December S&P 500 E-Mini futures (ESZ24) are up +0.40%, and December Nasdaq 100 E-Mini futures (NQZ24) are up +0.52% this morning, partially rebounding from yesterday’s dramatic selloff after the Federal Reserve forecast fewer interest rate cuts next year, while investors awaited a raft of U.S. economic data and an earnings report from the world’s largest shoemaker Nike.
As widely expected, the Federal Reserve lowered its benchmark interest rate by a quarter percentage point yesterday. The Federal Open Market Committee voted 11-1 to reduce the federal funds rate to a range of 4.25% to 4.50%, marking its third consecutive rate cut. The central bank stated that while inflation has moved closer to the 2% target, it remains “somewhat elevated,” and labor market conditions have “generally eased.” The Fed’s updated Summary of Economic Projections showed that officials now anticipate the benchmark rate reaching a range of 3.75% to 4.00% by the end of 2025, implying only two quarter-percentage-point cuts, compared to the four cuts projected in September. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the FOMC’s statement said.
At a press conference, Fed Chair Jerome Powell reiterated that the central bank would exercise greater caution as it considers further adjustments to the policy rate. He also stated that interest rates continue to “meaningfully” restrain economic activity and that the committee is “on track to continue to cut.”
“Dots are hawkish even relative to what were fairly hawkish expectations going in - it’s taking much longer to get to ‘neutral’ - in fact it doesn’t get there in the forecast horizon,” said Scott Ladner of Horizon Investments.
In yesterday’s trading session, Wall Street’s major indexes closed sharply lower. Heico (HEI) slumped over -8% after reporting weaker-than-expected FQ4 revenue. Also, mega-cap technology stocks retreated, with Tesla (TSLA) plunging more than -8% and Amazon.com (AMZN) falling over -4%. In addition, General Mills (GIS) slid more than -3% after the Cheerios maker lowered its full-year adjusted EPS forecast. On the bullish side, Jabil Inc. (JBL) climbed over +7% and was the top percentage gainer on the S&P 500 after the electronic circuit manufacturing company posted better-than-expected FQ1 results and raised its full-year guidance.
Economic data released on Wedensday showed that U.S. housing starts unexpectedly fell -1.8% m/m to 1.289M in November, weaker than expectations of 1.350M. Also, U.S. building permits, a proxy for future construction, rose +6.1% m/m to a 9-month high of 1.505M in November, stronger than expectations of 1.430M. In addition, the U.S. Q3 current account deficit was a record -$310.9B, wider than expectations of -$286.0B.
Today, all eyes are on the Commerce Department’s final estimate of gross domestic product, which is set to be released in a couple of hours. Economists, on average, forecast that U.S. GDP growth will stand at +2.8% q/q in the third quarter, compared to the second-quarter figure of +3.0% q/q.
Investors will also focus on the U.S. Philadelphia Fed Manufacturing Index, which came in at -5.5 in November. Economists expect the December figure to be 2.9.
U.S. Existing Home Sales data will be released today. Economists foresee this figure to stand at 4.09M in November, compared to 3.96M in October.
U.S. Initial Jobless Claims data will be reported today. Economists estimate this figure will be 229K, down from last week’s 242K.
The Conference Board’s Leading Economic Index for the U.S. will be released today as well. Economists expect the November figure to be -0.1% m/m, compared to the previous number of -0.4% m/m.
Meanwhile, notable companies like Nike (NKE), FedEx (FDX), Accenture (ACN), Cintas (CTAS), and Darden Restaurants (DRI) are set to report their quarterly results today.
U.S. rate futures have priced in a 91.4% probability of no rate change and an 8.6% chance of a 25 basis point rate cut at the next central bank meeting in January.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.530%, up +0.64%.
