Markets Today: Stocks Jump as U.S. Wage Pressures Ease

Morning Markets

March S&P 500 futures (ESH23) this morning are up +0.72%, and March Nasdaq 100 E-Mini futures (NQH23) are up +0.55%. 

U.S. stock index futures recovered from overnight losses and moved moderately higher as a slowdown in hourly wage growth outweighed a mostly robust U.S. Dec payrolls report.  Dec average hourly earnings rose +4.6% y/y, weaker than expectations of +5.0% y/y and the slowest pace of increase in 16 months. However, Dec nonfarm payrolls rose +223,000, above expectations of +203,000, and the Dec unemployment rate unexpectedly fell to 3.5% and matched a 53-year low. 

The slower-than-expected increase in U.S. Dec average hourly earnings was bullish for bond prices and knocked the 10-year T-note yield down -4.3 bp to 3.675%. 

U.S. stocks also garnered carry-over support today from a rally in European stocks to a 3-week high after today’s news that Eurozone Dec consumer prices rose less than expected and Eurozone Nov retail sales rose more than expected.  Also, a rally in China’s Shanghai Composite to a 3-week high gave equities a boost after China took additional steps to revive its ailing property market. 

Stock indexes initially moved lower in overnight trade on weakness in technology stocks, with Tesla down more than -4% in pre-market trading after it announced another round of price cuts on its Model 3 and Y electric vehicles in China. 

U.S. Dec nonfarm payrolls rose +223,000, stronger than expectations of +203,000.  Also, the Dec unemployment rate unexpectedly fell -0.1 to 3.5%, matching a 53-year low and showing a stronger labor market than expectations of 3.7%.

U.S. Dec average hourly earnings rose +0.3% m/m and +4.6% y/y, weaker than expectations of +0.4% m/m and +5.0% y/y.  The +4.6% y/y gain was the weakest in 16 months.

Overseas markets today are higher.  The Euro Stoxx 50 index is up +0.53%.  The Shanghai Composite Stock index closed up by +0.08%, and Japan’s Nikkei Stock index closed up by +0.59%.

The Euro Stoxx 50 today climbed to a 3-week high and is moderately higher.  European stocks garnered support today after Citigroup upgraded them to overweight, saying valuations are already pricing in bad earnings news.  Also, positive Eurozone economic news today gave equities a boost after Eurozone December consumer prices rose less than expected and Eurozone Nov retail sales rose more than expected.  In addition, Eurozone Dec economic confidence rose more than expected to a 4-month high.  The 10-year German bund yield is down by -5.8 bp at 2.258%.

Eurozone Dec economic confidence rose +1.8 to a 4-month high of 95.8, stronger than expectations of 94.7.

Eurozone Dec CPI eased to 9.2% y/y from 10.1% y/y in Nov, weaker than expectations of +9.5% y/y. However, Dec core CPI rose to 5.2% y/y, stronger than expectations of +5.1% y/y.

Eurozone Nov retail sales rose +0.8% m/m, stronger than expectations of +0.6% m/m.

German Nov factory orders fell -5.3% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 13 months.

China’s Shanghai Composite climbed to a 3-week high today and closed slightly higher.  Strength in property and real estate stocks led the overall market higher after a Bloomberg report said Chinese regulators might allow some property firms to add more leverage by easing borrowing.  Also, authorities are looking at extending lower mortgage rates to fuel home purchases and capping commissions for real estate agents.  The new measures to boost liquidity in the property market sparked a rally in the yuan to a 4-1/2 month high against the dollar.

Japan’s Nikkei Stock index today closed moderately higher. Strength in exporters led the overall market higher after the yen tumbled to a 1-1/2 month low against the dollar.  Also, the BOJ today boosted QE after it announced additional bond purchases.  In addition, today’s news that showed Japanese Nov real cash earnings falling by the most since 2014 bolsters the outlook for the BOJ to continue with its ultra-easy monetary policy, a bullish factor for stocks.

Japan Nov real cash earnings fell -3.8% y/y, weaker than expectations of -2.8% y/y and the biggest decline in 8-1/2 years.

The Japan Dec Jibun Bank services PMI was revised downward by -0.6 to 51.1 from the initially reported 51.7.

The BOJ today announced additional bond purchases for the fifth time in the last six sessions, buying an additional 300 billion yen ($2.2 billion) of five-to-10 year notes.

Pre-Market U.S. Stock Movers

Tesla (TSLA) tumbled more than -5% in pre-market trading after it announced another round of price cuts on its Model 3 and Y electric vehicles in China. 

Lululemon Athletica (LULU) rose nearly +2% in pre-market trading after Wells Fargo Securities upgraded the stock to overweight from equal weight.

Molson Coors (TAP) rose more than +1% in pre-market trading after Cowen upgraded the stock to outperform from market perform.

Southwest Airlines (LUV) fell more -than 2% in pre-market trading after it said it expects a Q4 loss after it had to cancel more than 16,700 flights in late December.

Wells Fargo (WFC) slid nearly -1% in pre-market trading after Morgan Stanley cut its price target on the stock to $41 from $45.

Discover Financial Services (DFS) fell more than -1% in pre-market trading after Barclays downgraded the stock to equal weight from overweight.

Novocure (NVCR) dropped more than -3% in pre-market trading after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Ulta Beauty (ULTA) fell more than -2% in pre-market trading after Wells Fargo Securities downgraded the stocks to underweight from equal weight.

Stellantis NV (STLA) slid more than -1% in pre-market trading after CEO Tavares said the company might idle additional manufacturing plants as it grapples with higher operating costs.

VF Corp (VFC) dropped more than -2% in pre-market trading after Wells Fargo Securities downgraded the stock to underweight from equal weight.

Today’s U.S. Earnings Reports (1/6/2023)

Avaya Holdings Corp (AVYA), Chase Corp (CCF), Greenbrier Cos Inc/The (GBX), Mitek Systems Inc (MITK).

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