Morning Markets
March E-Mini S&P 500 futures (ESH24) are up +0.02%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.03%.
Stock index futures this morning are slightly higher as they await Thursday's U.S. Dec consumer price report for direction. The consensus is for U.S. Dec CPI to tick up to +3.2% y/y from +3.1% y/y in Nov, although the core Dec CPI (ex-food and energy) is expected to slip to a 2-1/2 year low of +3.8% y/y from +4.0% y/y in Nov.
U.S. MBA mortgage applications rose +9.9% in the week ended January 5. The home purchase mortgage sub-index rose +5.6%, and the refinancing sub-index rose +18.8%. The average 30-year fixed mortgage rate rose 5 bp to 6.81% from 6.76% in the prior week.
The markets are discounting the chances for a -25 bp rate cut at 5% at the next FOMC meeting on Jan 30-31 and 72% 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 -2.3 bp at 3.991%. The 10-year German bund yield is down -1.9 bp at 2.169%. The 10-year UK gilt yield is down -1.7 bp at 3.765%.
Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.05%. China’s Shanghai Composite Index closed down -0.54%. Japan’s Nikkei Stock Index closed up +2.01%.
The Euro Stoxx 50 today recovered early losses and is slightly higher. Real estate and consumer stocks outperformed, while commodity and construction stocks were weaker. Today’s news showed stronger-than-expected industrial production in France in November, a supportive factor for stocks. The markets are awaiting U.S. consumer price news on Thursday that could determine the extent and timing of any interest rate cuts by the Fed. On the negative side, ECB Vice President Guindos said economic prospects for the Eurozone remain tilted to the downside.
French Nov industrial production rose +0.5% m/m, stronger than expectations of no change m/m.
ECB Vice President Guindos said the Eurozone may have experienced a downturn at the end of last year, and "incoming data indicate that the future remains uncertain, and the prospects are tilted to the downside,"
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on January 25 and at 41% for the following meeting on March 7.
China’s Shanghai Composite Index today fell to a 20-month low and closed moderately lower. Electric-vehicle companies in China retreated today as weak demand weighs on the sales outlook for the sector. China’s EV market, the largest in the world by global sales, is projected to slow for a second straight year as the country’s faltering economy hurts consumer sentiment. China’s EV sales for the first week of January are down -20% on the month versus last year, and Citigroup warns that market demand volume could fall -50% or more in February. Morgan Stanley warns that a lack of confidence in Chinese equities could see foreign outflows from China of $12 billion to $18 billion in the first half of 2024. Investors are waiting for key China policy meetings, including the National People’s Congress, for signs of possible further stimulus and growth plans.
Japan’s Nikkei Stock Index today soared to a nearly 34-year high and closed sharply higher. Optimism toward Japanese stocks remains strong after the Nikkei Stock Index rose more than +25% last year. A weaker yen underpinned exporter stocks, and falling bond yields boosted the overall market after the 10-year JGB bond yield fell to a 2-1/2 week low. Stocks also rose after Japanese wage news today showed a sharp downturn in growth in November, which bolsters the case for the BOJ to delay exiting its negative rate policy. The earthquake on January 1 also reinforced the view that the BOJ will not normalize its monetary policy. In addition, strength in dividend-paying stocks boosted the overall market. Since 2000, dividends in Japan have grown at a compounded annual rate of 8.8%, above the S&P 500’s 6.7%.
Japan Nov labor cash earnings rose +0.2% y/y, weaker than expectations of +1.5% y/y. Also, Nov real cash earnings fell -3.0% y/y, weaker than expectations of -2.0% y/y and the biggest decline in 7 months.
Pre-market U.S. Stock Movers
Intuitive Surgical (ISRG) climbed more than +4% in pre-market trading after reporting preliminary Q4 revenue of $1.93 billion, stronger than the consensus of $1.87 billion.
Lennar (LEN) rose more than +1% in pre-market trading after increasing its quarterly cash dividend to 50 cents per share, above expectations of +37.5 cents per share, and authorized a boost to the stock repurchase program of $5 billion.
Toast Inc (TOST) jumped more than +5% in pre-market trading after Goldman Sachs upgraded the stock to buy from neutral with a price target of $24.
SMART Global Holdings (SGH) rallied more than +9% in pre-market trading after forecasting Q2 adjusted EPS of 15 cents to 35 cents and Q2 adjusted gross margin of 31.5% to 33.5%.
Howmet Aerospace (HWM) rose more than +2% in pre-market trading after Truist Securities upgraded the stock to buy from hold.
Aehr Test Systems (AEHR) sank more than -18% in pre-market trading after William Blair said it was cautious about the company’s earnings forecast after ON Semiconductor, Aehr’s biggest customer, lowered guidance for silicon carbide revenue.
Etsy (ETSY) slipped more than -2% in pre-market trading after Goldman Sachs downgraded the stock to neutral from buy.
LyondellBasell Industries NV (LYB) fell more than -1% in pre-market trading after Deutsche Bank downgraded the stock to hold from buy.
Workday (WDAY) slid more than -1% in pre-market trading on signs of insider selling after an SEC filing showed CFO Rowe sold $1.24 million of shares last Friday.
Dow Inc (DOW) is down more than -1% in pre-market trading after Deutsche Bank downgraded the stock to hold from buy.
Earnings Reports (1/10/2024)
KB Home (KBH), Liberty Media Corp-Liberty Liv (LLYVA), Richardson Electronics Ltd/Uni (RELL), Waldencast plc (WALD).
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.
