Markets Today: Stocks See Support from Favorable U.S. Deflator Report

Morning Markets

March E-Mini S&P 500 futures (ESH24) are up +0.21%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.26%. 

Stock index futures this morning are slightly higher on support from a larger-than-expected decline in the U.S. PCE deflator report, which was dovish for Fed policy.  T-note prices are slightly higher on the PCE report, and were able to shake off today’s hawkish durable goods orders report. 

Stock indexes were undercut after China today surprised the markets with new restrictions on video game makers.  Also, Nike (NKE) is down -11% in premarket trading after noting a weak sales outlook. 

China’s gaming regulator on Friday issued new rules that seek to limit players’ time and money spent on online video gaming.  The markets had hoped that the Chinese government was done cracking down on China’s big tech companies.  Instead, today’s action suggested that the Chinese government still has a strong appetite for trying to control tech.

Chinese video-game-related stocks took a heavy hit on today’s news, with Tencent Holdings (700 Hong Kong) closing down -12.7% in Hong Kong trading, while NetEase’s U.S. ADR (NTES) is down -20% in U.S. premarket trading.  Prosus NV (PRX Amsterdam) is down -16% in European trading due to its large holding in Tencent.  Unity Software (U) is down -3.3% in U.S. premarket trading, Roblox (RBLX) is down -2.7% in premarket trading, and Electronic Arts (EA) is down -2.1% in premarket trading.

Today’s U.S. Nov PCE deflator fell to a 2-3/4 year low of +2.6% y/y from Oct’s revised +2.9% y/y and was weaker than expectations of +2.8%.  The Nov core PCE deflator eased to a 2-3/4 year low of +3.2% y/y from Oct’s revised +3.4% and was weaker than expectations of +3.3%.  On a 3-month annualized basis, the nominal deflator rose by +1.4%, and the core deflator rose by +2.2%, which were much more compatible with the Fed’s +2% inflation target.

U.S. Nov personal income rose +0.4% m/m, which was in line with market expectations.  Nov personal spending rose by +0.2% m/m, slightly weaker than expectations of +0.3%.

U.S. Nov durable goods orders rose sharply by +5.4% m/m, more than reversing Oct’s revised -5.1% decline and stronger than expectations of +2.3%.  Nov durable goods ex-transportation rose +0.5% m/m, stronger than expectations of +0.1%.  Nov capital goods orders ex aircraft and defense, a proxy for capital spending, rose +0.8% m/m, stronger than expectations of +0.1%.

The markets are discounting the chances for a -25 bp rate cut at 14% at the next FOMC meeting on Jan 30-31 and at 94% for the following meeting on March 19-20.

U.S. and European government bond yields today are lower.  The 10-year T-note yield is down -2.5 bp at 3.863%.  The 10-year German bund yield is down -0.2 bp at 1.962%.  The 10-year UK gilt yield is down -2.4 bp at 3.505%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.01%.  China’s Shanghai Composite Index closed down -0.13%.  Japan’s Nikkei Stock Index closed up +0.09%.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on Jan 25 and at 51% for the following meeting on March 7.

Premarket U.S. Stock Movers

Nike (NKE) is down -11% in premarket trading after releasing a weak sales forecast and saying it is looking for $2 billion in cost savings.  The news prompted Cowen to downgrade its rating on Nike.  The Nike news sparked carry-over weakness for American and European sportswear makers and retailers.

Bristol Myers Squibb (BMY) is down -3% in premarket trading and Karuna Therapeutics (KRTX) is up 48% after Bristol Myers agreed to buy Karuna for $14 billion. 

Rocket Lab (RKLB) is up +21% in premarket trading after winning a $15 million U.S. government contract, which doubled the backlog for its space business. 

Earnings Reports (12/22/2023)

Citius Pharmaceuticals Inc (CTXR), Dakota Gold Corp (DC), DZS Inc (DZSI), Inspired Entertainment Inc (INSE), Veradigm Inc (MDRX).

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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