Stocks Climb Before the Open on Fed Rate Cut Bets, U.S. Economic Data and Earnings on Tap

March S&P 500 E-Mini futures (ESH25) are up +0.31%, and March Nasdaq 100 E-Mini futures (NQH25) are up +0.49% this morning, signaling further gains on Wall Street as cooling U.S. core inflation bolstered expectations of Federal Reserve easing this year, while investors awaited a fresh batch of U.S. economic data and quarterly reports from more big banks.

Market sentiment also got a boost after Taiwan Semiconductor Manufacturing Co. (TSM), the main chipmaker to Apple and Nvidia, reported a record quarterly profit and provided strong Q1 revenue guidance.

In yesterday’s trading session, Wall Street’s three main equity benchmarks ended sharply higher, with the S&P 500 and Nasdaq 100 posting 1-week highs and the Dow notching a 2-1/2 week high. Megacap technology stocks gained ground, with Tesla (TSLA) surging more than +8% to lead gainers in the S&P 500 and Nasdaq 100 and Nvidia (NVDA) advancing over +3%. Also, Intuitive Surgical (ISRG) climbed more than +7% after the healthcare equipment company reported stronger-than-expected preliminary Q4 revenue. In addition, Goldman Sachs (GS) rose more than +6% and was the top percentage gainer on the Dow after reporting upbeat Q4 results. On the bearish side, Vericel (VCEL) fell over -1% after the company issued below-consensus Q4 revenue guidance.

The U.S. Bureau of Labor Statistics report released on Wednesday showed that consumer prices increased +0.4% m/m in December, in line with expectations. On an annual basis, headline inflation rose to +2.9% in December from +2.7% in November, in line with expectations. Also, the December core CPI, which excludes volatile food and fuel prices, unexpectedly eased to +3.2% y/y from +3.3% y/y in November, better than expectations of no change at +3.3% y/y. In addition, the Empire State manufacturing index unexpectedly fell to an 8-month low of -12.60 in January, weaker than expectations of 2.70.

Richmond Fed President Thomas Barkin said Wednesday that the fresh consumer-price data “continues the story we’ve been on, which is that inflation is coming down toward target,” but added that “there’s still work to do.” Also, New York Fed President John Williams said, “The process of disinflation remains in train. But we are still not at our 2% goal, and it will take more time until we can achieve that on a sustained basis.” In addition, Chicago Fed President Austan Goolsbee said that “the trend continues to be improvement in inflation” and expressed confidence that the Fed can curb price growth without causing an economic downturn.

“For the Fed, this is certainly not enough to prompt a January cut,” said Seema Shah, chief global strategist at Principal Asset Management. “But, if [yesterday’s] print were accompanied by another soft CPI print next month plus a weakening in payrolls, then a March rate cut may even be back on the table.”

Meanwhile, U.S. rate futures have priced in a 97.3% probability of no rate change and a 2.7% chance of a 25 basis point rate cut at the January FOMC meeting. However, swap traders have returned to fully pricing in a Fed rate cut by July following the U.S. inflation report.

The Federal Reserve said Wednesday in its Beige Book survey of regional business contacts that economic activity in the U.S. grew “slightly to moderately” in late November and December. The Fed’s districts reported that consumer spending rose moderately, employment edged higher on balance, and prices increased “modestly overall.” “More contacts were optimistic about the outlook for 2025 than were pessimistic about it, though contacts in several districts expressed concerns that changes in immigration and tariff policy could negatively affect the economy,” according to the Beige Book.

Today, all eyes are focused on U.S. Retail Sales data, which is set to be released in a couple of hours. Economists, on average, forecast that December Retail Sales will stand at +0.6% m/m, compared to the November figure of +0.7% m/m.

Also, investors will focus on U.S. Core Retail Sales data, which came in at +0.2% m/m in November. Economists expect the December figure to be +0.5% m/m.

The U.S. Philadelphia Fed Manufacturing Index will be released today. Economists foresee this figure to stand at -5.2 in January, compared to last month’s value of -16.4.

U.S. Export and Import Price Indexes will be reported today. Economists forecast the export price index to be +0.2% m/m and the import price index to be -0.1% m/m in December, compared to the previous figures of 0.0% m/m and +0.1% m/m, respectively. 

U.S. Initial Jobless Claims data will be released today as well. Economists estimate this figure to arrive at 210K, compared to last week’s number of 201K.

In addition, market participants will be anticipating a speech from New York Fed President John Williams.

On the earnings front, major U.S. banks such as Bank of America (BAC) and Morgan Stanley (MS) are set to release their quarterly results today. UnitedHealth (UNH), U.S. Bancorp (USB), PNC Financial (PNC), and JB Hunt (JBHT) are other prominent companies scheduled to deliver their quarterly updates today. According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +7.5% increase in quarterly earnings for Q4 compared to the previous year.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.654%, up +0.02%.

