June S&P 500 E-Mini futures (ESM24) are up +0.10%, and June Nasdaq 100 E-Mini futures (NQM24) are up +0.63% this morning as market participants weighed slowing U.S. inflation against the Federal Reserve’s more hawkish tone on interest rates, with attention now shifting to crucial U.S. PPI data and an earnings report from software giant Adobe.
As widely expected, yesterday the Federal Reserve kept interest rates unchanged for the seventh straight meeting, leaving the federal funds rate target range at a two-decade high of 5.25%-5.50%. The Federal Open Market Committee adjusted language in its post-meeting statement released Wednesday, acknowledging “modest further progress toward the committee’s 2% inflation objective” in recent months, whereas previously, the statement had indicated a “lack” of further progress. At the same time, the Fed’s updated Summary of Economic Projections showed that the median forecast for the federal funds rate at the end of this year stood at 5.1%, implying only one 25 basis point rate cut in 2024, contrasting with the previous estimate of three cuts in March. The Fed’s “dot plot” revealed that four policymakers projected no cuts this year, seven expected only one reduction, and eight anticipated two cuts. Also, policymakers revised their core PCE inflation forecast upward, with the Fed’s preferred inflation gauge now expected to be 2.8% in 2024, an increase from the previous forecast of 2.6%.
“The most recent inflation readings have been more favorable than earlier in the year, however, and there has been modest further progress toward our inflation objective,” Fed Chair Jerome Powell said Wednesday during the post-meeting press conference. “We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%.”
In yesterday’s trading session, Wall Street’s major indices ended mixed, with the benchmark S&P 500 and tech-heavy Nasdaq 100 notching new record highs. Oracle (ORCL) climbed over +13% and was the top percentage gainer on the S&P 500 after the cloud software behemoth announced cloud infrastructure deals with Microsoft, OpenAI, and Alphabet’s Google Cloud. Also, Apple (AAPL) advanced more than +2% and was the top percentage gainer on the Dow, extending Tuesday’s gains following the company’s annual Worldwide Developers Conference, where it unveiled several features related to artificial intelligence and announced a partnership with ChatGPT maker OpenAI. In addition, Casey’s General Stores (CASY) surged over +16% after the company reported upbeat Q4 results, raised its quarterly dividend by 16.3% to $0.50 per share, and said it expects its EBITDA to increase by at least 8% in fiscal 2025.
The Labor Department’s report on Wednesday showed consumer prices were unchanged on a monthly basis in May, marking the first flat reading since October 2023. On an annual basis, headline inflation unexpectedly eased to +3.3% in May from +3.4% in April, against expectations of no change at +3.4%. In addition, the core CPI, which excludes volatile food and fuel prices, eased to a 3-year low of +3.4% y/y in May, compared with +3.5% y/y expected and +3.6% y/y in April.
Meanwhile, U.S. rate futures have priced in an 8.3% chance of a 25 basis point rate cut at the next central bank meeting in July and a 56.7% chance of a 25 basis point rate cut at the September FOMC meeting.
On the earnings front, Photoshop maker Adobe (ADBE) is set to report its Q2 earnings results today.
Today, all eyes are focused on the U.S. Producer Price Index in a couple of hours. Economists, on average, forecast that the U.S. May PPI will stand at +0.1% m/m and +2.5% y/y, compared to the previous figures of +0.5% m/m and +2.2% y/y.
The U.S. Core PPI will also be closely watched today. Economists expect May’s figures to be +0.3% m/m and +2.4% y/y, compared to the previous numbers of +0.5% m/m and +2.4% y/y.
U.S. Initial Jobless Claims data will be reported today as well. Economists estimate this figure to be 225K, compared to last week’s number of 229K.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.316%, up +0.54%.
The Euro Stoxx 50 futures are down -0.81% this morning after the Fed’s projection for only one rate cut this year tempered enthusiasm following Wednesday’s softer U.S. inflation report. Automobile stocks led the declines on Thursday. The National Statistics Institute said Thursday that Spain’s annual inflation rate accelerated in May, confirming the preliminary reading. Separately, data from European Union statistics agency Eurostat said Thursday that industrial production in the Eurozone unexpectedly fell in April compared to the previous month. Meanwhile, bond yields across the Eurozone climbed on Thursday after MSCI Inc. announced it would not include the bloc’s debt in its range of government bond indexes. In corporate news, Deutsche Lufthansa Ag (LHA.D.DX) slumped over -5% after JPMorgan placed the stock on a negative catalyst watch.
