Morning Markets
March E-Mini S&P 500 futures (ESH24) are up +0.26%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.15%.
Stock index futures this morning are moderately higher on the increase in M&A activity after Nippon Steel agreed to acquire United States Steel for about $14.1 billion, and Masonite International agreed to acquire PGT Innovations in a deal valued at around $3 billion. Stocks also found support today after Goldman Sachs raised their 2024 target for the S&P 500.
Gains in stock index futures are limited by pushback from global central bankers about expectations for interest rate cuts early next year. Cleveland Fed President Mester warned that financial markets are "a little bit ahead" on policy normalization by penciling in interest rate cuts early next year. Also, ECB Governing Council member Vasle said that market expectations for interest rate cuts next year are premature.
Goldman Sachs today raised its target for the S&P 500 by the end of next year to 5,100 from a mid-November estimate of 4,700, saying the Federal Reserve’s dovish pivot last week, along with lower consumer prices, is an outcome that will allow real yields to fall while supporting stock valuations.
The markets are discounting the chances for a -25 bp rate cut at 10% at the next FOMC meeting on Jan 30-31 and 81% at the following meeting on March 19-20.
U.S. and European government bond yields today are mixed. The 10-year T-note yield is up +0.5 bp at 3.915%. The 10-year German bund yield is up +1.7 bp at 2.034%. The 10-year UK gilt yield dropped to a 7-1/2 month low of 3.631% and is down -1.4 bp at 3.673%.
Overseas stock markets are lower. The Euro Stoxx 50 is down -0.36%. China’s Shanghai Composite Index closed down -0.40%. Japan’s Nikkei Stock Index closed down -0.64%.
The Euro Stoxx 50 today is moderately lower on pushback from some Fed and ECB members on speculation for interest rate cuts next year. Last Friday, New York Fed President Williams said it was “premature” to begin thinking about interest rate cuts. Today, ECB Governing Council member Vasle warned, "Market expectations for interest rate cuts are premature in my view.”
European stocks were also under pressure after a gauge of German business expectations unexpectedly fell, dampening hopes of a rebound. On the positive side, Vodafone Group Plc jumped more than +7% on news that Iliad owner Niel is attempting to merge his company with Vodafone in a deal valued at 10.45 billion euros ($11.4 billion).
ECB Governing Council member Vasle said, "Market expectations for interest rate cuts are premature in my view, both with regard to the start of cuts and the totality of the moves."
The German Dec IFO business climate index unexpectedly fell -0.8 to 86.4, weaker than expectations of an increase to 87.7.
Swaps tied to ECB meeting dates are pricing in a 51% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting, down from 63% last Friday.
China’s Shanghai Composite index today fell to a 1-1/2 month low and closed moderately lower. A slide in Chinese electric vehicle battery makers led the overall market lower after lithium carbonate prices tumbled more than -5% on battery demand concerns. Suppliers to Apple retreated today after more Chinese agencies and government-backed firms across the county have ordered staff to stop bringing iPhones and other foreign devices to work. This broader and coordinated effort marks a dramatic quickening of China’s campaign to wean itself off American technology and boost the popularity of Huawei Technologies and other home-grown brands. On the positive side, Chinese data-related companies moved higher after the government released a draft plan for digital development.
Japan’s Nikkei Stock Index today settled moderately higher. Japanese insurance stocks retreated today and weighed on the overall market after the Nikkei reported that four of Japan’s biggest insurers would be issued business improvement orders after having fixed prices and violating antitrust laws. Japanese stocks were also under pressure ahead of the Mon/Tue 2-day BOJ policy meeting. Expectations are for the BOJ to maintain its negative interest rates, but speculation is building that policymakers could soon prepare for a policy tightening. On the positive side, Japan Post Holdings rose more than +5% after the Japanese government proposed raising the maximum fee for standard-sized mail.
Pre-Market U.S. Stock Movers
United States Steel (X) surged more than +25% in pre-market trading after Nippon Steel agreed to acquire the company for $14.1 billion.
PGT Innovations (PGTI) rallied more than +9% in pre-market trading after Masonite International agreed to acquire the company in a deal valued at around $3 billion.
Illumina (ILMN) climbed more than +3% in pre-market trading after it said it would sell Grail Inc. following an appeals court finding that Illumina’s acquisition of the company violated antitrust laws.
Snap (SNAP) rose more than +4% in pre-market trading after Guggenheim Securities upgraded the stock to buy from neutral with a price target of $23.
Teva Pharmaceutical Industries (TEVA) rose more than +1% in pre-market trading after HCBC upgraded the stock to buy from hold.
Trade Desk (TTD) gained nearly 1% after HSBC initiated coverage of the stock with a buy recommendation and a price target of $83.
VF Corp (VFC) dropped more than -3% in pre-market trading after it reported that someone disrupted the company’s business operations by encrypting some IT systems and stole data, including personal information.
Roku (ROKU) tumbled more than -3% in pre-market trading after Seaport Global Securities downgraded the stock to sell from neutral with a price target of $75.
Affirm Holdings (AFRM) fell more than -4% in pre-market trading after Morgan Stanley downgraded the stock to underweight from equal weight.
Palo Alto Networks (PANW) slid more than -1% in pre-market trading after Raymond James downgraded the stock to market perform from outperform.
Masonite International (DOOR) dropped more than -5% in pre-market trading after announcing a deal to buy PGT Innovations for about $3 billion.
Apple (AAPL) slid nearly -1% in pre-market trading after Bloomberg News reported that China expanded an iPhone ban across agencies and state firms.
Earnings Reports (12/18/2023)
HEICO Corp (HEI), Quipt Home Medical Corp (QIPT), Veradigm Inc (MDRX).
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.
