Morning Markets
March E-Mini S&P 500 futures (ESH24) are up +0.17%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.11%.
Stock index futures this morning are slightly higher on carryover support from a rally in Japanese stocks after the Bank of Japan (BOJ) maintained negative interest rates at today’s policy meeting. Stock index futures fell back from their best levels after U.S. Nov housing starts unexpectedly rose to a 6-month high, a hawkish factor for Fed policy.
U.S. Nov housing starts unexpectedly rose +14.8% m/m to a 6-month high of 1.56 million, stronger than expectations of a decline to 1.36 million. However, Nov building permits, a proxy for future construction, fell -2.5% m/m to a 4-month low of 1.460 million, weaker than expectations of a decline to 1.465 million.
The markets are discounting the chances for a -25 bp rate cut at 10% at the next FOMC meeting on Jan 30-31 and 82% at the following meeting on March 19-20.
U.S. and European government bond yields today are mixed. The 10-year T-note yield is down -2.6 bp at 3.905%. The 10-year German bund yield is down -5.4 bp at 2.025%. The 10-year UK gilt yield is down -3.0 bp at 3.665%.
Overseas stock markets are higher. The Euro Stoxx 50 is up +0.31%. China’s Shanghai Composite Index closed up +0.05%. Japan’s Nikkei Stock Index closed up +1.41%.
The Euro Stoxx 50 today is mildly higher, led by gains in interest-rate-sensitive real estate and technology stocks. Also, M&A activity is supporting equities after Bloomberg reported that Abu Dhabi National Oil is preparing to increase its preliminary takeover offer for Covestro AG, which could value Covestro at around 11.3 billion euros ($12.3 billion). Also, UBS Group AG rose more than +2% after activist investor Cevian Capital AB took a 1.3 billion ($1.3 billion) stake in the company. Lower government bond yields are also bullish for stocks, with the 10-year German bund yield just above last Friday’s 8-3/4 month low.
ECB Governing Council member Simkus said while there was a positive surprise on Eurozone consumer prices in November, the medium-term outlook hasn't changed much, so "the expectations of early and fast interest rate cuts may be too optimistic."
ECB Governing Council member Kazaks said the ECB needs to keep interest rates at current levels "for some time" to ensure wage growth slows down and new risks for inflation don't arise as "it is too early to declare victory over inflation and therefore not the time to cut interest rates."
Swaps tied to ECB meeting dates are pricing in a 43% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting, down further from 63% last Friday.
China’s Shanghai Composite index today recovered from a 13-month low and closed slightly higher. A rally in Chinese leisure stocks helped the Shanghai Composite recover early losses after the Securities Daily reported that Ctrip data show domestic travel bookings for the 2024 New Year’s holiday have more than tripled compared to last year. Chinese stocks today initially opened lower as Apple’s suppliers related to its watches retreated after it said it would stop selling the latest versions of its smartwatch in the U.S. due to a patent dispute. Also, property stocks moved lower on continued worries about the sector's health as Country Garden Services sank -12% to a record low after it said it set aside some funds as impairment.
Japan’s Nikkei Stock Index today climbed to a 1-1/2 week high and closed moderately higher. Japanese stocks rallied today after the Bank of Japan (BOJ) maintained negative interest rates and offered no guidance on whether it might scrap negative rates next year. The dovish BOJ outcome knocked the yen down more than -1.3% against the dollar, which sparked a rally in exporter stocks. Bank stocks underperformed amid concerns that the BOJ’s stance of sticking with easy monetary policy would pressure the sector’s interest income. Also, Nippon Steel fell more than 5% after it agreed to buy United States Steel for $14.1 billion, raising concerns that it may need to raise funds by selling shares.
The Bank of Japan (BOJ) voted 9-0 to maintain its policy rate at -0.1% and keep the 10-year JGB yield target at about 0%. The BOJ said it would patiently continue with monetary easing with extremely high uncertainties around economic activity and prices.
BOJ Governor Ueda said the side effects of negative rates aren't decisive enough to require an immediate policy adjustment, and the chances are low that the BOJ will announce a rate hike next month.
Pre-Market U.S. Stock Movers
Chewy (CHWY) and PetIQ (PETQ) climbed more than +1% in pre-market trading after Jeffries initiated coverage on the stocks with a buy recommendation, with a 12-month price target of $27 for Chewy and a $22 price target for PetIQ.
Kenvue (KVUE) jumped more than +5% in pre-market trading after a court ruled in favor of the company in a class action lawsuit involving Tylenol.
Amgen (AMGN) rose more than +1% in pre-market trading after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $326.
Rockwell Automation (ROK) rose more than +1% in pre-market trading after Wells Fargo upgraded the stock to overweight from equal weight with a price target of $357.
American International Group (AIG) gained more than +1% in pre-market trading after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $83.
United Rentals (URI) gained nearly +1% in pre-market trading after Stifel raised its price target on the stock to $591 from $494.
Equifax (EFX) rose nearly +1% in pre-market trading after Oppenheimer initiated coverage of the stock with a recommendation of outperform and a price target of $273.
Accenture (ACN) slid more than -1% in pre-market trading after forecasting Q2 revenue of $15.40 billion-$16.00 billion, below the consensus of $16.27 billion.
Permian Resources (PR) fell more than -1% in pre-market trading after announcing the commencement of an underwritten public offering of more than 39 million shares of its class A common stock.
Zurn Elkay Water Solutions (ZWS) slid more than -1% in pre-market trading after Stifel downgraded the stock to hold from buy.
Masonite International (DOOR) fell more than -1% in pre-market trading after Baird downgraded the stock to neutral from outperform.
Earnings Reports (12/19/2023)
Accenture PLC (ACN), Enerpac Tool Group Corp (EPAC), FactSet Research Systems Inc (FDS), FedEx Corp (FDX), FuelCell Energy Inc (FCEL), Steelcase Inc (SCS), Worthington Enterprises Inc (WOR).
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.