The Euro Stoxx 50 Index is up +1.01% this morning as positive earnings news boosted sentiment. Luxury stocks soared on Thursday, with Cie Financiere Richemont Sa (CFR.Z.IX) climbing over +16% after the Cartier owner reported a 10% increase in FQ3 sales. Technology stocks also advanced after Taiwan Semiconductor Manufacturing Co. posted a record quarterly profit. Data from the Office for National Statistics released Thursday showed that the U.K. economy returned to growth in November but fell short of expectations. Separately, final data from the Federal Statistics Office confirmed that the German annual inflation rate rose to 2.6% in December from 2.2% in November. Meanwhile, European Central Bank policymaker Mario Centeno stated on Wednesday that the central bank should continue to reduce its key interest rate to about 2% as inflation in the region was largely under control. Investor focus is now turning to the minutes of the ECB’s December policy meeting, set for release later today. In other corporate news, Zalando Se (ZAL.D.DX) surged more than +15% after Europe’s largest online retailer said it expects its 2024 profit to exceed its forecasts.

U.K.’s GDP, Germany’s CPI, Italy’s CPI, and Eurozone’s Trade Balance data were released today.

U.K. November GDP has been reported at +0.1% m/m and +1.0% y/y, weaker than expectations of +0.2% m/m and +1.3% y/y.

The German December CPI arrived at +0.5% m/m and +2.6% y/y, compared to expectations of +0.4% m/m and +2.6% y/y.

The Italian December CPI stood at +0.1% m/m and +1.3% y/y, in line with expectations.

Eurozone November Trade Balance was 16.4B euros, stronger than expectations of 11.8B euros.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.28%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.33%.

China’s Shanghai Composite Index ended higher today amid expectations of further monetary stimulus. Consumer and energy stocks gained ground on Thursday. At the same time, semiconductor stocks retreated after the U.S. tightened its advanced chip export curbs, placing additional Chinese companies on its trade entity list. Still, sentiment was largely positive across Asia as traders increased bets on potential rate cuts by the Fed this year after an easing in U.S. core inflation. Investors are also expecting further easing measures from Beijing after state media reported that China’s central bank might reduce banks’ reserve requirement ratio before the Spring Festival at the end of this month. In other news, economists at Macquarie wrote in a note that China might again target GDP growth of around 5% this year. In corporate news, CNOOC rose more than +2% after announcing that its joint venture with Shell will invest 60 million yuan in a petrochemical plant in Huizhou, Guangdong, China. Investor attention is now centered on China’s Q4 GDP data, along with a series of December data releases, such as retail sales and industrial production, scheduled for Friday.

Japan’s Nikkei 225 Stock Index closed higher today, tracking overnight gains on Wall Street driven by strong U.S. bank earnings and a cooling in core consumer inflation. Chip and brokerage stocks outperformed on Thursday. However, gains were limited by a rallying yen as investors increased bets that the Bank of Japan will hike interest rates at its policy meeting next week. Data released on Thursday showed that Japan’s annual wholesale inflation remained at a 17-month high in December due to stubbornly high food costs, underscoring persistent price pressures. Meanwhile, BOJ Governor Kazuo Ueda repeated on Thursday his pledge to deliberate on an interest rate increase next week. “If improvements in the economy and prices continue this year, we will adjust the degree of monetary easing by raising interest rates,” Ueda said. In other news, Bloomberg reported that BOJ officials see a strong likelihood of an interest rate hike next week, provided that Donald Trump’s arrival at the White House does not cause too many negative surprises. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -5.36% to 22.60.

The Japanese December PPI has been reported at +0.3% m/m and +3.8% y/y, compared to expectations of +0.4% m/m and +3.8% y/y.

Pre-Market U.S. Stock Movers

Taiwan Semiconductor Manufacturing Co. (TSM) gained over +4% in pre-market trading after the world’s largest contract chipmaker reported a record quarterly profit and provided strong Q1 revenue guidance.

Netflix (NFLX) rose more than +1% in pre-market trading after Seaport Research upgraded the stock to Buy from Neutral with a price target of $955.

BigBear.ai (BBAI) surged over +14% in pre-market trading after President Kevin McAleenan was named as the new Chief Executive Officer.

Monday.com (MNDY) advanced more than +3% in pre-market trading after Citi upgraded the stock to Buy from Neutral with a price target of $298.

Datadog (DDOG) fell over -1% in pre-market trading after Morgan Stanley downgraded the stock to Equal Weight from Overweight.

You can see more pre-market stock movers here

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

UnitedHealth (UNH), Bank of America (BAC), Morgan Stanley (MS), U.S. Bancorp (USB), PNC Financial (PNC), M&T Bank (MTB), JB Hunt (JBHT), First Horizon National (FHN), Bank Ozk (OZK), Insteel Industries (IIIN), Bank7 (BSVN), RF Industries (RFIL).