Daily Markets: Inflation Data Sets Table Ahead of Fed

Today’s Big Picture

Asia-Pacific equity markets ended today’s session mixed. Taiwan’s TAIEX fell 0.61% while China’s Shanghai Composite, India’s SENSEX, and South Korea’s KOSPI all came in essentially flat, losing less than 0.10% today. Australia’s ASX All Ordinaries gained 0.25%, Japan’s Nikkei rose 0.40%, and Hong Kong’s Hang Seng again set the pace, up 0.68% led by Consumer Services and Transportation but held back by Health Technology. By mid-day trading, major European equity indices are up across the board, and U.S. futures point to a healthy open later this morning.

U.S. futures jumped after the release of the November Consumer Price Index (CPI); the headline figure dropped to 7.1%, lower than expectations of +7.3% YoY in November, down from 7.7% the prior month. The core November reading fell to 6%, lower than the expected to 6.1% YoY vs. October’s 6.3% figure.

While some may wonder what today’s CPI report means for the Fed’s monetary policy action exiting tomorrow’s December monetary policy meeting, odds are it won’t fall enough to deter the Fed from additional rate hikes in 2023. In our view, the two questions the market should be focusing on are: What’s the terminal value for the Fed Funds rate, and for how long will the Fed hold it there? Those answers will determine the severity of any potential recession in 2023 and the degree of accuracy for forecasts that see the S&P 500 hitting 4500 by the end of 2023.

Data Download

International Economy

Following a surge in Covid infections in Beijing, China is delaying the closely watched Central Economic Work Conference that was due to start on Thursday, December 15.

The annual inflation rate in Germany was confirmed at 10.0% in November, remaining well above the European Central Bank's target of about 2%. On a monthly basis, consumer prices were down 0.5% in November, the first decline in a year The CPI, harmonized to compare with other European countries, advanced 11.3% on the year, the second-highest level on record, and stalled month-on-month. The ZEW Indicator of Economic Sentiment for Germany increased to -23.3 in December from -36.7 in November, beating market forecasts of -26.4 and hitting its highest reading since February.

The ZEW Indicator of Economic Sentiment for the Euro Area improved to -23.6 in December from -38.7 in the prior month, better than the expected reading of -25.7. Similar to the findings for Germany, the December Euro Area reading was also the highest since February. The indicator of the current economic situation increased by 7.7 points to -57.4while inflation expectations fell by 27.1 points to -79.3 points.

Domestic Economy

The Small Business Optimism Index rose 0.6 points in November to 91.9, marking the 11th consecutive month below the 49-year average of 98. Inflation remains the top business problem for small business owners, with 32% of owners reporting it as their single most important problem in operating their business. Owners expecting better business conditions over the next six months improved three points from October to a net negative 43%, a recession reading.

Markets

In a curious tale of the tape, not only were equities up yesterday with all major indexes gaining between 1.22% (Russell 2000) and 1.58% (Dow) but volatility, as measured by the Cboe Market Volatility Index (VIX), gained 9.51%. Earlier in this cycle, we had periods where equities and bonds moved together, breaking the long-held inverse relationship between these two assets, but to see equity volatility rise in tandem with equities is something new and frankly, a little strange. Sectors were up across the board, led by Energy (2.62%) and Technology (2.18%) with Consumer Discretionary showing relative weakness gaining 0.25% on the day.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -6.42%
• S&P 500: -16.27%
• Nasdaq Composite: -28.77%
• Russell 2000: -19.00%
• Bitcoin (BTC-USD): -32.90%
• Ether (ETH-USD): -65.43%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, no market-moving earnings reports are expected.

Oracle (ORCL) reported better-than-expected November quarter results for both revenue and EPS but offered mixed guidance for its current quarter. Cloud revenue in the November quarter was $3.8 billion, up 48% YoY in constant currency. Similar to other companies of late, Oracle noted the US dollar compared to foreign currencies had a significant impact on results in the quarter, estimated that without the impact, November quarter EPS would have been $0.09 higher. For its current quarter, the company sees EPS of $1.17-$1.21 vs. the $1.23 consensus with revenue climbing +17-19% YoY, implying $12.30-$12.51 billion vs. the $12.29 billion consensus.

While Eli Lilly (LLY) reaffirmed expectations for its current quarter with EPS of $7.70-$7.85 vs. the $7.82 consensus, it issued downside guidance for EPS. For the coming year, the company sees EPS of $8.10-$8.30 vs. the $9.06 consensus even though its guiding full-year revenue to $30.3-$30.8 billion vs. the $30.12 billion consensus.

United (UAL) finalized its order to purchase 100 Boeing (BA) 787 aircraft scheduled to be delivered starting with eight aircraft in 2024, with the remaining aircraft to be delivered through 2032.

Boeing reported that it discovered a cybersecurity incident that impacted certain systems of Jeppesen, a wholly-owned Boeing subsidiary that provides flight planning and navigation services. The company notified law enforcement and regulatory authorities and customers, launched an investigation, and took additional steps to protect the integrity of their systems.

The Securities and Exchange Commission today charged Samuel Bankman-Fried with orchestrating a scheme to defraud equity investors in FTX Trading Ltd., the crypto trading platform of which he was the CEO and co-founder. Reports are that he has been detained in the Bahamas by authorities.

Before trading begins on Monday, December 19, S&P MidCap 400 constituent First Solar (FSLR) will replace Fortune Brands Home & Security (FBHS) in the S&P 500. Fortune Brands Innovations (FBIN) will replace First Solar in the S&P MidCap 400 and MasterBrand (MBC) will replace Conn's (CONN) in the S&P SmallCap 600.

IPOs

As we head into the holiday season the near-term IPO calendar is fairly light so there are no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are expected to report quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, December 14

• Japan: Core Machinery Orders – October
• Japan: Industrial Production & Capacity Utilization – October
• UK: CPI – November
• Eurozone: Industrial Production - October
• US: Weekly MBA Mortgage Applications
• US: Import/Export Prices – November
• US: Weekly EIA Crude Oil Inventories
• US: FOMC Rate Decision

Thursday, December 15

• Japan: Imports/Exports – November
• China: Retail Sales, Industrial Production – November
• UK: Bank of England Monetary Policy Decision
• US: Weekly Initial & Continuing Jobless Claims
• US: Retail Sales – November
• US: Philadelphia Fed Index – December
• US: Empire State Manufacturing Index – December
• US: Industrial Production & Capacity Utilization – November
• US: Weekly EIA Natural Gas Inventories

Friday, December 16

• UK: Retail Sales – November
• Eurozone: S&P Global Flash PMI – December
• Eurozone: CPI – November
• US: S&P Global Flash PMI - December

Thought for the Day

“Tuesday isn’t so bad… It’s a sign that I’ve somehow survived Monday.” ~ Anonymous

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Economy Stocks Central Banks Earnings