March S&P 500 E-Mini futures (ESH25) are trending down -0.01% this morning as investors adopted a cautious stance ahead of the all-important U.S. jobs report that will help shape the outlook for interest rates.
In Wednesday’s trading session, Wall Street’s major indexes ended mixed. eBay surged nearly +10% and was the top percentage gainer on the S&P 500 after Meta Platforms proposed publishing eBay’s listings on Facebook Marketplace to comply with a European Union antitrust order. Also, GE HealthCare Technologies climbed more than +3% and was the top percentage gainer on the Nasdaq 100 after Jeffries upgraded the stock to Buy from Hold with a price target of $103. In addition, Maplebear gained over +4% after S&P Dow Jones Indices announced that the stock would be added to the S&P MidCap 400 Index next week. On the bearish side, Edison International slumped over -10% and was the top percentage loser on the S&P 500 after its Californian subsidiary shut off power to customers due to wildfires. Also, Advanced Micro Devices slid over -4% after HSBC downgraded the stock to Reduce from Buy with a $110 price target.
The ADP National Employment report released on Wednesday showed that U.S. private nonfarm payrolls rose by 122K in December, down from 146K in November and missing the consensus estimate of 139K. Also, U.S. consumer credit unexpectedly fell -$7.49B in November, weaker than the expected +$10.30B increase and marking the largest decline in 15 months. At the same time, the number of Americans filing for initial jobless claims in the past week unexpectedly fell by -10K to a 10-1/2 month low of 201K, compared with the 214K expected.
The minutes of the Federal Open Market Committee’s December 17-18 meeting, released Wednesday, revealed that officials embraced a new approach to rate-cutting in light of heightened inflation risks, opting to proceed more cautiously in the coming months. “Participants indicated that the committee was at or near the point at which it would be appropriate to slow the pace of policy easing,” according to the FOMC minutes. “Almost all participants judged that upside risks to the inflation outlook had increased. As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy,” the minutes said.
Philadelphia Fed President Patrick Harker stated on Thursday that policymakers are on track to reduce interest rates this year, but the precise timing “will be fully dependent upon the incoming data.” Also, Boston Fed President Susan Collins said a more gradual approach to adjusting interest rates is warranted now as officials face “considerable uncertainty” regarding the economic outlook. In addition, Fed Governor Michelle Bowman said she sees lingering inflation risks and that policymakers should be cautious with additional interest rate cuts. Finally, Fed Governor Christopher Waller said on Wednesday, “The extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate.”
Meanwhile, U.S. rate futures have priced in a 93.1% probability of no rate change and a 6.9% chance of a 25 basis point rate cut at the January FOMC meeting.
Today, all eyes are focused on the U.S. monthly payroll report, which is set to be released in a couple of hours. Economists, on average, forecast that December Nonfarm Payrolls will come in at 164K, compared to November’s figure of 227K.
A survey conducted by 22V Research showed that the majority of investors are monitoring payrolls more closely than usual. 40% of the respondents expect key U.S. jobs data to be “risk-off,” 34% anticipate it will be “mixed/negligible,” and only 26% foresee “risk-on.”
U.S. Average Hourly Earnings data will also be closely watched today. Economists expect December figures to be +0.3% m/m and +4.0% y/y, compared to the previous numbers of +0.4% m/m and +4.0% y/y.
The U.S. Unemployment Rate will be reported today. Economists foresee this figure to remain steady at 4.2% in December.
The University of Michigan’s U.S. Consumer Sentiment Index will be released today as well. Economists forecast the preliminary January figure to be 74.0, unchanged from last month.
“Investors will want to see a return to Goldilocks data, consistent with a cooling labor market to help temper the recent spike in yields and help stocks stabilize,” said Tom Essaye at The Sevens Report.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.690%, up +0.19%.
The Euro Stoxx 50 futures are up +0.04% this morning, on track for a weekly gain, with investors awaiting the U.S. monthly payrolls report due later in the day. Telecom stocks outperformed on Friday, while food and utility stocks lost ground. Data from the French statistics agency Insee released Friday showed that the country’s factory production slightly rebounded in November, offering a glimmer of hope for the struggling sector. Separately, data showed that France’s monthly consumer spending recovered in November, driven by higher consumption of engineered goods, durable goods, and other engineered goods. Meanwhile, European government bond yields remained elevated, with the yield on the German 10-year bund reaching its highest level in six months. In corporate news, Ubisoft Entertain (UBI.FP) slumped over -5% after the French videogame maker announced it had appointed strategic advisors to explore its options, following reports last year suggesting a buyout was being considered.
