Pre-Market Brief: Stocks Mixed As Cooling Inflation Eases Rate Fears, U.S. Big Banks Earnings In Focus

March S&P 500 futures (ESH23) are trending down -0.36% this morning after three major U.S. benchmark indices closed higher on Thursday as cooling inflation bolstered bets of smaller interest rate hikes by the Federal Reserve. Three major U.S. stock indexes were fueled primarily by gains in the Oil & Gas, Telecoms, and Technology sectors.

In Thursday’s trading session, three major US benchmark indices rose in volatile trade as inflation fell by -0.1% m/m for the first time in more than 2-1/2 years in December amid lower prices for gasoline and other goods. At the same time, consumer prices rose 6.5% on an annual basis in December, down from 7.1% y/y in November. However, a separate reading showed weekly jobless claims stood at 205K, below expectations of 215K, pointing to a still-tight labor market.

“The Fed now has the opportunity to moderate further increases, but the numbers certainly don’t point to a stoppage of any increases,” said Mike Loewengart, a head of model portfolio construction at Morgan Stanley Global Investment Office in New York.

After the recent inflation report, U.S. rate futures have priced in a 93.3% chance of a 25 basis point rate increase and a 6.7% chance of a 50 basis point hike at February’s monetary policy meeting. 

Philadelphia Fed President Patrick Harker Thursday backed a move for a smaller 0.25% rate hike next month. Also, St. Louis Fed President James Bullard acknowledged the moderation in prices but warned that the road back to the central bank’s target would be bumpy. 

JPMorgan Chase & Co (JPM), Bank of America Corp (BAC), Citigroup Inc (C), and Wells Fargo (WFC) & Co are scheduled to kick off the quarterly earnings season today and provide more clues on the strength of corporate America.

Today, all eyes are focused on the U.S. Michigan Consumer Sentiment preliminary data in a couple of hours. Economists, on average, forecast that January Michigan Consumer Sentiment will come in at 60.5, compared to the previous value of 59.7.

Also, investors are likely to focus on the U.S. Michigan Consumer Expectations preliminary data, which stood at 59.9 in December. Economists foresee the new figure to be 59.5.

U.S. Export Price Index will be reported today. Economists foresee this figure to stand at -0.5% m/m in December, compared to the previous number of -0.3% m/m.

U.S. Import Price Index data will come in today as well. Economists expect December’s figure to be -0.9% m/m, compared to the previous number of -0.6% m/m.

In the bond markets, United States 10-Year rates are at 3.447%, down -0.01%.

The Euro Stoxx 50 futures are up +0.41% this morning, with investors focusing on a flow of important regional economic data and earnings from the U.S. banking sector. European equities continued the positive start to the new year amid growing hopes that the widely-expected slowdown in the region in 2023 might not be as severe as first worried, helped by increased optimism over an economic recovery in China. Also, data released on Friday showed that U.K. gross domestic product rose +0.1% m/m in November from October, stronger than expectations of -0.3% m/m.

U.K. Industrial Production, U.K. Manufacturing Production, U.K. Trade Balance, France CPI, Spain CPI, Eurozone Industrial Production, and Eurozone Trade Balance data were also released today.

U.K. November Industrial Production stood at -0.2% m/m and -5.1% y/y, compared to expectations of -0.3% m/m and -3.0% y/y.

U.K. November Manufacturing Production came in at -0.5% m/m and -5.9% y/y, weaker than expectations of -0.2% m/m and -4.8% y/y.

U.K. November Trade Balance was at -15.62B, weaker than expectations of -14.90B.

The French December CPI stood at -0.1% m/m and +5.9% y/y, in line with expectations.

The Spanish December CPI came in at +0.2% m/m and +5.7% y/y, weaker than expectations of +0.3% m/m and +5.8% y/y.

Eurozone November Industrial Production has been reported at +1.0% m/m and +2.0% y/y, stronger than expectations of +0.5% m/m and +0.5% y/y.

Eurozone November Trade Balance was at -11.7B, stronger than expectations of -21.1B.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed up +1.01%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.25%.

China’s Shanghai Composite today closed higher amid continued optimism over an economic recovery in China after the country reopened its international borders for the first time in three years. Data on Friday revealed that the Chinese trade surplus increased to a record $877.6 billion in 2022, the highest since records started in 1950, as exports advanced 7% despite weakening U.S. and European demand and COVID-19 lockdowns. This, coupled with a moderate increase in inflation in December, indicated that economic growth was improving after the relaxation of most anti-COVID measures.

At the same time, Japan’s Nikkei 225 Stock Index closed sharply lower on speculation that the Bank of Japan might adjust its ultra-loose monetary policy as the yield on 10-year Japanese government bonds rose above the central bank’s cap of 0.5% on heavy selling ahead of next week’s policy meeting. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 4.74% to 18.80.

Pre-Market U.S. Stock Movers

Tesla Inc (TSLA) dropped about -5% in pre-market trading after the company cut prices in the United States and throughout Europe again to stoke sales after lackluster year-end deliveries.

Virgin Galactic Holdings Inc (SPCE) climbed over +20% in pre-market trading after announcing that commercial service remains on track to start in Q2.

Ares Capital Corporation (ARCC) slid more than -3% in pre-market trading after the company announced its plans to make a public offering of 9M shares of its common stock.

VICI Properties Inc (VICI) dropped more than -3% in pre-market trading after the REIT announced an underwritten public offering of 24M shares.

Hanesbrands Inc (HBI) gained about +7% in pre-market trading after the company guided Q4 revenue above the top end of the prior range.

Lockheed Martin Corporation (LMT) slid about -3% in pre-market trading after Goldman Sachs downgraded the stock to sell from neutral with a price target of $332, down from $388.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - January 13th

UnitedHealth (UNH), JPMorgan (JPM), Bank of America (BAC), Wells Fargo&Co (WFC), BlackRock (BLK), Citigroup (C), Bank of NY Mellon (BK), Wipro ADR (WIT), Delta Air Lines (DAL), First Republic Bank (FRC), Aeon ADR (AONNY), Corus Entertainment (CJREF), Platinum Group Metals (PLG).

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