What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +0.41%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.36%.
Stocks this morning are mildly higher, with the S&P 500 climbing to a 23-month high and the Dow Industrials and Nasdaq 100 climbing to new all-time highs.
Stocks rose today as bond yields fell on optimism the prospects for a Fed rate cut after Richmond Fed President Barkin suggested the Fed would cut interest rates if recent progress on inflation continues. Stocks also have carryover support from a rally in Japanese stocks after the Bank of Japan (BOJ) maintained negative interest rates at today’s policy meeting.
Richmond Fed President Barkin suggested the Fed would cut interest rates if recent progress on inflation continues, saying, "If you're going to assume that inflation comes down nicely, of course, the Fed would respond appropriately."
Today’s U.S. housing news was mixed. U.S. Nov housing starts unexpectedly rose +14.8% m/m to a 6-month high of 1.56 million, stronger than expectations of a decline to 1.36 million. However, Nov building permits, a proxy for future construction, fell -2.5% m/m to a 4-month low of 1.460 million, weaker than expectations of a decline to 1.465 million.
The markets are discounting the chances for a -25 bp rate cut at 10% at the next FOMC meeting on Jan 30-31 and 83% at 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 -2.4 bp at 3.907%. The 10-year German bund yield is down -5.9 bp at 2.020%. The 10-year UK gilt yield fell to a 7-1/2 month low of 3.627% and is down -5.1 bp at 3.644%.
Overseas stock markets are higher. The Euro Stoxx 50 is up +0.31%. China’s Shanghai Composite Index closed up +0.05%. Japan’s Nikkei Stock Index closed up +1.41%.
Today’s stock movers…
Kenvue (KVUE) is up more than +5% after a court ruled in favor of the company in a class action lawsuit involving Tylenol.
Illumina (ILMN) is up more than +3% to lead gainers in the Nasdaq 100 after activist investor Carl Icahn said he plans to launch a new proxy fight to take control of Illumina’s board.
Builders FirstSource (BLDR) is up more than +2% after Stifel raised its price target on the stock to $200 from $184.
VF Corp (VFC) is up more than +2% after Telsey Advisory Group raised its price target on the stock to $22 from $20.
Boeing (BA) is up more than +1% after Deutsche Lufthansa AG ordered 40 Boeing 737-8 Max jets.
Amgen (AMGN) is up more than +1% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $326.
Rockwell Automation (ROK) is up more than +1% after Wells Fargo upgraded the stock to overweight from equal weight with a price target of $357.
United Rentals (URI) is up more than +1% after Stifel raised its price target on the stock to $591 from $494.
Bank of America (BAC) is down more than -1% after CEO Moynihan said loan balance growth on the commercial side has been “sluggish,” with companies borrowing less because it’s more expensive, and they are worried about demand amid a potential economic downturn.
Permian Resources (PR) is down more than -2% after announcing the commencement of an underwritten public offering of more than 39 million shares of its class A common stock.
Broadcom (AVGO) is down nearly -1% on signs of insider selling after an SEC filing showed CEO Tan sold $21.8 million of shares last Thursday.
Across the markets…
March 10-year T-notes (ZNH24) this morning are up +7 ticks, and the 10-year T-note yield is down -2.4 bp at 3.907%. Mar T-note prices this morning are moderately higher on positive carryover from a rally in 10-year Japanese JGBs as the BOJ maintained negative interest rates after today’s policy meeting. Also, dovish comments from Richmond Fed President Barkin supported T-notes when he suggested the Fed could cut rates if progress on inflation continues.
The dollar index (DXY00) today is down by -0.43%. Today, the dollar is moderately lower, weighed down by a decline in T-note yields. Also, hawkish ECB comments today were supportive of the euro and weighed on the dollar. Losses in the dollar accelerated on dovish comments from Richmond Fed President Barkin.
EUR/USD (^EURUSD) today is up by +0.57%. The euro is climbing today after a couple of ECB policymakers, Kazaks and Simkus, pushed back on speculation that the ECB will cut interest rates as soon as Q1 of next year. Dovish Fed comments today also weighed on the dollar to the benefit of the euro.
ECB Governing Council member Kazaks said the ECB needs to keep interest rates at current levels "for some time" to ensure wage growth slows down and new risks for inflation don't arise as "it is too early to declare victory over inflation and therefore not the time to cut interest rates."
ECB Governing Council member Simkus said while there was a positive surprise on Eurozone consumer prices in November, the medium-term outlook hasn't changed much, so "the expectations of early and fast interest rate cuts may be too optimistic."
Swaps tied to ECB meeting dates have now priced in a 40% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting, falling from 47% on Monday.
USD/JPY (^USDJPY) today is up by +0.72%. The yen today fell against the dollar after the BOJ voted unanimously to maintain negative interest rates and said it will “patiently” continue with monetary easing. The yen weakened further today after BOJ Governor Ueda said the chances are low that the BOJ will announce a rate hike next month.
The BOJ voted 9-0 to maintain its policy rate at -0.1% and to keep the 10-year JGB yield target at about 0% and said it would patiently continue with monetary easing with extremely high uncertainties around economic activity and prices.
BOJ Governor Ueda said the side effects of negative rates aren't decisive enough to require an immediate policy adjustment, and the chances are low that the BOJ will announce a rate hike next month.
February gold (GCG4) this morning is up +9.8 (+0.48%), and Mar silver (SIH24) is up +0.268 (+1.11%). Gold and silver prices this morning are moderately higher. A weaker dollar today is bullish for metals prices. Also, lower global bond yields today are supportive of precious metals. Gold garnered support as a store of value today after the BOJ maintained negative interest rates and said it would patiently continue with monetary easing. Gains in precious metals are limited by hawkish comments today from ECB Governing Council members Simkus and Kazaks, who pushed back on speculation that the ECB would cut interest rates as soon as Q1 of next year. Also, stock strength today has curbed the safe-haven demand for precious metals.
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.
