Markets Today: Stocks Erase Overnight Gains as Fed’s Williams Talks Down Rate Cuts

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.07%, and Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.18%. 

Stock index futures this morning are mixed as they relinquished most of their overnight gains after a measure of New York state factory activity weakened more than expected and as bond yields rose when New York Fed President William pushed back on speculation about Fed interest rate cuts.  Stock index futures initially moved higher on optimism that the Fed will be able to engineer a soft landing for the U.S. economy.

The U.S. Dec Empire manufacturing survey general business conditions index fell -23.6 to a 4-month low of -14.5, weaker than expectations of 2.0.

New York Fed President Williams said the question now is whether we're sufficiently restrictive.  "We aren't really talking about rate cuts" now, and it is "premature" to be thinking about a March rate cut.

U.S. equity funds recently boosted their buying of stocks.  Bank of America said EPFR Global data show U.S. equity funds reported $25.9 billion of inflows in the week to December 13, the ninth week of inflows and the longest streak in two years. 

Market volatility today may be higher than normal due to the expiry of monthly and quarterly options and futures contracts, in an event known as triple witching.  According to Tier1Alpha, about $3.1 trillion in notional open interest is scheduled to expire or roll into the new year.

The markets are discounting the chances for a -25 bp rate hike at 12% at the Jan 30-31 FOMC meeting and 79% at the following March 19-20 meeting.

U.S. and European government bond yields today are mixed.  The 10-year T-note yield is up +3.3 bp at 3.954%.  The 10-year German bund yield fell to an 8-1/2 month low of 2.027% and is down -5.5 bp at 2.065%.  The 10-year UK gilt yield is down -1.6 bp at 3.773%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.32%.  China’s Shanghai Composite Index closed down -0.56%.  Japan’s Nikkei Stock Index closed up +0.87%.

The Euro Stoxx 50 today is moderately higher and just below Thursday’s 22-year high.  Optimism that the ECB will start cutting interest rates next year is supporting European government bonds and equities.  Recession concerns also gave bonds a lift but limited gains in stocks on weaker-than-expected news on Eurozone manufacturing and services activity.  Mining stocks and automakers outperformed, while consumer stocks, healthcare, and chemical makers were laggards. 

The Eurozone Dec S&P manufacturing PMI was unchanged at 44.2, weaker than expectations of an increase to 44.6.  Also, the Dec S&P composite PMI unexpectedly fell -0.6 to 47.0, weaker than expectations of an increase to 48.0.

Swaps tied to ECB meeting dates are pricing in a 63% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting.

China’s Shanghai Composite index today gave up an early advance and closed moderately lower.  Weak domestic demand continues to weigh on China’s economic recovery.  While China Nov industrial output and Nov retail sales expanded in November, the data was distorted by favorable comparisons to a year ago when Covid lockdowns held back economic activity.  Also, turmoil in China’s property sector continues to weigh on the overall outlook after home prices declined for a sixth month in November, and a decline in property investment deepened last month.  On the positive side, the yuan climbed to a 6-1/4 month high after the PBOC boosted liquidity and injected a record 800 billion yuan via its one-year lending facility, which will give banks more money to buy government bonds issued to support infrastructure spending.

China Nov industrial production rose +6.6% y/y, stronger than expectations of +5.7% y/y and the most in almost 2-1/2 years.

China Nov retail sales rose +10.1% y/y, the most in 6 months but weaker than expectations of +12.5% y/y.

China Nov home prices fell -0.37% m/m, the sixth consecutive month home prices have declined.

China Nov property investment weakened to -9.4% year-to-date from -9.3% year-to-date in Oct.

Japan’s Nikkei Stock Index closed moderately higher.  Japanese stocks today followed gains in U.S. stocks Thursday amid optimism the U.S. economy will be able to avert a recession while reining in inflation. Also, an unexpected increase in U.S. Nov retail sales reinforces the scenario for the U.S. economy to achieve a soft landing, which should keep demand strong for Japanese goods. Japanese chip stocks rose after Intel announced new chips for PCs and data centers, and the U.S. Philadelphia Semiconductor Index climbed to a record high Thursday.  Today’s economic news was mixed, showing Japanese manufacturing activity contracted while services activity expanded.

The Japan Dec Jibun Bank manufacturing PMI fell -0.6 to 47.7, the weakest level in 10 months.  However, the Dec Jibun Bank services PMI rose +1.2 to 52.0.

The Japan Oct tertiary industry index unexpectedly fell -0.8% m/m, weaker than expectations of a +0.1% m/m increase.

Pre-Market U.S. Stock Movers

Costco Wholesale (COST) rose more than +2% in pre-market trading after reporting Q1 EPS of $3.58, stronger than the consensus of $3.41.

Intel (INTC) is up more than +2% in pre-market trading after it unveiled new chips for personal computers and data centers as it seeks to establish a foothold in the AI hardware space. 

Rivian Automotive (RIVN) climbed more than +3% in pre-market trading, adding to Thursday’s +12% gain after AT&T ordered a fleet of commercial vans and R1 vehicles from the company. 

STMicroelectronics NV (STM) rose more than +1% in pre-market trading after Citigroup named the stock a top pick in Europe’s tech hardware sector.

Chewy (CHWY) climbed more than +2% in pre-market trading after Needham & Co raised its price target on the stock to $25 from $20.

Las Vegas Sands (LVS) gained more than +1% in pre-market trading after Susquehanna Financial initiated coverage on the stock with a recommendation of positive and a price target of $59. 

Lennar (LEN) tumbled more than -3% in pre-market trading despite reporting better than expected Q4 adjusted EPS after forecasting Q1 gross margin on home sales of 21.0%-21.3%, below the consensus of 22.9%. 

Scholastic (SCHL) sank more than -12% in pre-market trading after cutting its full-year adjusted Ebitda estimate to $165 million-$175 million from a previous forecast of $10 million-$200 million. 

Darden Restaurants (DRI) fell more than -1% in pre-market trading after reporting Q2 sales of $2.73 billion, below the consensus of $2.74 billion. 

Kimberly-Clark (KMB) slid more than -1% in pre-market trading after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $115.   

GlobalFoundries (GFS) fell more than -1% in pre-market trading after Bank of America Global Research downgraded the stock to neutral from buy.  

Roku (ROKU) slid more than -1% in pre-market trading after MoffettNathanson LLC downgraded the stock to sell from neutral. 

Teradyne (TER) fell more than -1% in pre-market trading after Bank of America Global Research downgraded to underperform from neutral.

Earnings Reports (12/15/2023)

Daily Journal Corp (DJCO), Darden Restaurants Inc (DRI).

More Stock Market News from Barchart

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.

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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