France’s Consumer Spending and Industrial Production data were released today.
The French November Consumer Spending came in at +0.3% m/m, stronger than expectations of +0.1% m/m.
The French November Industrial Production arrived at +0.2% m/m, stronger than expectations of -0.1% m/m.
Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -1.33% and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.05%.
China’s Shanghai Composite Index closed lower today as concerns about the strength of the nation’s economic recovery continued to weigh on sentiment. Consumer-related and real estate stocks led the declines on Friday. The benchmark index posted a weekly loss. Investor sentiment remained weak after data released earlier this week showed that consumer prices in China increased by only 0.1% in December, marking the smallest rise in nine months and highlighting persistent deflationary pressures. Meanwhile, at a news conference on Friday, Chinese Vice Finance Minister Liao Min said that the country has ample fiscal policy space and tools to support economic growth this year and will intensify spending to boost investment. In other news, the People’s Bank of China announced on Friday that it had decided to temporarily halt treasury bond purchases due to a shortage of supply. “This announcement indicates that the PBOC is concerned about the recent decline of government bond yields,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. In corporate news, Weimob plummeted about -41% in Hong Kong after Tencent cut its stake in the merchant services provider to 2.94% from 8.4%.
Japan’s Nikkei 225 Stock Index closed lower today as cautious sentiment prevailed ahead of key U.S. jobs data. Automobile and pharmaceutical stocks led the declines on Friday. The benchmark index posted its second consecutive weekly decline. Government data released on Friday showed that Japanese household spending fell at a slower rate than anticipated in November, but the overall consumption trend continued to be weak, weighed by rising prices. Separately, preliminary data from the Cabinet Office showed that Japan’s leading economic indicators index, which gauges the economic outlook for a few months ahead based on data such as job offers and consumer sentiment, fell in November to the lowest level since August. Meanwhile, Japan’s economy minister Ryosei Akazawa stated on Friday that the government will closely coordinate policy with the Bank of Japan as the economy reaches a pivotal stage in transitioning to growth fueled by higher wages and investment. He noted that the nation has been trapped in a “deflationary, vicious cycle” characterized by stagnant prices and wages, and “it’s very important to dispel this deflationary mindset and achieve growth driven by higher wages and investment,” emphasizing the importance of urging companies to increase wages at a rate surpassing inflation. The remarks came ahead of the BOJ’s meeting later this month, during which some analysts anticipate that the central bank may raise interest rates. In corporate news, Fast Retailing slumped over -6% after reporting weaker-than-expected Q1 profit from China. At the same time, Seven & i Holdings gained more than +4% after Bloomberg reported that Apollo Global Management is considering investing as much as 1.5 trillion yen ($9.5 billion) in a management buyout. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -12.41% to 21.74.
The Japanese November Household Spending came in at +0.4% m/m and -0.4% y/y, stronger than expectations of -0.9% m/m and -0.6% y/y.
The Japanese November Leading Index arrived at 107.0, weaker than expectations of 107.2.
Pre-Market U.S. Stock Movers
Nvidia dropped over -1% in pre-market trading after Bloomberg reported that the Biden administration plans to impose additional restrictions on AI chip exports.
Advanced Micro Devices fell more than -2% in pre-market trading after Goldman Sachs downgraded the stock to Neutral from Buy.
Nike rose over +1% in pre-market trading after Piper Sandler upgraded the stock to Overweight from Neutral with a price target of $90.
Today’s U.S. Earnings Spotlight: Friday - January 10th
Constellation Brands (STZ), Delta Air Lines (DAL), TD Synnex (SNX), Walgreens Boots (WBA), WD-40 (WDFC), Neogen (NEOG), Tilray (TLRY), E2open Parent Holdings (ETWO).
On the date of publication, Oleksandr Pylypenko 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 Policyhere.
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