What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.45%.
Stocks this morning are moderately lower after U.S. consumer prices for December rose more than expected, dampening expectations for rate cuts from the Fed. Also, signs of strength in the U.S. labor market weighed on government bonds and stock prices after weekly initial unemployment claims unexpectedly fell to a 2-1/2 month low.
Heightened geopolitical risks in the Middle East pushed crude prices up more than +3% and are negative for stocks after Iran captured an oil tanker off the coast of Oman. Iran’s Tasnim news agency reported that Iran had a court order to seize the ship that the U.S. previously seized for carrying illicit Iranian oil.
U.S. Dec CPI climbed to +3.4% y/y from +3.1% y/y in Nov, stronger than expectations of +3.2% y/y. The Dec core CPI eased to +3.9% y/y from +4.0% y/y in Nov, the smallest increase in 2-1/2 years but above expectations of +3.8% y/y.
U.S. weekly initial unemployment claims unexpectedly fell -1,000 to a 2-1/2 month low of 202,000, showing a stronger labor market than expectations of an increase to 210,000.
The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 70% for that same -25 bp rate cut for 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 -0.8 bp at 4.021%. The 10-year German bund yield rose to a 1-month high of 2.2612% and is up +1.6 bp at 2.227%. The 10-year UK gilt yield is up +1.7 bp at 3.836%.
Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.35%. China’s Shanghai Composite Index closed up +0.31%. Japan’s Nikkei Stock Index closed up +1.77%.
Today’s stock movers…
Warner Bros Discovery (WBD) is down more than -4% to lead losers in the Nasdaq 100 after Redburn downgraded the stock to neutral from buy.
Seagate Technology Holdings (STX) is down more than -3% after BNP Paribas Exane downgraded the stock to underperform from neutral with a price target of $65.
Regional bank stocks are under pressure today, weighing down the broader market. Zions Bancorp (ZION), Huntington Bancshares (HBAN), KeyCorp (KEY), Citizens Financial Group (CFG), and Truist Financial (TFC) are down more than -3%. Also, Comerica (CMA), M&T Bank (MTB), and US Bancorp (USB) are down more than -2%.
Citigroup (C) is down more than -2% after it said it would set aside a $1.3 billion reserve to cover debt risk in Argentina and Russia.
KB Home (KBH) is down more than -2% after forecasting full-year housing revenue of $6.40 billion-$6.80 billion, the midpoint below the consensus of $6.63 billion.
Tesla (TSLA) is down more than -2% after it said it would boost pay for its U.S. factory workers, which may crimp the company’s margins.
Yum! Brands (YUM) is down more than -1% after Wells Fargo Securities downgraded the stock to equal weight from overweight.
Lyft (LYFT) is down more than -1% after Goldman Sachs downgraded the stock to neutral from buy.
Netflix (NFLX) is up more than +2% to lead gainers in the S&P 500 and Nasdaq 100 after Citic Securities initiated coverage of the stock with an add recommendation and a price target of $485.
T Rowe Price Group (TROW) is up more than +2% after reporting assets under management in December rose +14% y/y to $1.45 trillion.
ServiceNow (NOW) is up more than +2% after Stifel raised its price target on the stock to $740 from $650.
TechTarget (TTGT) is up more than +10% after Informa said it agreed to acquire a 57% stake in the company.
Salesforce (CRM) is up more than +1% to lead gainers in the Dow Jones Industrials after Baird upgraded the stock to outperform from neutral with a price target of $300.
Eli Lilly (LLY) is up more than +1% after Morgan Stanley raised its price target on the stock to $763 from $727.
Cognizant Technology Solutions (CTSH) is up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $85.
Across the markets…
March 10-year T-notes (ZNH24) this morning are up +2 ticks, and the 10-year T-note yield is down -0.8 bp at 4.021%. Mar T-note prices today are slightly higher as a reversal in 10-year German bund prices sparked short covering in T-notes. 10-year German bunds recovered from a 1-month low and moved higher on dovish comments from ECB Governing Council member Vujcic.
T-note prices today initially moved lower after U.S. Dec CPI rose more than expected and after weekly jobless claims unexpectedly fell to a 2-1/2 month low. Another bearish factor for T-notes is supply pressures as the Treasury will auction $21 billion of 30-year T-bonds later today to conclude this week’s $110 billion T-note and T-bond auction package.
The dollar index (DXY00) today is up by +0.22%. The dollar today is moderately higher after U.S. Dec CPI rose more than expected, dampening expectations of Fed interest rate cuts. The euro also weakened today on dovish ECB comments.
The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 71% for the following meeting on March 19-20.
EUR/USD (^EURUSD) is down by -0.20%. The euro today is under pressure from weak Eurozone economic news after Italian Nov industrial production fell more than expected. Losses in the euro accelerated on dovish comments from ECB Governing Council member Vujcic, who said Eurozone December inflation was within expectations, and he favors quarter-point cuts in interest rate moves once the ECB begins cutting interest rates.
Italy Nov industrial production fell -1.5% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 7 months.
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 38% for the following meeting on March 7.
USD/JPY (^USDJPY) is up by +0.24%. The yen tumbled to a 1-month low against the dollar as the dollar strengthened after a stronger-than-expected U.S. Dec CPI report pushed back expectations for Fed interest rate cuts. Also, today’s Japanese economic news weighed on the yen after Japan's Nov leading index CI fell more than expected to a 3-year low.
The Japan Nov leading index CI fell -1.2 to a 3-year low of 107.7, weaker than expectations of 107.9.
February gold (GCG4) today is up +6.8 (+0.34%), and Mar silver (SIH24) is up +0.014 (+0.06%). Gold and silver prices this morning are slightly higher. Precious metals garnered some safe-haven demand today from heightened geopolitical risks in the Middle East after Iran seized an oil tanker off the coast of Oman. Gold also has support as an inflation hedge after the U.S. Dec CPI rose more than expected, and after the 10-year breakeven inflation rate today climbed to a 1-month high. A stronger dollar today is limiting gains in precious metals. Also, long liquidation pressure is bearish for gold after long gold holdings in ETFs fell to a 4-year low Wednesday.
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.
