What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.12%.
Stocks this morning are mixed, with the Dow Jones Industrials falling to a 1-week low. Boeing is down more than -6% and is weighing on the overall market. Also, Apple is down more than -1% after cutting the price of its iPhone 15 and other products in China. In addition, Morgan Stanley is down more than -4% after reporting Q4 equities sales and trading revenue below consensus.
Stocks also fell back as bond yields rose on hawkish comments today from Fed Governor Waller, who said when the Fed begins cutting interest rates, it should be methodical and careful, and there’s “no reason” to move as quickly and cut as rapidly as in the past.
On the positive side, Advanced Micro Devices is up more than +8% after Susquehanna Financial raised its price target on the stock to $170 from $130. Also, Goldman Sachs is up more than +1% after posting solid Q4 earnings results.
Morgan Stanley said an expected -7% cut to S&P 500 Q4 corporate profit estimates signals U.S. companies are poised to report almost no growth compared to last year. However, that’s “creating a lowered bar and a higher probability” of yet another mid-single-digit earnings-per-share beat rate.
The U.S. Jan Empire manufacturing survey general business conditions index unexpectedly plunged -29.2 to a 3-1/2 year low of -43.7, weaker than expectations of an increase to -5.0.
The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 60% for that same -25 bp rate cut for the following meeting on March 19-20.
U.S. and European government bond yields today are higher. The 10-year T-note yield is up +8.3 bp at 4.022%. The 10-year German bund yield is up +2.0 bp at 2.253%. The 10-year UK gilt yield is up +0.2 bp at 3.800%.
Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.27%. China’s Shanghai Composite Index closed up +0.27%. Japan’s Nikkei Stock Index closed down -0.79%.
Today’s stock movers…
Boeing (BA) is down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after Wells Fargo Securities downgraded the stock to equal weight from overweight, citing an increased risk that growing scrutiny of the company’s manufacturing quality will have an impact on the pace of production or deliveries.
Morgan Stanley (MS) is down more than -4% after reporting Q4 equities sales and trading revenue of $2.20 billion, below the consensus of $2.26 billion.
Delta Air Lines (DAL) is down more than -4%, adding to last Friday’s -9% loss, after it forecast full-year adjusted earnings of $6 to $7 a share, below its previous estimate of more than $7 a share.
Hewlett Packard Enterprise (HPE) is down more than -3% after Bernstein downgraded the stock to market perform from outperform.
Apple (AAPL) is down more than -1% after it lowered the price of its iPhone 15 and other products in China in an attempt to boost weakening demand.
PNC Financial Services Group (PNC) is down more than -1% after reporting Q4 diluted EPS of $1.85, weaker than the consensus of $2.57, and forecast 2024 net interest income would decline -4% to -5%.
PayPal Holdings (PYPL) is down more than +1% after Mizuho Securities downgraded the stock to neutral from buy.
RTX Co (RTX) is down nearly -1% after Baird downgraded the stock to neutral from outperform.
Advanced Micro Devices (AMD) is up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after Susquehanna Financial raised its price target on the stock to $170 from $130.
Synopsys (SNPS) is up more than +4% after acquiring Ansys Inc. for about $34 billion in cash and stock.
Western Digital (WDC) is up more than +4% after Deutsche Bank upgraded the stock to buy from neutral with a price target of $65.
Nvidia (NVDA) is up more than +3% after KeyBanc Capital Markets raised their price target on the stock to $740 from $650.
Micron Technology (MU) is up more than +2% after KeyBanc Capital Markets raised their price target on the stock to $115 from $100.
Dollar General (DG) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight.
Goldman Sachs (GS) is up more than +1% to lead gainers in the Dow Jones Industrials after reporting Q4 net revenue of $11.32 billion, stronger than the consensus of $10.84 billion.
Domino’s Pizza (DPZ) is up more than +1% after Gordon Haskett upgraded the stock to buy from hold.
Across the markets…
March 10-year T-notes (ZNH24) this morning are down -9 ticks, and the 10-year T-note yield is up +8.3 bp to 4.022%. Mar T-note prices today are under pressure from supply pressures, with between $30 billion and $35 billion of new corporate debt expected to be priced, which prompted bond dealers to short 10-year T-notes to hedge against the new supply. An increase in inflation expectations is also weighing on T-notes as the 10-year breakeven inflation rate today climbed to a 1-3/4 month high of 2.300%. Losses in T-notes accelerated after Fed Governor Waller said there’s “no reason” for the Fed to cut rates as quickly and as rapidly as in the past.
The dollar index (DXY00) today is up by +0.71% and posted a 1-month high. Higher T-note yields today are supportive of the dollar. Also, the weakness in stocks today has boosted liquidity demand for the dollar. A decline in the ECB’s Nov Eurozone inflation expectations also weighed on the euro to the dollar’s benefit as EUR/USD dropped to a 1-month low.
The markets are discounting the chances for a -25 bp rate cut at 5% at the next FOMC meeting on Jan 30-31 and 73% for the following meeting on March 19-20.
EUR/USD (^EURUSD) is down by -0.69% and fell to a 1-month low. A fall in Eurozone inflation expectations is dovish for ECB policy and bearish for the euro the ECB's Eurozone Nov inflation expectations declined. Also, today’s comments from ECB Governing Council member Centeno weighed on the euro when he said Q1 Eurozone GDP is still looking pretty stagnant.
The ECB's Eurozone Nov 1-year inflation expectations eased to +3.2% from +4.0% in Oct, the lowest in 21 months. The Nov 3-year inflation expectations eased to a 22-month low +2.2% from +2.5% in Oct, better than expectations of +2.4%.
The German Jan ZEW survey expectations of economic growth unexpectedly rose +2.4 to an 11-month high of 15.2, stronger than expectations of a decline to 11.7.
ECB Governing Council member Centeno said the Eurozone inflation trajectory is good, and Q1 Eurozone GDP is still looking pretty stagnant.
ECB Governing Council member Villeroy de Galhau said, "The question of an ECB interest rate cut this year is a premature one" as the ECB will "probably be a bit more patient."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on January 25 and 38% for the following meeting on March 7.
USD/JPY (^USDJPY) is up by +0.70%. The yen today tumbled to a 5-week low against the dollar. A jump in T-note yields today is weighing on the yen. Also, expectations that the BOJ will maintain its negative interest rate policy at next week’s meeting are bearish for the yen. On the positive side for the yen, Japan’s December producer prices rose more than expected, a hawkish factor for BOJ policy.
Japan's Dec PPI report of +0.3% m/m and unchanged y/y was stronger than expectations of unchanged m/m and -0.3% y/y.
February gold (GCG24) today is down -10.2 (-0.50%), and Mar silver (SIH24) is down -0.204 (-0.87%). Gold and silver prices this morning are moderately lower. Today’s rally in the dollar index to a 1-month high is undercutting metals prices. Also, higher T-note yields are bearish for precious metals. In addition, the ongoing long liquidation of gold by funds is bearish for gold after long gold holdings in ETFs fell to a 4-year low last Friday. Losses in gold are limited after the U.S. 10-year breakeven inflation rate today rose to a 1-3/4 month high at 2.300%, fueling demand for gold as an inflation hedge.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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