Stocks Set to Open Lower as Investors Await U.S. Economic Data and Corporate Earnings

March S&P 500 E-Mini futures (ESH24) are down -0.40%, and March Nasdaq 100 E-Mini futures (NQH24) are down -0.50% this morning as U.S. Treasury yields climbed on the first trading day since Friday, with market participants bracing for a busy week of corporate earnings and economic data.

In Friday’s trading session, Wall Street’s major indexes ended mixed. Delta Air Lines Inc (DAL) plunged about -9% and was among the top percentage losers on the benchmark S&P 500 after the carrier issued annual profit guidance below its long-term target. Also, UnitedHealth Group Incorporated (UNH) slid more than -3% and was the top percentage loser on the blue-chip Dow after the managed care giant reported higher-than-expected medical costs in Q4. In addition, Wells Fargo & Company (WFC) fell over -3% after the bank indicated that its net interest income in 2024 might be about 7%-9% lower than the $52.4 billion level in 2023. On the bullish side, Bank of New York Mellon (BK) climbed more than +4% after reporting upbeat Q4 results. Also, energy stocks gained ground as the price of WTI crude rose to a 2-week high.

Economic data on Friday showed the U.S. December producer price index came in at -0.1% m/m and +1.0% y/y, weaker than expectations of +0.1% m/m and +1.3% y/y. Also, U.S. core PPI, which excludes food and energy, eased to +1.8% y/y in December from +2.0% y/y in November, weaker than expectations of +1.9% y/y and the smallest increase in 3 years.

“The PPI tells us something that is a little bit different than the CPI. It raises the probability that the Fed has the free and clear to decide to cut interest rates, and the equity market really doesn’t care all that much as long as rates are not pushing significantly higher,” said Michael Green, chief strategist at Simplify Asset Management.

Atlanta Fed President Raphael Bostic cautioned that if policymakers cut interest rates too soon, inflation could “see-saw,” warning that the descent of inflation toward the central bank’s 2% goal was likely to slow in the months ahead, the Financial Times reported on Sunday.

Meanwhile, U.S. rate futures have priced in a 4.7% chance of a 25 basis point rate cut at the Fed’s monetary policy committee meeting later this month and a 67.2% chance of a 25 basis point rate cut at the March FOMC meeting.

Earnings season picks up steam this week, with a spotlight on results from banks and energy names. Goldman Sachs (GS), Morgan Stanley (MS), PNC Financial (PNC), Charles Schwab (SCHW), U.S. Bancorp (USB), Kinder Morgan (KMI) and Schlumberger (SLB) are expected to post quarterly updates this week.

Investors will also be monitoring a spate of economic data this week, including U.S. Retail Sales, Core Retail Sales, Export Price Index, Import Price Index, Industrial Production, Manufacturing Production, Business Inventories, Building Permits (preliminary), Housing Starts, Initial Jobless Claims, Philadelphia Fed Manufacturing Index, Crude Oil Inventories, Existing Home Sales, and Michigan Consumer Sentiment (preliminary).

In addition, several Fed officials will be making appearances this week, including Waller, Bowman, Williams, Bostic, and Daly.

Today, all eyes are focused on the U.S. NY Empire State manufacturing index in a couple of hours. Economists, on average, forecast that the January NY Empire State manufacturing index will come in at -5.00, compared to the previous value of -14.50.

In the bond markets, United States 10-year rates are at 4.002%, up +1.32%.

The Euro Stoxx 50 futures are down -0.49% this morning as investors digested a slew of important regional economic data and the latest remarks from central bank officials pushing back against expectations of aggressive interest rate cuts. Bank stocks led the declines on Tuesday after analysts from JPMorgan Chase & Co. stated that lending revenue would be capped by the peak in interest rates. Official data revealed on Tuesday that growth in British wages, excluding bonuses, decelerated in the three months through November, supporting the case for Bank of England rate cuts in the coming months. At the same time, the Federal Statistics Office said Tuesday that German inflation accelerated to +3.7% y/y in December, confirming preliminary data. Meanwhile, French central bank Governor Francois Villeroy de Galhau stated in Davos that the ECB cannot yet declare victory over inflation, but its next move is likely to be an interest rate cut sometime this year. Also, ECB Governing Council member Robert Holzmann suggested that cuts this year were not guaranteed, considering lingering inflation and geopolitical risks. In corporate news, Chocoladefabriken Lindt & Spruengli Ag (LISP.Z.EB) climbed over +6% after the Swiss chocolate maker reported that its 2023 sales grew by +10.3% organically, surpassing market expectations.

U.K.’s Average Earnings ex Bonus, U.K.’s Claimant Count Change, U.K.’s Employment Change 3M/3M, U.K.’s Unemployment Rate, Germany’s CPI, Italy’s CPI, Germany’s ZEW Economic Sentiment, and Eurozone’s ZEW Economic Sentiment data were released today.

