March S&P 500 E-Mini futures (ESH24) are up +0.02%, and March Nasdaq 100 E-Mini futures (NQH24) are down -0.12% this morning as market participants digested the minutes of the Federal Reserve’s latest meeting and geared up for a flurry of U.S. economic data, with a particular focus on the ADP National Employment report.
The minutes of the Federal Open Market Committee’s December 12-13 meeting revealed that Federal Reserve policymakers agreed that it would be appropriate to maintain a restrictive stance “for some time” while acknowledging they were likely at the peak rate and would commence cutting in 2024. The minutes signaled a growing optimism among participants regarding the trajectory of inflation, highlighting “clear progress.” The committee expressed a readiness to reduce the benchmark lending rate in 2024 if that trend persists, though the timing of such a move remained uncertain. “In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024,” according to the FOMC minutes released Wednesday.
In Wednesday’s trading session, the benchmark S&P 500 dropped to a 2-week low, the blue-chip Dow fell to a 1-week low, and the tech-heavy Nasdaq 100 slid to a 3-week low. SoFi Technologies Inc. (SOFI) tumbled over -13% after Keefe Bruyette downgraded the stock to Underperform from Market Perform with a price target of $6.50. Also, Tesla Inc (TSLA) slid about -4% after China-based automaker BYD overtook Tesla as the world’s largest electric vehicle seller in the last three months of 2023. In addition, Walgreens Boots Alliance Inc (WBA) fell more than -4% and was the top percentage loser on the Dow after Barclays initiated coverage of the stock with an Underweight rating and a $21 price target. On the bullish side, Eli Lilly (LLY) gained over +4% after Bank of America designated the stock as its top pick for 2024 among large-cap biopharmaceutical companies.
A Labor Department report on Wednesday showed that U.S. JOLTs job openings unexpectedly fell to a 2-1/2 year low of 8.790M in November, weaker than expectations of 8.850M. At the same time, the U.S. December ISM manufacturing index came in at 47.4, stronger than expectations of 47.1.
“Overall, the labor market remains strong, but demand is cooling, coming into better balance with supply. These data will be welcome news for policymakers and support the Fed’s view that the next move in rates will be lower, likely in Q2,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote.
Richmond Fed President Thomas Barkin said Wednesday that the U.S. central bank is “making real progress” in its efforts to curb inflation without causing significant harm to the job market, and the anticipated soft landing is becoming “increasingly conceivable.” “Demand, employment, and inflation all surged but now seem to be on a path back toward normal,” he said in prepared remarks.
Meanwhile, U.S. rate futures have priced in a 6.7% probability of a 25 basis point rate cut at January’s monetary policy meeting and a 67.3% probability of a 25 basis point rate cut at the conclusion of the Fed’s March meeting.
Today, all eyes are focused on U.S. ADP Nonfarm Employment Change data in a couple of hours. Economists, on average, forecast that December ADP Nonfarm Employment Change will stand at 115K, compared to the previous value of 103K.
Also, investors are likely to focus on U.S. Initial Jobless Claims data, which came in at 218K last week. Economists anticipate the new figure to be 216K.
The U.S. S&P Global Composite PMI will come in today. Economists expect December’s figure to be 51.0, compared to November’s value of 50.7.
The U.S. S&P Global Services PMI will also be closely watched today. Economists foresee that S&P Global Services PMI will come in at 51.3 in December, compared to 50.8 in November.
U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be -3.200M, compared to last week’s value of -7.114M.
In the bond markets, United States 10-year rates are at 3.946%, up +1.00%.
The Euro Stoxx 50 futures are up +0.31% this morning, staging a partial rebound after a bruising two-day selloff. Gains in healthcare and energy stocks are leading the overall market higher. A survey showed on Thursday that the contraction in Eurozone business activity persisted at the end of 2023, primarily driven by an ongoing downturn in the dominant services industry, signaling that the bloc’s economy was in recession. Separately, preliminary data revealed on Thursday that French inflation inched higher in December as service prices increased more rapidly and energy costs surged. In corporate news, Next Plc (NXT.LN) climbed over +5% after the British home and clothing retailer lifted its profit forecast for the fifth time since June. At the same time, Jd Sports Fashion Plc (JD-.LN) slumped more than -21% following a surprise profit warning.
France’s CPI (preliminary), France’s Services PMI, Spain’s Services PMI, Italy’s Services PMI, Germany’s Services PMI, Eurozone’s Composite PMI, Eurozone’s Services PMI, and U.K.’s Services PMI were released today.
