Daily Markets: Inflation Moderating but Fed Has More Work Ahead
Today’s Big Picture
Asia-Pacific equity markets ended the day mixed. Japan’s Nikkei fell 1.25% on Yen/Dollar, and Bank of Japan rate worries with Fast Retailers leading the drop. India’s Sensex advanced 0.51%, Taiwan’s TAIEX rose 0.63%, Australia’s ASX All Ordinaries gained 0.67%, South Korea’s KOSPI added 0.89%, and China’s Shanghai Composite closed 1.01% higher. Hong Kong’s Seng led the region, up 1.04% led by Technology Services, and Health Technology names. By mid-day trading, major European equity indices are up across the board, and U.S. futures point to a lower market open.
Markets seemingly got what they wanted yesterday as topline December CPI came in line with consensus expectations of a YoY 6.5% rise. With this news, the CME FedWatch Tool shows that Fed Funds Futures now price in a 92% chance that the Fed will raise rates only an additional 25 basis points following its upcoming February 1 policy meeting. We expect that while the rate of change in inflation is starting to moderate, the question of absolute price levels vs. its 2% target will quickly become the next front-burner item for the Fed. As the Fed warned, it is prepared to go the distance to return inflation to that target level but so far the CME FedWatch Tool still shows additional expected rate cuts late this year.
We have started to see some of the pain Fed Chair Powell alluded to in Q4 with layoffs becoming more common, but the unexpected downtick in the December Unemployment Rate suggests there is more work to be done. How all this factors into the growing expectations for a soft economic landing have yet to be determined, but we’ll get more clues with next week’s economic data updates and forward-looking corporate guidance as the December quarter earnings season heats up further.
With U.S. equity market shut on Monday to observe the Martin Luther King Jr. holiday, we’ll see you back here, bright and early on Tuesday. Despite what the December CPI report said, and with egg prices being what they are because of the avian flu, be extra careful making any omelets over the long weekend.
Data Download
International Economy
The annual inflation rate in France was confirmed at 5.9% in December vs. 6.2% rise in October and November, mainly due to a slowdown in energy prices.
Germany's economy grew by 1.9% in 2022, slightly above market expectations of 1.8%, but slowing from the 2.6% expansion in 2021.
Spain's consumer price inflation was revised slightly lower to 5.7% YoY for December, down from a preliminary estimate of 5.8% and November’s 6.8%, marking the lowest rate since November 2021. The declines during December were attributed mainly due declines in housing and utility prices and a smaller increase in the cost of transport.
Domestic Economy
At 11 AM ET, the preliminary December reading of the University of Michigan Consumer Sentiment Index will be released and it is expected to rebound to 60.5 vs. 59.7 the prior month. Following the December Consumer Price Index report earlier this week, investors are apt to focus on what the University of Michigan's December findings say about consumer inflation expectations vs. those in the November data.
Markets
Yesterday’s CPI print landed precisely on consensus expectations and markets rose, with the S&P 500 gaining 0.34%, both the Dow and the Nasdaq Composite advancing 0.64%, and the Russell 2000 adding 1.74%. While markets had a good day, anyone who was long risk did not as the CBOE Market Volatility Index (VIX) fell 10.72% to 18.83, pulling this metric back towards the long-term (10-year) average of 18.24. Sectors were mixed as traders shifted out of traditionally defensive sectors like Consumer Staples (-0.79%), Utilities (-0.68%), and Healthcare (-0.32%) for Energy (1.91%), Real Estate (1.12%) and Communications Services (1.10%).
Here’s how the major market indicators stack up year-to-date:
- Dow Jones Industrial Average: 3.15%
- S&P 500: 3.74%
- Nasdaq Composite: 5.11%
- Russell 2000: 6.52%
- Bitcoin (BTC-USD): 13.74%
- Ether (ETH-USD): 18.23%
Stocks to Watch
Before trading kicks off for U.S.-listed equities, Bank of America (BAC), BlackRock (BLK), BNY Mellon (BK), Citigroup (C), Delta Air Lines (DAL), JPMorgan Chase (JPM), UnitedHealth (UNH), and Wells Fargo (WFC) are expected to report their quarterly results. We would caution readers to be on the watch for earnings pre-announcements.
Tesla (TSLA) is cutting prices for some of its vehicles sold in the U.S., making them eligible for the $7,500 US government EV tax credit contained in the 2022 Inflation Reduction Act.
TravelCenters of America (TA) signed 30 new franchise agreements in 2022, reaching its annual target.
LG Energy Solution and Honda Motor (HMC) established a joint venture to produce lithium-ion batteries for electric vehicles produced by Honda.
The Financial Times reports Vodafone (VOD) is looking to eliminate several hundred jobs as part of its $1.08 billion cost-saving measure announced this past November.
Alphabet’s (GOOGL) life science unit, Verily, announced it will cut its workforce by 15% due to discontinued programs and “redundancy in the new, centralized organization.”
World Wrestling (WWE) announced that it has retained The Raine Group, LLC as a financial advisor, Kirkland & Ellis LLP as its legal advisor, and August LLC as its strategic communications advisor to support WWE's management team and its Board of Directors in connection with a review of strategic alternatives.
Meta Platforms (META) filed a complaint against investigative software and services company Voyager Labs, alleging it created over 38,000 fake Facebook user accounts as part of a scheme to collect information from real Facebook users, which it then used for its own business purposes.
Shares of Virgin Galactic (SPCE) blasted off in aftermarket trading last night after the company shared it is on track for a commercial launch in the second quarter of 2023.
IPOs
Outside of the possible pricings for Skyward Specialty Insurance Group (SKWD), the near-term IPO calendar is relatively light. Tiger Woods-backed SPAC Sports & Health Tech Acquisition Corp. (LDSP) withdrew plans for a $150 million initial public offering.
Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.
After Today’s Market Close
Once again it is the Friday before a long weekend, and while there are no companies expected to report their quarterly results after today’s market close, readers should be on the lookout for any and all earnings pre-announcements late this afternoon.
Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Monday, January 16
- Germany: ZEW Economic Sentiment Index – January
- Eurozone: ZEW Economic Sentiment Index – January
Tuesday, January 17
- China: 4Q 2022 GDP
- China: Industrial Production, Retail Sales – December
- Germany: Consumer Price Index - December
- UK: Consumer Price Index – December
- UK: Producer Price Index – November
- US: Empire State Manufacturing Index – January
Wednesday, January 18
- Japan: Core Machinery Orders, Industrial Production – November
- UK: Car Registrations – December
- Eurozone: Consumer Price Index – December
- Japan: Bank of Japan Interest Rate Decision
- US: Producer Price Index – December
- US: Retail Sales – December
- US: Industrial Production & Capacity Utilization – December
- US: NABH Housing Market Index – January
- US: Fed Beige Book – January
Thursday, January 19
- US: Housing Starts & Building Permits – December
- US: Philadelphia Fed Index – January
Friday, January 20
- Japan: Consumer Price Index – December
- UK: Retail Sales – December
- Germany: Producer Price Index - December
- US: Existing Home Sales – December
Thought for the Day
“Some people are investments and some people are bills.” ~ Dani Johnson
Disclosures
- Tesla (TSLA) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Other Topics
Stocks Economy Earnings Central Banks
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
Read Chris' Bio
Mark Abssy
Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.
Read Mark's Bio