What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.22%.
Stocks this morning are slightly higher as the markets await Thursday’s U.S. consumer price report for clues on the outlook of Federal Reserve policy. The consensus is for U.S. Dec CPI to tick up to +3.2% y/y from +3.1% y/y in Nov, although the core Dec CPI (ex-food and energy) is expected to slip to a 2-1/2 year low of +3.8% y/y from +4.0% y/y in Nov.
The markets are also awaiting the Q1 corporate earnings season that kicks off Friday with bank earnings results from Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo. Expectations are for their results to show that net interest margins remain under pressure from higher funding costs.
U.S. MBA mortgage applications rose +9.9% in the week ended January 5. The home purchase mortgage sub-index rose +5.6%, and the refinancing sub-index rose +18.8%. The average 30-year fixed mortgage rate rose 5 bp to 6.81% from 6.76% in the prior week.
The markets are discounting the chances for a -25 bp rate cut at 5% at the next FOMC meeting on Jan 30-31 and 69% for that same -25 bp rate cut 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 -0.1 bp at 4.013%. The 10-year German bund yield is up +1.9 bp at 2.208%. The 10-year UK gilt yield is up +2.8 bp at 3.811%.
Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.12%. China’s Shanghai Composite Index closed down -0.54%. Japan’s Nikkei Stock Index closed up +2.01%.
Today’s stock movers…
Intuitive Surgical (ISRG) is up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after reporting preliminary Q4 revenue of $1.93 billion, stronger than the consensus of $1.87 billion.
Homebuilders are climbing today after Lennar increased its quarterly cash dividend to 50 cents per share, above expectations of +37.5 cents per share, and authorized a boost to the stock repurchase program of $5 billion. As a result, Lennar (LEN) is up more than +3%, and DR Horton (DHI) and PulteGroup (PHM) are up more than +2%. Also, Toll Brothers (TOL) is up more than +1%.
Howmet Aerospace (HWM) is up more than +3% after Truist Securities upgraded the stock to buy from hold.
Home Depot (HD) is up more than +1% to lead gainers in the Dow Jones Industrials after Wedbush upgraded the stock to outperform from neutral with a price target of $380.
Meta Platforms (META) is up more than +2% after Mizuho Securities raised their price target on the stock to $470 from $400.
SMART Global Holdings (SGH) is up more than +11% after forecasting Q2 adjusted EPS of 15 cents to 35 cents and Q2 adjusted gross margin of 31.5% to 33.5%.
Palo Alto Networks (PANW) is up more than +2% after Morgan Stanley raised its price target on the stock to $375 from $304.
Juniper Networks (JNPR) is up more than +1% after Hewlett Packard Enterprise agreed to buy the company for $14 billion, or $40 a share.
Charles River Laboratories (CRL) is down more than -3%, adding to Tuesday’s -5% fall on disappointment in the company’s overview of business developments at a presentation at the JPMorgan Healthcare Conference.
Capital One Financial (COF) is down more than -2% after BMO Capital Markets downgraded the stock to market perform from outperform.
Aehr Test Systems (AEHR) is down more than -14% after William Blair said it was cautious about the company’s earnings forecast after ON Semiconductor, Aehr’s biggest customer, lowered guidance for silicon carbide revenue.
Etsy (ETSY) is down more than -2% after Goldman Sachs downgraded the stock to neutral from buy.
LyondellBasell Industries NV (LYB) is down more than -1% after Deutsche Bank downgraded the stock to hold from buy.
Consumer staples and food-producing stocks are under pressure today, with Campbell Soup (CPB), McCormick & Co (MKC), Kraft Heinz (KHC), and Conagra Brands (CAG) down more than -1%.
Dow Inc (DOW) is down nearly -1% after Deutsche Bank downgraded the stock to hold from buy.
Across the markets…
March 10-year T-notes (ZNH24) this morning are up +2 ticks, and the 10-year T-note yield is down -0.1 bp at 4.013%. Mar T-note prices today are moderately higher on carryover support from a rally in 10-year German bunds. T-notes also have support on expectations for a friendly U.S. Dec CPI report on Thursday. Further gains in T-notes may be limited by supply pressures as the Treasury will auction $37 billion of 10-year T-notes later today as part of this week’s $110 billion auction package of T-notes and T-bonds.
The dollar index (DXY00) today is down by -0.03%. Lower T-note yields today are putting slight pressure on the dollar. Also weighing in the dollar are expectations for a friendly U.S. CPI report on Thursday, which could pave the way for Fed rate cuts.
The markets are discounting the chances for a -25 bp rate cut at 5% at the next FOMC meeting on Jan 30-31 and 72% for the following meeting on March 19-20.
EUR/USD (^EURUSD) is up by +0.06%. The euro today is slightly higher and is finding support from a weaker dollar. Also, positive Eurozone economic news is bullish for the euro after French Nov industrial production rose more than expected. Limiting gains in the euro are comments from ECB Vice President Guindos and ECB Executive Board member Schnabel, who said economic prospects for the Eurozone remain on the downside.
French Nov industrial production rose +0.5% m/m, stronger than expectations of no change m/m.
ECB Vice President Guindos said the Eurozone may have experienced a downturn at the end of last year, and "incoming data indicate that the future remains uncertain, and the prospects are tilted to the downside."
ECB Executive Board member Schnabel said, “There is evidence that sentiment indicators are bottoming out, but the near-term economic outlook remains weak in line with our projections.”
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and 41% for the following meeting on March 7.
USD/JPY (^USDJPY) is up by +0.69%. The yen is falling against the dollar today after weaker-than-expected Japanese wage reports bolster the outlook for the BOJ to delay exiting its negative interest rate policy. Also, today’s rally in the Nikkei Stock Index to an almost 34-year high has curbed safe-haven demand for the yen. A decline in T-note yields today is limiting losses in the yen.
Japan Nov labor cash earnings rose +0.2% y/y, weaker than expectations of +1.5% y/y. Also, Nov real cash earnings fell -3.0% y/y, weaker than expectations of -2.0% y/y and the biggest decline in 7 months.
February gold (GCG4) today is up +4.1 (+0.20%), and Mar silver (SIH24) is down -0.021 (-0.09%). Gold and silver prices this morning are mixed. Gold is moving higher today on weaker-than-expected wage reports in Japan, which could prompt the BOJ from exiting its negative interest rate policy. Gold also has support on expectations for a friendly U.S. CPI report on Thursday, which could allow the Fed to begin cutting interest rates. Silver prices are under pressure today after ECB Vice President Guindos and ECB Executive Board member Schnabel said economic prospects for the Eurozone remain on the downside, which is negative for industrial metals demand. Gains in gold are limited due to ongoing fund liquidation of gold positions after long gold holdings in ETFs fell to a nearly 4-year low Tuesday.
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.