European Central Bank Governing Council member Joachim Nagel cautioned Wednesday that the Eurozone’s core inflation is “still very sticky,” while acknowledging the correctness of last week’s policy easing. “We are on a bumpy road, but we all know that the last mile is the most complicated one,” Nagel said.
Germany’s WPI, Spain’s CPI, and Eurozone’s Industrial Production data were released today.
The German May WPI came in at +0.1% m/m, weaker than expectations of +0.3% m/m.
The Spanish May CPI arrived at +0.3% m/m and +3.6% y/y, in line with expectations.
Eurozone April Industrial Production has been reported at -0.1% m/m and -3.0% y/y, weaker than expectations of +0.1% m/m and -1.9% y/y.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.28% and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.40%.
China’s Shanghai Composite Index closed lower today. Retail and property stocks underperformed on Thursday. At the same time, Chinese electric-vehicle maker stocks mostly rose, with analysts noting that the European Union’s preliminary announcement of tariff increases aligned with market expectations. According to a commentary in the state-backed news outlet Xinhua, China urges the European Union to seriously reconsider tariffs on Chinese EVs and avoid further moves in the wrong direction. The statement follows the European Commission’s announcement on Wednesday of additional duties ranging up to 38.1% on imported Chinese electric cars, starting in July. Meanwhile, Societe Generale has shifted to a positive stance on shares of Chinese companies for the first time since December 2022, buoyed by expectations of policy support and improving earnings. The French bank upgraded its recommendation from Neutral to Overweight. In corporate news, Zhejiang Akcome New Energy Technology fell over -4% after its subsidiary, Suzhou Akcome Optoelectronics Technology, halted production of its high-efficiency solar cell module production line due to challenges in the company’s supply chain, sales, and labor organization.
Japan’s Nikkei 225 Stock Index reversed earlier gains and closed lower today as a cautious mood prevailed ahead of the Bank of Japan’s policy decision on Friday. Losses in automobile and insurance stocks led the overall market lower on Thursday. The Cabinet Office reported on Thursday that the business survey index for large manufacturers in Japan fell less than expected in the second quarter. Meanwhile, Japanese government bond yields declined on Thursday, tracking a drop in U.S. bond yields, with trading remaining subdued ahead of the BOJ’s upcoming monetary policy decision. The BOJ will wrap up its two-day policy meeting on Friday, where it is expected to keep interest rates unchanged. At the same time, the Nikkei newspaper reported on Thursday that the central bank will contemplate a gradual reduction in its government bond purchases at the meeting ending on Friday. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -2.61% to 17.15.
The Japanese BSI Large Manufacturing Conditions Index came in at -1.0 in the second quarter, stronger than expectations of -5.2.
Pre-Market U.S. Stock Movers
Tesla (TSLA) climbed over +5% in pre-market trading following Elon Musk’s announcement that shareholders overwhelmingly approved his controversial $56 billion pay package and the company’s relocation of its state of incorporation to Texas.
Broadcom (AVGO) surged over +14% in pre-market trading after the semiconductor and software company posted upbeat Q2 results, raised its full-year revenue guidance, and announced a ten-for-one stock split, effective July 15th.
Dave & Buster’s Entertainment (PLAY) plunged more than -12% in pre-market trading after the company reported weaker-than-expected Q1 results.
Kimberly-Clark (KMB) rose over +2% in pre-market trading after BofA double-upgraded the stock to Buy from Underperform with a price target of $160.
3M Company (MMM) gained about +0.9% in pre-market trading after Wolfe Research upgraded the stock to Outperform from Peer Perform with a $125 price target.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - June 13th
Adobe (ADBE), RH (RH), Signet Jewelers (SIG), Korn Ferry (KFY), John Wiley&Sons (WLY), Lovesac (LOVE), Ammo (POWW), Iteris (ITI).
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