The Euro Stoxx 50 futures are down -1.55% this morning, tracking losses in Asia and the U.S. overnight after the Fed signaled fewer rate cuts next year. Technology stocks were among the worst performers on Thursday. A survey released on Thursday showed that German consumer sentiment is expected to improve slightly at the beginning of next year. Separately, statistical agency Insee reported that sentiment among French manufacturers was stable in December. Meanwhile, the Swedish Riksbank on Thursday lowered interest rates by 25 basis points, bringing its policy rate to 2.5%. Also, Norway’s central bank kept its key policy rate unchanged at 4.5% but indicated that monetary policy easing is likely to begin in March. Investors are now turning their attention to the Bank of England’s rate decision later in the session, with the central bank widely expected to hold rates steady. In corporate news, Softwareone Holding Ag (SWON.Z.IX) climbed over +8% after announcing a deal to buy Crayon Group Holding, valuing its Norwegian rival at about $1.34 billion.
Germany’s GfK Consumer Climate Index, France’s Business Survey, and Eurozone’s Current Account data were released today.
The German January GfK Consumer Climate Index stood at -21.3, stronger than expectations of -22.6.
The French December Business Survey came in at 97, stronger than expectations of 96.
Eurozone October Current Account arrived at 25.8B euros, weaker than expectations of 33.5B euros.
Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.36% and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.69%.
China’s Shanghai Composite Index ended lower today amid regional market weakness after the Fed signaled a more gradual approach to future rate cuts. Consumer and real estate stocks slumped on Thursday, while tech hardware stocks outperformed. Market participants continued to evaluate China’s economic outlook after Beijing pledged additional policy support for 2025, which is expected to include further rate cuts, additional reductions in banks’ reserve requirements, and stronger fiscal measures. Meanwhile, investors are now focusing on the People’s Bank of China’s loan prime rate decisions. All 27 respondents in a Reuters poll anticipated that China would keep both the one-year and five-year loan prime rates unchanged on Friday. “The central bank has just warned (against interest rate risk), it seems a bit inappropriate to cut interest rates right after that,” said a trader at a Chinese bank. In corporate news, Yonghui Superstores slumped over -8% after the supermarket operator sold its 9.9% stake in Zhongbai Holding Group for 440 million yuan.
Japan’s Nikkei 225 Stock Index closed lower today as concerns about higher borrowing costs dampened sentiment despite the Bank of Japan keeping its policy rate unchanged. Real estate and technology stocks led the declines on Thursday. The Bank of Japan kept its policy rate unchanged on Thursday, citing the need to monitor overseas uncertainties and gather further evidence of domestic economic recovery, though expectations for upcoming rate hikes remain intact. Governor Kazuo Ueda’s policy board maintained its benchmark rate at around 0.25%, the same level it has held since the previous hike in July. Meanwhile, board member Naoki Tamura voted against the stand-pat decision and proposed raising the rate to 0.50%, noting that the economy and prices are progressing as anticipated. The yen extended its slide beyond the 156 level against the dollar following the BOJ’s decision and Governor Kazuo Ueda’s statement that he needs to monitor momentum ahead of next spring’s wage negotiations before deciding on policy. In other news, foreign investors withdrew a net 587.6 billion yen ($3.79 billion) from Japanese stocks in the week ending December 14th, adopting a cautious stance ahead of policy meetings by the Fed and the BOJ, according to data from the Ministry of Finance. In corporate news, Nissan Motor climbed over +6% after a local media report said merger discussions with Honda might begin on Monday. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +13.16% to 23.90.
Pre-Market U.S. Stock Movers
Micron Technology (MU) plunged over -14% in pre-market trading after the memory maker provided below-consensus FQ2 guidance.
Lennar (LEN) slumped more than -9% in pre-market trading after the homebuilder posted downbeat FQ4 results and issued soft FQ1 new orders guidance.
Zoom Communications (ZM) gained over +2% in pre-market trading after Jefferies upgraded the stock to Buy from Neutral with a price target of $100.
Western Digital (WDC) slid more than -6% in pre-market trading after Benchmark downgraded the stock to Hold from Buy.
Block (SQ) rose over +2% in pre-market trading after Oppenheimer upgraded the stock to Outperform from Perform with a $115 price target.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - December 19th
Accenture (ACN), Nike (NKE), Cintas (CTAS), FedEx (FDX), Paychex (PAYX), Darden Restaurants (DRI), FactSet Research (FDS), Conagra Brands (CAG), CarMax (KMX), Lamb Weston Holdings (LW), BlackBerry (BB), Mission Produce (AVO), Scholastic (SCHL), Innovative Solutions (ISSC).