The French December CPI has been reported at +0.1% m/m and +3.7% y/y, weaker than expectations of +0.2% m/m and +3.8% y/y.
The French December Services PMI stood at 45.7, stronger than expectations of 44.3.
The Spanish December Services PMI arrived at 51.5, stronger than expectations of 51.2.
The Italian December Services PMI came in at 49.8, in line with expectations.
The German December Services PMI was at 49.3, stronger than expectations of 48.4.
Eurozone December Composite PMI has been reported at 47.6, stronger than expectations of 47.0.
Eurozone December Services PMI stood at 48.8, stronger than expectations of 48.1.
U.K. December Services PMI arrived at 53.4, stronger than expectations of 52.7.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.43% and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.53%.
China’s Shanghai Composite closed lower today following a report that showed wages offered to Chinese workers in major cities experienced the most significant decline on record. Average salaries offered by companies to new hires in 38 major Chinese cities declined by -1.3% to 10,420 yuan ($1,458) in the fourth quarter of 2023 compared to the previous year, marking the most significant drop since at least 2016, as per data from online recruitment platform Zhaopin Ltd. compiled by Bloomberg. Also, Fitch lowered the ratings of four Chinese state-owned asset managers by one level and placed three of these firms on watch for potential additional downgrades amid expectations of weaker government support and headwinds from a property market slump. The rating agency downgraded the IDRs of China Cinda Asset Management and China Orient Asset Management Co to A- from A, while the ratings of China Huarong Asset Management Co Ltd and China Great Wall Asset Management were downgraded to BBB from BBB+. On the positive side, a private-sector survey showed on Thursday that China’s services activity experienced the most rapid expansion in five months in December, driven by a solid increase in new business. Also, the nation’s finance minister announced that China’s government spending will increase this year. “We will make sure the overall size of fiscal spending increases,” Finance Minister Lan Fo’an said in an interview published Thursday by the People’s Daily, the Communist Party’s mouthpiece. In other news, foreign capital recorded a net outflow of 3.9 billion yuan ($545.47 million) through the northbound trading link on Thursday.
The Chinese December Caixin Services PMI arrived at 52.9, stronger than expectations of 51.6.
Japan’s Nikkei 225 Stock Index closed lower today in a catch-up trade after an extended New Year’s holiday. Technology stocks led the declines on Thursday, tracking overnight weakness of U.S. peers after the release of Fed meeting minutes provided no indication that easing could commence as soon as March. Also, airline and utilities stocks reacted to the aircraft collision on Tuesday and the powerful earthquake that struck western Japan earlier this week. On the positive side, export-heavy automobile stocks gained ground as the yen weakened against the dollar, with Toyota Motor Corp rising over +1%. In addition, construction stocks advanced amid expectations that demand for reconstruction would increase following the earthquake. Meanwhile, a private-sector survey showed on Thursday that Japan’s factory activity experienced the most significant contraction in 10 months in December, with output and new orders declining due to market uncertainty. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up +7.04% to 18.69.
The Japanese December au Jibun Bank Japan Manufacturing PMI came in at 47.9, stronger than expectations of 47.7.
Pre-Market U.S. Stock Movers
Arena Group Holdings Inc (AREN) surged about +38% in pre-market trading following a report from the New York Post stating that James Heckman and Brock Pierce proposed roughly $4.50 per share for a 45% stake in Arena.
Fubotv Inc (FUBO) climbed over +5% in pre-market trading after announcing a new multi-year distribution agreement with Nexstar Media Group.
MongoDB (MDB) fell more than -1% in pre-market trading after UBS downgraded the stock to Neutral from Buy with a price target of $410.
Verizon Communications Inc (VZ) gained about +1% in pre-market trading after Wolfe Research upgraded the stock to Outperform from Peer Perform with a $46 price target.
Cal-Maine Foods Inc (CALM) plunged over -5% in pre-market trading after the company reported downbeat Q2 results.
Apple Inc (AAPL) fell about -0.6% in pre-market trading after Piper Sandler downgraded the stock to Neutral from Overweight with a price target of $205.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - January 4th
Walgreens Boots (WBA), Lamb Weston Holdings (LW), Conagra Brands (CAG), RPM (RPM), Simply Good Foods (SMPL), Lindsay (LNN), Schnitzer Steel Industries (RDUS), Kura Sushi (KRUS), Franklin Covey (FC).
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