June S&P 500 futures (ESM23) are trending up +0.12% this morning after three major U.S. benchmark indices ended the regular session in the red as market participants weighed recession risk following the minutes of the Fed’s March policy meeting while also awaiting crucial U.S. PPI data.
The minutes of the Federal Open Market Committee’s March 21-22 meeting showed that Federal Reserve policymakers debated between keeping its key rate unchanged or hiking it by another 25 basis points, with several participants saying that holding the target range steady “would allow more time to assess the financial and economic effects of recent banking-sector developments and the cumulative tightening of monetary policy.” “However, due to the potential for banking-sector developments to tighten financial conditions and to weigh on economic activity and inflation, they judged it prudent to increase the target range by a smaller increment at this meeting,” according to the minutes from the Fed’s March meeting. At the same time, Fed officials feared that fallout from the U.S. banking crisis could tilt the economy into a “mild recession” later this year, the minutes showed Wednesday.
The Labor Department’s report on Wednesday showed consumer prices rose +0.1% m/m in March, less than the +0.2% m/m expected and lower than the +0.4% m/m increase in February. On an annual basis, headline inflation dipped to +5.0% in March from +6.0% in February, marking the smallest year-on-year increase since May 2021. Economists had expected a growth of +5.2%. However, core CPI, which excludes volatile food and fuel prices, rose +5.6% y/y in March, in line with expectations and higher than the +5.5% y/y increase in February.
“We saw progress on headline inflation, and people started digging in, and the initial optimism reversed. The core numbers have seen improvement, but they’re well above where they need to be,” said Zach Hill, a head of portfolio management at Horizon Investments.
After the release of the CPI report, U.S. rate futures have priced in a 66.8% probability of a 25 basis point rate increase and a 33.2% chance of no hike at the May meeting.
Meanwhile, San Francisco Fed President Mary Daly said Wednesday that the Federal Reserve might have to tighten policy further due to still-high inflation and a strong economy. “While the full impact of this policy tightening is still making its way through the system, the strength of the economy and the elevated readings on inflation suggest that there is more work to do,” Daly said.
Today, all eyes are focused on the U.S. Producer Price Index (PPI) in a couple of hours. Economists, on average, forecast that March U.S. PPI will stand at +0.1% m/m and +3.0% y/y, compared to the previous values of -0.1% m/m and +4.6% y/y.
U.S. Core PPI reading will also be closely watched today. Economists expect March figures to be +0.3% m/m and +3.4% y/y, compared to the previous numbers of 0.0% m/m and +4.4% y/y.
U.S. Initial Jobless Claims data will be reported today as well. Economists estimate this figure to be 232K, compared to last week’s value of 228K.
In the bond markets, United States 10-Year rates are at 3.428%, up +0.20%.
The Euro Stoxx 50 futures are up +0.28% this morning as investors digested largely softer-than-expected U.S. inflation data while also weighing up a raft of important regional economic data. Gains in luxury stocks are leading the overall market higher, with Lvmh (MC.FP) climbing more than +4% to hit an all-time high after the world’s largest luxury company reported a +17% rise in first-quarter sales that topped past estimates. Meanwhile, European Central Bank’s Governing Council member Francois Villeroy de Galhau said Wednesday the bank has already completed most of the interest-rate increases, boosting investor sentiment.
U.K.’s GDP, U.K.’s Monthly GDP 3M/3M Change, U.K.’s Industrial Production, U.K.’s Manufacturing Production, U.K.’s Trade Balance, Germany’s CPI, Italy’s Industrial Production, and Eurozone’s Industrial Production data were released today.
U.K. February GDP has been reported at 0.0% m/m, weaker than expectations of +0.1% m/m.
U.K. Monthly GDP 3M/3M Change stood at +0.1% in February, stronger than expectations of 0.0%.
U.K. February Industrial Production came in at -0.2% m/m and -3.1% y/y, compared to expectations of +0.2% m/m and -3.7% y/y.
U.K. February Trade Balance was at -17.53B, weaker than expectations of -17.00B.
U.K. February Manufacturing Production stood at 0.0% m/m and -2.4% y/y, compared to expectations of +0.2% m/m and -4.7% y/y.
The German March CPI has been reported at +0.8% m/m and +7.4% y/y, in line with expectations.
The Italian February Industrial Production came in at -0.2% m/m and -2.3% y/y, weaker than expectations of +0.5% m/m and +2.9% y/y.
Eurozone February Industrial Production stood at +1.5% m/m and +2.0% y/y, stronger than expectations of +1.0% m/m and +1.5% y/y.
Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.27%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.26%.
China’s Shanghai Composite today closed lower even after data showed the country’s exports unexpectedly rebounded in March, snapping a four-month streak of declines. At the same time, analysts said an unexpected rise in March exports was unlikely to be maintained amid softening global demand. Meanwhile, shares of Alibaba Group Holding Ltd. fell about -2% after the Financial Times reported that Japanese investment giant SoftBank Group plans to sell almost all of its stake in the e-commerce giant. Also, Sunac China Holdings Ltd tumbled more than -55% after the embattled Chinese property developer resumed trade following a suspension of more than a year.
The Chinese March Exports stood at +14.8% y/y, stronger than expectations of -7.0% y/y.
The Chinese March Imports came in at -1.4% y/y, stronger than expectations of -5.0% y/y.
The Chinese March Trade Balance has been reported at $88.19B, stronger than expectations of $39.20B.
Japan’s Nikkei 225 Stock Index closed slightly higher as optimism in the domestic retail sector outweighed worries about a possible U.S. recession. Meanwhile, shares of Aeon Co climbed over +2% after the retailer said revenue in the year through February reached an all-time high while forecasting record profit for next year. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 0.77% to 16.77.
“As seen in the results of retail companies, increased mobility of people and the recovery of inbound travel are boosting the economy. That seems to be providing some support for the Nikkei,” said Maki Sawada, a strategist at Nomura Securities.
Pre-Market U.S. Stock Movers
Sportsman’s Wareh (SPWH) plunged about -15% in pre-market trading after the company reported upbeat Q4 results but posted a weaker-than-expected Q1 outlook.
Rent the Runway Inc (RENT) fell more than -4% in pre-market trading after the company reported better-than-expected Q4 results but provided soft Q1 and FY23 revenue guidance.
Magnite Inc (MGNI) gained about +3% in pre-market trading after B. Riley initiated coverage on the stock with a buy rating and a $15 price target.
Harley-Davidson Inc (HOG) dropped over -4% in pre-market trading after the company announced that Gina Goetter would step down as CFO at the end of April.
Merck & Company Inc (MRK) rose about +1% in pre-market trading after Citi upgraded the stock to buy from neutral.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - April 13th
Progressive (PGR), Infosys ADR (INFY), Fast Retailing ADR (FRCOY), Fastenal (FAST), Tesco PLC (TSCDY), Delta Air Lines (DAL), Shaw B (SJR), Chr Hansen ADR (CHYHY), Freedom (FRHC), Hysan Development Co (HYSNY), Ryohin Keikaku Co (RYKKY), Washington Federal (WAFD), CureVac NV (CVAC), Riley Exploration Permian (REPX), PropertyGuru Group (PGRU), Farmers Long Beach (FMBL), Indus Realty Trust (INDT), Nurix (NRIX), Corus Entertainment (CJREF), BayCom (BCML), Hooker Furniture (HOFT), Genfit (GNFT), TRX Gold (TRX), Bed Bath & Beyond (BBBY), Lifecore Biomedical (LFCR), Northern Technologies (NTIC), Lakeland Industries (LAKE).
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