Stock Index Futures Move Higher as Investors Weigh Interest Rate Outlook, China Stimulus Hopes Boost Sentiment

June S&P 500 futures (ESM23) are up +0.10%, and June Nasdaq 100 E-Mini futures (NQM23) are up +0.30% this morning after three major U.S. benchmark indices rallied on Thursday as a series of economic data pointed to easing inflationary pressures, bolstering hopes that the Federal Reserve will soon end its tightening cycle.

In Thursday’s trading session, the benchmark S&P 500 climbed to a 13-3/4 month high, the tech-heavy Nasdaq 100 posted a 14-1/2 month high, and the blue-chip Dow notched a 6-month high. Domino’s Pizza Inc (DPZ) surged more than +6% and was the top percentage gainer on the S&P 500 after Stifel upgraded the stock to Buy from Hold. Also, home-builder stocks gained ground, underpinned by an over +4% gain in Lennar Corporation (LEN) after the company posted upbeat Q2 results. In addition, mega-cap technology stocks advanced on lower bond yields, with Microsoft Corporation (MSFT) and Meta Platforms Inc (META) gaining more than +3%. On the bearish side, Kroger Company (KR) slid over -2% after the big-box retailer reported weaker-than-expected Q1 revenue.

The Labor Department’s report on Thursday showed claims for state unemployment benefits were unchanged at a 19-month high of 262K last week, higher than the expected figure of 250K, continuing to point toward cracks in a highly resilient labor market. Another data set showed U.S. retail sales unexpectedly rose +0.3% m/m in May, stronger than expectations of -0.1% m/m. In addition, the U.S. May import price index stood at -0.6% m/m, while the U.S. export price index declined -1.9% m/m in May. At the same time, the Philadelphia Fed’s gauge of business outlook came in at -13.7 in June, slightly weaker than expectations of -13.5.

“Due to softer inflation data earlier this week and resilient economic data after the Fed meeting, the market is rallying, and yields are falling because investors don’t believe the Fed is as hawkish as they presented. The market doesn’t believe they have two more hikes in the chamber,” said Ross Mayfield, an investment strategy analyst at Baird.

Meanwhile, U.S. rate futures have priced in a 71.9% probability of a 25 basis point rate increase and a 28.1% chance of no hike at the next central bank meeting in July.

Today, all eyes are focused on the U.S. Michigan Consumer Sentiment preliminary reading in a couple of hours. Economists, on average, forecast that the Michigan Consumer Sentiment Index will stand at 60.0 in June, compared to the previous value of 59.2.

U.S. Michigan Consumer Expectations will be reported today as well. Economists estimate the preliminary figure to come in at 56.5 in June, compared to 55.4 in May.

In addition, investors will likely focus on a speech from Fed Governor Christopher Waller.

In the bond markets, United States 10-Year rates are at 3.741%, up +0.41%.

The Euro Stoxx 50 futures are up +0.30% this morning as investors digested the latest Eurozone inflation data, while expectations for more China stimulus also boosted risk sentiment. Gains in consumer product and travel stocks are leading the overall market higher. Data on Friday showed that Eurozone headline inflation sharply decelerated in May, confirming preliminary estimates, while underlying inflation, watched closely by the central bank, also eased. The European Central Bank raised the deposit rate by 25 basis points to a 22-year high of 3.50% Thursday and signaled further policy tightening in its fight against stubbornly high inflation. Meanwhile, Goldman Sachs Group Inc. strategist Sharon Bell increased her target for European stocks amid an expected boost from easing inflation, peaking interest rates, better real income growth, and weak positioning. In corporate news, shares of Travis Perkins Plc (TPK.LN) plunged over -5% after Britain’s biggest supplier of building materials warned that full-year profit would be hit by lower volumes.

Italy’s CPI, Eurozone’s CPI, and Eurozone’s Core CPI data were released today.

The Italian May CPI has been reported at +0.3% m/m and +7.6% y/y, in line with expectations.

Eurozone May CPI stood at 0.0% m/m and +6.1% y/y, in line with expectations.

Eurozone May Core CPI came in at +0.2% m/m and +5.3% y/y, in line with expectations.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.63%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.66%.

China’s Shanghai Composite today closed higher as concerns over the country’s economic growth morphed into optimism for additional policy support after the People’s Bank of China cut a few key policy rates this week. The Wall Street Journal reported Thursday that Beijing was exploring various stimulus measures to boost its flagging economy, including billions of dollars in new infrastructure spending and the relaxation of regulations to encourage property investors to increase their home purchases. Artificial intelligence-related stocks gained ground on Friday, with Kunlun Tech surging over +11%. Hong Kong-listed technology stocks also rose, with Tencent Holdings Ltd rising over +2% and Alibaba Group Holding Ltd gaining about +3%. On the negative side, UBS cut its China 2023 GDP growth forecast to 5.2% from 5.7% on Friday amid disappointing May data. BofA Global Research also trimmed its China economic growth forecast for 2023 to 5.7% from 6.3% following weaker-than-expected May data.

“Trading volume rose on investors’ higher hopes for easing and was supported by open market operations and medium-term policy loan rate cuts,” Morgan Stanley analysts said in a note.

Japan’s Nikkei 225 Stock Index closed in the green today, ending higher for the 10th consecutive week in its longest streak since February 2013 after the central bank left its ultra-easy policy settings unchanged. The Bank of Japan kept short-term interest rates at minus 0.1% and signaled no change to its quantitative easing and yield curve control policies. Meanwhile, Canon Inc climbed about +5% after the cameras-to-scanners conglomerate declared a stock buyback on Thursday. Japanese travel and consumer stocks also outperformed, with Japan Airlines Co Ltd rising more than +4%. In addition, a weaker yen boosted export-oriented stocks. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 1.50% to 22.32.

Pre-Market U.S. Stock Movers

Adobe Systems Incorporated (ADBE) rose more than +3% in pre-market trading after the enterprise software maker reported upbeat Q2 results and raised its full-year outlook.

Virgin Galactic Holdings Inc (SPCE) surged over +37% in pre-market trading after announcing the start of commercial service this month.

Squarespace Inc (SQSP) climbed more than +4% in pre-market trading after the company announced that it would buy Google Domains assets. 

SoFi Technologies Inc. (SOFI) plunged over -6% in pre-market trading after Piper Sandler downgraded the stock to Neutral from Overweight.

Verastem Inc (VSTM) slid more than -8% in pre-market trading after the company said it plans to offer and sell common stock and pre-funded warrants in an underwritten public offering.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - June 16th

Eaton Vance Enhanced Equi II Closed (EOS), Eaton Vance Risk Managed Diversifie (ETJ), Sos Ltd (SOS).

More Stock Market News from Barchart

• Stock Rally Continues as Bond Yields Fall on Hopes Fed Rate Hikes Will End
• How High Can Unity Software Stock Climb?
• Is the Surge in AI Stocks Similar to Dot-Com Frenzy?
• Stocks Rebound on Hopes Fed is Near the End of its Rate Hike Campaign