight losses as bond yields fell on a friendly U.S. Dec PPI report, bolstering expectations for Fed rate cuts. Stock indexes initially moved lower on weakness in airline stocks in pre-market trading after Delta Air Lines backed away from its 2024 profit target due to high costs. Also, most Q4 bank earnings results released today were weaker than expected and weighed on the overall market, with Bank of America’s CEO citing a “very disappointing” fourth quarter and Bank of America saying high-interest rates hit its trading revenue.
The threat of a wider war in the Middle East is also weighing on stocks today and pushed crude prices up more than +3% to a 2-week high after the U.S. and its allies launched joint air strikes against Houthi rebels in Yemen.
U.S. Dec PPI final demand fell -0.1% m/m and rose +1.0% y/y, weaker than expectations of +0.1% m/m and +1.3% y/y. Dec PPI ex-food and energy eased to +1.8% y/y from +2.0% y/y in Nov, weaker than expectations of no change at +2.0% y/y and the smallest increase in 3 years.
The markets are discounting the chances for a -25 bp rate cut at 7% at the next FOMC meeting on Jan 30-31 and 90% for that same -25 bp rate cut for the following meeting on March 19-20.
U.S. and European government bond yields today are lower. The 10-year T-note yield is down -1.6 bp at 3.965%. The 10-year German bund yield is down -5.2 bp at 2.184%. The 10-year UK gilt yield is down -4.5 bp at 3.797%.
Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.63%. China’s Shanghai Composite Index closed down -0.16%. Japan’s Nikkei Stock Index closed up +1.50%.
The Euro Stoxx 50 today is moderately higher. Strength in European energy stocks is leading the overall market higher, with crude prices up more than +3% at a 2-week high after the U.S. and its allies launched air strikes against Houthi rebels in Yemen. Also, shipping stocks are higher amid expectations that lengthy detours by commercial shipping to avoid the Red Sea rebel attacks will boost freight rates. Dovish comments from ECB President Lagarde knocked European government bond yields lower and supported stocks when she said that once the ECB’s 2% inflation goal comes into view, she’s “very confident interest rates will start to decline.” Finally, positive European economic news boosted stocks after French Nov consumer spending unexpectedly rose by the most in 5 months.
ECB President Lagarde said that once the ECB’s 2% inflation goal comes into view, she’s “very confident interest rates will start to decline.”
French Nov consumer spending unexpectedly rose +0.7% m/m, stronger than expectations of a -0.2% m/m decline and the biggest increase in 5 months.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and at 39% for the following meeting on March 7.
China’s Shanghai Composite Index today closed modestly lower. Economic concerns weighed on Chinese stocks today after China’s Dec consumer prices contracted for a third month, signaling weak demand and signs of deflation. Also, credit growth in China remains weak after Dec new yuan loans and Dec aggregate financing came in below expectations. Stocks recovered from their worst levels on better-than-expected Chinese trade news after China’s Dec exports rose more than expected. Also, railway stocks rallied today on optimism over travel demand recovery during China’s Spring Festival period.
Chinese trade news was better than expected after China's Dec exports rose +2.3% y/y, stronger than expectations of +1.5 % y/y. Also, Dec imports unexpectedly rose +0.2% y/y, stronger than expectations of -0.5% y/y.
Deflation concerns in China have intensified after China Dec CPI fell -0.3% y/y, the third consecutive month prices have contracted. Also, Dec PPI fell -2.7% y/y, the fifteenth straight month prices have fallen.
China Dec new yuan loans were +1.17 trillion yuan, weaker than expectations of +1.35 trillion yuan. Also, Dec aggregate financing, the broadest measure of credit growth, was +1.94 trillion yuan, weaker than expectations of +2.162 trillion yuan.
Japan’s Nikkei Stock Index climbed to a 34-year high today and is up more than +6% this week. Japanese stocks continue their rally as a weak yen has supported exporters, and authorities have pushed companies to improve shareholder value, making Japanese stocks attractive to foreign investors. Also, Chinese investors are fleeing Chinese stocks and pouring funds into Japanese stocks as turnover in the China AMC Nomura Nikkei 25 ETF soared to 373 million yuan ($52 million) on Wednesday, the highest level on record. Two of the other four Japan ETFs traded in China have also seen record inflows this week. Domestic buying of Japanese stocks is another supportive factor for Japanese stocks due to the newly introduced tax-free retirement savings program that has encouraged more participation and increased domestic inflows to the stock market.
The Japan Dec eco watchers survey outlook unexpectedly fell -0.3 to 49.1, weaker than expectations of an increase to 49.5.
Pre-market U.S. Stock Movers
Airline stocks are falling in pre-market trading after Delta Air Lines backed away from its 2024 profit target as high costs counter the gains from a rebound in international travel. As a result, Delta Air Lines (DAL) is down more than -5%. Also, United Airlines Holdings (UAL), American Airlines Group (AAL), and Southwest Airlines (LUV) are down more than -3%.
Bank of America (BAC) fell more than -1% in pre-market trading after reporting Q4 trading revenue ex-DVA of $3.75 billion, below the consensus of $3.84 billion.
Tesla (TSLA) dropped more than -3% in pre-market trading after cutting car prices again in China and saying it will suspend production at its European factory as suppliers shift transport routes in response to attacks on vessels in the Red Sea.
Wells Fargo (WFC) fell more than -1% in pre-market trading after reporting Q4 non-interest expenses of $15.79 billion, above the consensus of $14.40 billion.
UnitedHealth Group (UNH) tumbled more than -5% in pre-market trading after reporting Q4 medical-loss ratio of 85%, above the consensus of 83.9%. Other health insurers also fell on the news, with Centene (CNC), Elevance Health (ELV), Cigna Group (CI), and Humana (HUM) down more than -2%.
ZoomInfo Technologies (ZI) dropped more than -3% in pre-market trading after Barclays downgraded the stock to equal weight from overweight.
JPMorgan Chase (JPM) is up nearly +2% in pre-market trading after reporting Q4 FICC sales and trading revenue of $4.03 billion, stronger than the consensus of $3.84 billion.
Energy stocks and energy service providers are climbing in pre-market trading, with the price of WTI crude up more than +3% at a 2-week high. As a result, Baker Hughes (BKR), ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Haliburton (HAL), Marathon Oil (MRO), Schlumberger (SLB), and Valero Energy (VLO) are up more than +1%.
Citigroup (C) rose more than +2% in pre-market trading after it said it would cut 20,000 positions as part of a restructuring.
International Flavors & Fragrances (IFF) jumped more than +4% in pre-market trading Jeffries upgraded the stock to buy from hold with a price target of $112.
Twilio (TWLO) rose more than +2% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral with a price target of $82.
Earnings Reports (1/12/2024)
Bank of America Corp (BAC), Bank of New York Mellon Corp/T (BK), BlackRock Inc (BLK), Citigroup Inc (C), Delta Air Lines Inc (DAL), JPMorgan Chase & Co (JPM), UnitedHealth Group Inc (UNH), Wells Fargo & Co (WFC).
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.
