Markets Today: Stocks Climb as Bond Yields Fall on Fed-Friendly Reports

Morning Markets

March E-Mini S&P 500 futures (ESH24) are up +0.35%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.54%. 

Stock index futures this morning are moderately higher, recovering some of Wednesday’s sharp losses that occurred after Fed Chair Powell said he doesn’t see a Fed rate cut in March.  This morning’s Fed-friendly economic reports knocked the 10-year T-note yield down to a 4-week low and supported stocks.  Weekly jobless claims unexpectedly rose to a 2-1/2 month high, and Q4 nonfarm productivity rose more than expected, dovish factors for Fed policy.

The markets eagerly await earnings results from Apple, Amazon.com, and Meta Platforms after today’s close.

U.S. weekly initial unemployment claims unexpectedly rose +9,000 to a 2-1/2 month high of 224,000, showing a weaker labor market than expectations of a decline to 212,000.

U.S. Q4 nonfarm productivity rose +3.2%, stronger than expectations of +2.5%.  Q4 unit labor costs rose +0.5%, weaker than expectations of +1.2%.

The markets are discounting the chances for a -25 bp rate cut at 2% at today’s FOMC meeting and 52% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are mixed.  The 10-year T-note yield fell to a 4-week low of 3.893% and is down -1.1 bp at 3.901%. The 10-year German bund yield is up +1.0 bp at 2.175%.  The 10-year UK gilt yield fell to a 2-week low of 3.765% and is down -1.8 bp at 3.777%.  

As expected, the Bank of England (BOE) kept the bank rate unchanged at 5.25%.  The BOE dropped its reference for further tightening but said more evidence of moderating inflation was needed before it could start cutting interest rates.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.07%.  China’s Shanghai Composite Index closed down -0.64%.  Japan’s Nikkei Stock Index closed down -0.76%.

The Euro Stoxx 50 recovered from early losses today and is slightly higher.  Sticky price pressures are weighing on stocks and pushing government bond yields higher after Eurozone Jan consumer prices rose more than expected.  Today’s European corporate news was mixed.  Adidas AG fell more than -6% after forecasting a weaker-than-expected 2024 operating profit.  Also, BNP Paribas SA dropped more than -7% after lowering its performance targets for 2025.  On the positive side, Deutsche Bank AG rose more than +4% after raising its mid-term revenue target and announcing a plan for a 675 billion euro share buyback. 

Eurozone Jan CPI eased to +2.8% y/y from +2.9% y/y in Dec, stronger than expectations of +2.7% y/y.  Jan core CPI eased to +3.3% y/y from +3.4% y/y in Dec, stronger than expectations of +3.2% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 20% for its next meeting on March 7 and at 91% at the following meeting on April 11.

China’s Shanghai Composite Index today fell to a 1-week low and closed moderately lower. Weakness in property stocks led the overall market lower after new home sales from China’s largest developers tumbled and “underwater mortgage” levels in Hong Kong surged to a 20-year high. Chinese apparel makers and retailers declined after earnings results from Adidas AG and Hennes & Maurits were disappointing.  On the positive side, casino operators with exposure to Macau rose after Macau's January gross gaming revenue jumped +67% y/y, above consensus.  Chinese technology stocks also rose after a senior finance ministry official said policymakers will keep the “necessary intensity” of fiscal expenditure to support economic growth, with the technology sector a priority for investment.

The value of China Jan new home sales from the 100 biggest real estate companies fell -34.2% y/y to 235 billion yuan ($33 billion)

The China Jan Caixin manufacturing PMI was unchanged at 50.8, right on expectations, and it was the third straight month of expansion.

Japan’s Nikkei Stock Index today closed moderately lower.  Japanese stocks retreated on negative carryover from Wednesday’s slide in U.S. stocks after Fed Char Powell pushed back on expectations of imminent interest rate cuts from the Fed.  Strength in the yen against the dollar also weighed on Japanese exporters.  Japanese bank stocks were under pressure today after Aozora Bank sank more than -20% after forecasting a net loss for the full year. On the positive side are signs of strong foreign buying of Japanese stocks.  The Tokyo Stock Exchange reported foreign investors bought 1.49 trillion yen ($10.1 billion) of Japanese stocks in the first three weeks of January.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 27% for its next meeting on March 19 and at 78% for the following meeting on April 26.