U.K. November Average Earnings ex Bonus has been reported at 6.6%, in line with expectations.

U.K. December Claimant Count Change came in at 11.7K, stronger than expectations of 18.1K.

U.K. November Employment Change 3M/3M stood at 73K, stronger than expectations of 50K.

U.K. November Unemployment Rate was at 4.2%, stronger than expectations of 4.3%.

The German December CPI stood at +0.1% m/m and +3.7% y/y, in line with expectations.

The Italian December CPI came in at +0.2% m/m and +0.6% y/y, in line with expectations.

The German January ZEW Economic Sentiment arrived at 15.2, stronger than expectations of 12.0.

Eurozone January ZEW Economic Sentiment has been reported at 22.7, stronger than expectations of 21.9.

Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed up +0.27%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.79%.

China’s Shanghai Composite Index closed slightly higher today, supported by reports of government intervention encouraging institutional investors to retain their positions. The Financial Times reported on Tuesday that Chinese authorities have informally urged certain institutions to abstain from selling shares in recent days, aiming to stabilize the market. Chinese transportation stocks hit a 1-month high on Tuesday, extending gains for a fourth consecutive session as investors speculated that the escalating Red Sea crisis would drive up crude freight prices, potentially leading to windfall profits for oil tankers and shipping companies. Tourism stocks also advanced. At the same time, mainland developers listed in Hong Kong plunged in the face of subdued investor sentiment, with companies reporting lower contracted sales for December and the full year of 2023, reflecting the ongoing downturn in the property sector. Quoting data from Wind, Gary Ng, a senior economist at Natixis, noted that new home sales in 30 major cities in China have fallen by 41% year-to-date in 2024, indicating that the challenges may be more significant than what the market expects. On the positive side, Bloomberg News reported that Ping An Bank Co., a major Chinese lender, has included 41 developers on a list of eligible builders for its funding support, marking the latest step in an expanding rescue effort for China’s struggling property sector. In addition, China’s $1.24 trillion sovereign wealth fund pledged to assist with risk mitigation and market stabilization in 2024. Investor attention is now squarely on the Chinese gross domestic product data for the fourth quarter, along with industrial production and retail sales figures for December, scheduled for release on Wednesday.

Japan’s Nikkei 225 Stock Index closed lower today, snapping a six-day winning streak that propelled the index to a 34-year high. Real estate and non-cyclical consumer stocks led the declines on Tuesday. Data showed on Tuesday that Japan’s wholesale inflation was flat in December compared to a year ago, reinforcing the central bank’s perspective that cost-push pressures from increasing raw material prices will gradually diminish. Meanwhile, Japanese government bond yields rebounded from multi-month lows on Tuesday due to weak demand at an auction of five-year notes and a selloff in overseas bond markets. In other news, the Tokyo Stock Exchange announced Monday that 40% of companies listed on its prime section had disclosed plans to enhance capital efficiency, while an additional 9% were considering such plans. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -5.65% to 21.20.

The Japanese December PPI came in at +0.3% m/m and 0.0% y/y, stronger than expectations of 0.0% m/m and -0.3% y/y.

Pre-Market U.S. Stock Movers

Boeing Co (BA) fell over -2% in pre-market trading following the Federal Aviation Administration’s decision to indefinitely extend the grounding of Boeing 737 MAX 9 airplanes for additional safety checks. Also, Wells Fargo downgraded the stock to Equal Weight from Overweight with a price target of $225.

Tesla Inc (TSLA) dropped more than -1% in pre-market trading after CEO Elon Musk said that he would be uncomfortable expanding the automaker to be a leader in artificial intelligence and robotics without holding at least 25% voting control of the company.

Nextracker Inc (NXT) gained about +0.9% in pre-market trading after Goldman Sachs initiated coverage of the stock with a Buy rating and a $62 price target.

NetApp Inc (NTAP) slid over -2% in pre-market trading after Raymond James downgraded the stock to Market Perform from Outperform.

Western Digital Corporation (WDC) rose more than +2% in pre-market trading after Deutsche Bank upgraded the stock to Buy from Hold with a price target of $65.

Wayfair Inc (W) climbed over +3% in pre-market trading after Morgan Stanley upgraded the stock to Overweight from Equal Weight with a price target of $80.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Tuesday - January 16th

Morgan Stanley (MS), Goldman Sachs (GS), PNC Financial (PNC), Interactive Brokers (IBKR), Pinnacle (PNFP), Hancock Whitney (HWC), Fulton (FULT), Progress (PRGS), FB Financial (FBK), Applied Digital (APLD), Mercantile (MBWM), Guaranty Bancshares (GNTY).

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