Markets Today: Stocks Fall Back Ahead of Comments from Fed Chair Powell

Morning Markets

March S&P 500 futures (ESH23) this morning are down -0.48% and March Nasdaq 100 E-Mini futures (NQH23) are down -0.67%. 

U.S. stock index futures this morning are moderately lower on higher bond yields.  Yields are climbing on negative carry-over from Monday when San Francisco Fed President Daly and Atlanta Fed President Bostic said they expect the Fed this year to raise the federal funds rate above 5% and hold it there for some time.  The 10-year T-note yield is up +6.1 bp at 3.593%.

Stocks are also under pressure today on caution ahead of comments later this morning from Fed Chair Powell, who is taking part in a panel discussion on central bank independence and the mandate at a symposium hosted by the Riksbank in Stockholm, Sweden. 

Negative corporate news today is weighing on the overall market.  Boeing, NetApp, HP Enterprises, Box Inc. Chemours, and Norwegian Cruise Line Holdings are down more than -1% in pre-market trading after being downgraded.

Overseas markets today are mixed.  The Euro Stoxx 50 index is down -0.53%.  The Shanghai Composite Stock index closed down by -0.21%, and Japan’s Nikkei Stock index closed up +0.78%.

European stocks today are moderately lower after comments from global central bankers point to higher interest rates for longer.  On Monday, San Francisco Fed President Daly and Atlanta Fed President Bostic said that the Fed should take the federal funds rate above 5% before pausing and holding for some time.  Also, ECB Executive Board member Schnabel said today that "interest rates will still have to rise significantly” to reach restrictive levels that would curb inflation.  The 10-year German bund yield today is up +5.4 bp at 2.281%.  Losses on stocks were limited after Goldman Sachs raised its recommendation on European stocks to overweight for neutral over the next 12 months.

Today’s Eurozone economic news was better than expected and positive for stocks.  French Nov industrial production rose +2.0% m/m, stronger than expectations of +0.8% m/m.  Also, French Nov manufacturing production rose +2.4% m/m, stronger than expectations of +0.8% m/m.

ECB Executive Board member Schnabel said, "interest rates will still have to rise significantly at a steady pace to reach levels that are significantly restrictive to ensure a timely return of inflation to our 2% medium-term target."

Goldman Sachs no longer predicts a recession in the Eurozone this year as it raised its 2023 Eurozone GDP forecast to +0.6% compared with an earlier forecast for a contraction of -0.1%, citing the sharp fall in nat-gas prices and the earlier-than-expected reopening of China's economy.

Chinese equities today posted moderate losses.  Weakness in stocks related to travel and tourism led decliners in the Shanghai Composite today after China suspended issuing some visas for South Korea and Japan in retaliation against the countries against Covid-related curbs on Chinese travelers.  The action by China may markedly slow the recovery in inbound tourism after it scrapped travel quarantines on Sunday.  South Korea and Japan were the two largest sources of visitors to China before the pandemic. 

Weaker credit growth in China is bearish for stocks after today’s economic news showed China Dec aggregate financing, the broadest measure of credit growth, rose +1.31 trillion yuan, weaker than expectations of +1.85 trillion yuan.

Japan’s Nikkei Stock Index rallied to a 1-week high today and closed moderately higher after reopening from Monday’s holiday. Japanese stocks gained on carry-over support from last Friday’s surge in U.S. stocks as T-note yields tumbled on speculation the Fed will be less aggressive in tightening monetary policy after the U.S. services sector unexpectedly contracted last month.  However, gains in stocks were limited after a stronger-than-expected report on Tokyo Dec consumer prices pushed the 10-year Japan JGB bond yield up to a 7-1/2 year high of 0.509%, above the BOJ’s 0.50% upper target of its 10-year yield range.

Today’s Japanese economic news was bearish for stocks.  Japan Nov household spending unexpectedly fell -1.2% y/y, weaker than expectations of +0.5% y/y and the biggest decline in 7 months. Also, Tokyo Dec CPI ex-fresh food rose +4.0% y/y, stronger than expectations of +3.8% y/y and the fastest pace of increase in 40 years.

Pre-Market U.S. Stock Movers

Boeing (BA) dropped more than -2% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight. 

HP Enterprise (HPE) and NetApp (NTAP) slid nearly -2% in pre-market trading after Barclays downgraded the stocks to equal weight from overweight.

Box Inc (BOX) fell more than -2% in pre-market trading after RBC Capital Markets downgraded the stock to underperform from sector perform.

Chemours (CC) dropped more than -2% in pre-market trading after RBC Capital Markets downgraded the stock to sector perform from outperform.

Norwegian Cruise Line Holdings (NCLH) tumbled more than -3% in pre-market trading after Morgan Stanley downgraded the stock to underweight from equal weight.

Oak Street Health (OSH) surged more than +33% in pre-market trading after a Bloomberg report said that CVS Health is exploring an acquisition of the company.

AT&T (T) rose more than +1% in pre-market trading after Wells Fargo Securities said the U.S. telecom sector is a relatively defensive play for 2023 and named AT&T as its top pick in the sector.

Bio-Techne (TECH) climbed nearly +2% in pre-market trading after Wells Fargo Securities upgraded the stock to equal weight from underweight with a price target of $90.

Today’s U.S. Earnings Reports (1/10/2023)

Albertsons Cos Inc (ACI), Bed Bath & Beyond Inc (BBBY), Inotiv Inc (NOTV), Mullen Automotive Inc (MULN), TD SYNNEX Corp (SNX).

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