Pre-market U.S. Stock Movers

Align Technology (ALGN) jumped more than +11% in pre-market trading after reporting Q4 net revenue of $956.7 million, stronger than the consensus of $933.8 million, and forecasting Q1 net revenue of $960 million-$980 million, better than the consensus of $952.5 million.   

Etsy (ETSY) soared more than +12% in pre-market trading after it named Elliot Investment Management’s Marc Steinberg to its board of directors. 

Qorvo (QRVO) climbed more than +5% in pre-market trading after reporting Q3 adjusted revenue of $1.07 billion, stronger than the consensus of $1.00 billion, and forecast Q4 revenue of $900 million-$950 million, the midpoint above the consensus of $914.6 million. 

Norfolk Southern (NSC) rose more than +7% in pre-market trading after the Wall Street Journal reported that an Ancora-led group has built up a $1 billion stake in the company. 

Ball Corp (BALL) rallied more than +5% in pre-market trading after reporting  Q4 comparable EPS of 78 cents, better than the consensus of 75 cents.

Corteva (CTVA) climbed more than +5% in pre-market trading after reporting Q4 adjusted EPS of 15 cents, better than the consensus of 6 cents, and forecast 2024 operating Ebitda of $3.5 billion-$3.7 billion, the midpoint above the consensus of $3.56 billion. 

Eaton Corp (ETN) gained more than +1% in pre-market trading after reporting Q4 net sales of $5.97 billion, stronger than the consensus of $5.91 billion. 

Qualcomm (QCOM) fell more than -2% in pre-market trading despite reporting better-than-expected Q1 earnings after company executives warned of high inventory levels and said it’s expecting only a modest recovery for the industry this year. 

Wolfspeed (WOLF) dropped more than -5% in pre-market trading after forecasting Q3 revenue from continuing operations of $185 million-$215 million, below the consensus of $222.3 million. 

Honeywell (HON) fell more than -2% in pre-market trading after reporting Q4 sales of $9.44 billion, weaker than the consensus of $9.70 billion, and forecasting full-year sales of $38.1 billion-$38.9 billion, below the consensus of $39.01 billion. 

Aflac (AFL) tumbled more than -3% in pre-market trading after reporting Q4 revenue of $3.78 billion, below the consensus of $4.33 billion. 

International Paper (IP) slid more than -1% in pre-market trading after reporting Q4 net sales of $4.60 billion, weaker than the consensus of $4.67 billion. 

C. H. Robinson (CHRW) dropped more than -6% in pre-market trading after reporting Q4 EPS of 26 cents, well below the consensus of 80 cents. 

ZoomInfo Technologies (ZI) fell over 2% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Earnings Reports (2/1/2024)

Altria Group Inc (MO), Amazon.com Inc (AMZN), Apple Inc (AAPL), Ball Corp (BALL), Becton Dickinson & Co (BDX), Bio-Techne Corp (TECH), Broadridge Financial Solutions (BR), Camden Property Trust (CPT), Cardinal Health Inc (CAH), Clorox Co/The (CLX), CMS Energy Corp (CMS), Dover Corp (DOV), Eastman Chemical Co (EMN), Eaton Corp PLC (ETN), Gen Digital Inc (GEN), Hartford Financial Services Group (HIG), Hologic Inc (HOLX), Honeywell International Inc (HON), Huntington Ingalls Industries (HII), Illinois Tool Works Inc (ITW), International Paper Co (IP), Merck & Co Inc (MRK), Meta Platforms Inc (META), Microchip Technology Inc (MCHP), Parker-Hannifin Corp (PH), Quest Diagnostics Inc (DGX), Revvity Inc (RVTY), Royal Caribbean Cruises Ltd (RCL), Stanley Black & Decker Inc (SWK), Tractor Supply Co (TSCO), Trane Technologies PLC TT), WEC Energy Group Inc (WEC), Westrock Co (WRK).

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