Markets Today: Stocks Fall as Central Bankers Push Back on Rate Cut Expectations

Morning Markets

March E-Mini S&P 500 futures (ESH24) are down -0.52% at a 1-week low, and March Nasdaq 100 E-Mini futures (NQH24) are down -0.69%. 

Stock index futures this morning are sliding as central bankers push back against market expectations for interest rate cuts.  ECB President Lagarde and ECB Governing Council member Knot downplayed the prospects of imminent rate cuts today, following Tuesday’s comments from Fed Governor Waller, who urged caution on the pace of easing.  Losses in stock index futures accelerated as bond yields rose further after U.S. Dec retail sales rose more than expected, a hawkish factor for Fed policy.

Global equity markets are also under pressure after disappointing Chinese economic news today knocked the Shanghai Composite to a 3-1/2 year low and boosted concerns that economic weakness in China will weigh on global growth prospects.

U.S. Dec retail sales rose +0.6% m/m, stronger than expectations of +0.4% m/m.  Also, Dec retail sales ex-autos rose +0.4% m/m, stronger than expectations of +0.2% m/m. 

The U.S. Dec import price index ex-petroleum was unchanged m/m, weaker than expectations of +0.1% m/m. 

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 59% 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 climbed to a 1-month high of 4.111% and is up +4.0 bp at 4.098%. The 10-year German bund yield rose to a 6-week high of 2.308% and is up +4.1 bp at 2.299%.  The 10-year UK gilt yield rose to a 1-month high of 3.940% and is up +13.3 bp at 3.930%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -1.09%.  China’s Shanghai Composite Index closed down -2.09%.  Japan’s Nikkei Stock Index closed down -0.40%.

The Euro Stoxx 50 today dropped to a 1-1/2 month low and is moderately lower.  A pushback against interest rate cuts by ECB policymakers has pushed European government bond yields higher and undercut stocks.  Hawkish comments today from ECB President Lagarde and ECB Governing Council member Knot pushed the 10-year German bund yield up to a 6-week high.  Also, concerns about stubborn price pressures are bearish for stocks and bonds after the UK Dec CPI accelerated for the first time in 10 months.   In addition, European stocks tumbled on fresh concern about China’s economy, which is negative for global growth prospects, after the Shanghai Composite sold off to a 3-1/2 year low today on disappointing economic news. 

ECB President Lagarde said policymakers need more evidence before they can be sure that consumer prices are under control and that the ECB's first rate cut will probably be in the summer. 

ECB Governing Council member Knot said, "Markets are getting ahead of themselves," and the ECB will need to see a turnaround in wages before it can start to lower interest rates.

UK Dec CPI unexpectedly ticked up to +4.0% y/y from +3.9% y/y in Nov, stronger than expectations of +3.8% y/y.  Dec core CPI was unchanged from Nov at +5.1% y/y, stronger than expectations of +4.9% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and at 20% for the following meeting on March 7.

China’s Shanghai Composite Index today sank to a 3-1/2 year low and settled sharply lower. Stocks tumbled today after a slew of disappointing economic news reinforced bearish sentiment toward the market. China's Q4 GDP grew less than expected, and the jobless rate unexpectedly increased for the first time in 5 months.  Stocks fell even after Bloomberg reported Tuesday that China is considering 1 trillion yuan ($139 billion) of new debt issuance under a special sovereign bond plan to fund food, energy, supply chains, and urbanization projects.  A slump in property stocks today led the overall market lower after new home prices in Dec fell by the most in 8-3/4 years.

China's Q4 GDP grew +5.2% y/y, weaker than expectations of +5.3% y/y.

China Dec new home prices fell -0.45% m/m, the biggest decline in 8-3/4 years and the seventh consecutive month home prices have fallen,

China Dec industrial production rose +6.8% y/y, stronger than expectations of +6.6% y/y and the largest increase in 2-1/2 years.

China Dec retail sales eased to +7.4% y/y from +10.1% y/y in Nov, weaker than expectations of +8.0% y/y.

The China Dec surveyed jobless rate unexpectedly rose +0.1 to 5.1%, the first increase in 5 months and a weaker labor market than expectations of no change at 5.0%.

Japan’s Nikkei Stock Index today fell back from a nearly 34-year high and closed moderately lower.  Weakness in Chinese stocks sparked long liquidation in Japanese stocks after the Shanghai Composite fell to a 3-1/2 year low.  Stocks also fell on concern that economic weakness in China, Japan’s largest trading partner, will lead to reduced demand for Japanese goods. Japanese stocks today initially moved higher on strength in exporters after the yen fell to a 1-1/2 month low against the dollar. 

Pre-market U.S. Stock Movers

Tesla (TSLA) fell more than -1% in pre-market trading after Investor’s Business Daily reported that Tesla cut its Model Y price in Europe by 4% to 9%. 

Morgan Stanley (MS) is down more than -1% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight.  

Interactive Brokers (IBKR) tumbled more than -4% in pre-market trading after reporting Q4 total net interest income of $730 million, below the consensus of $747.6 million. 

Rivian Automotive (RIVN) dropped more than -3% in pre-market trading after Deutsche Bank downgraded the stock to hold from buy. 

Mattel (MAT) fell more than -3% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight. 

Plexus (PLXS) slid more than -1% in pre-market trading after reporting preliminary Q1 revenue of $980 million-$985 million, weaker than the consensus of $1.01 billion. 

U.S.-listed Chinese stocks are falling in pre-market trading after disappointing economic news knocked the Shanghai Composite to a 3-1/2 year low.  As a result, Alibaba Group Holding (BABA), Baidu (BIDU), NetEase (NTES), PDD Holdings (PDD), and Bilibili (BILI) are down more than -2%. 

Polaris (PII) rose more than +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight.

Nutanix (NTNX) climbed more than +2% in pre-market trading after William Blair upgraded the stock to outperform from market perform. 

Maplebear Inc (CART) rose more than +2% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $35.

Snap (SNAP) is up more than +1% in pre-market trading after Piper Sandler raised its price target on the stock to $17 from $12.

ExlService (EXLS) gained more than +1% in pre-market trading after Citigroup upgraded the stock to buy from neutral with a price target of $36. 

Albemarle (ALB) rose more than +1% in pre-market trading after saying it is pursuing actions to optimize its cost structure and reduce costs by $95 million annually. 

Earnings Reports (1/17/2024)

Alcoa Corp (AA), Charles Schwab Corp/The (SCHW), Citizens Financial Group Inc (CFG), Discover Financial Services (DFS), Kinder Morgan Inc (KMI), Prologis Inc (PLD), Synovus Financial Corp (SNV), US Bancorp (USB), Wintrust Financial Corp (WTFC).

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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.