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U.S. Stocks May Lack Direction As Traders Digest Earnings, Inflation Data
US Market
The major U.S. index futures are currently pointing to a roughly flat open on Friday, with stocks likely to show a lack of direction after recovering from an early downturn and ending the previous session roughly flat.
Stock futures had come under pressure earlier in the morning amid a negative reaction to earnings news from several big-name companies.
Financial giants Bank of America (BAC) and Wells Fargo (WFC) continue to see notable pre-market weakness after reporting their fourth quarter results.
UnitedHealth (UNH) has also slumped even though the health insurance giant reported fourth quarter results that beat analyst estimates on both the top and bottom lines.
On the other hand, shares of JPMorgan Chase (JPM) have jumped after the financial giant reported a record annual profit.
The futures have bounced back near the unchanged line following the release of a Labor Department report showing producer prices in the U.S. unexpectedly edged slightly lower in the month of December.
The Labor Department said its producer price index for final demand slipped by 0.1 percent in December, matching a revised dip in November.
Economists had expected producer prices to inch up by 0.1 percent compared to the unchanged reading originally reported for the previous month.
Meanwhile, the report said the annual rate of producer price growth accelerated to 1.0 percent in December from a downwardly revised 0.8 percent in November.
The annual rate of producer price growth was expected to speed up to 1.3 percent from the 0.9 percent originally reported for the previous month.
The data may lead to renewed optimism about the outlook for interest rates following yesterday’s report showing consumer prices rose by slightly more than expected in December.
After turning lower over the course of morning trading on Thursday, stocks staged a notable recovery attempt in the latter part of the session. The major averages climbed well off their worst levels of the day, eventually closing roughly flat.
The Dow fell as much as 270 points but rebounded to end the day up 15.29 points or less than tenth of a percent at 37,711.02. The Nasdaq also crept up 0.54 points or less than a tenth of a percent to 14,970.19, but the S&P 500 edged down 3.21 points or 0.1 percent at 4,780.24.
The early downturn on Wall Street came as traders digested the Labor Department’s highly anticipated report on consumer price inflation in December, which showed prices rose by slightly more than expected.
The Labor Department said its consumer price index climbed by 0.3 percent in December after inching up by 0.1 percent in November. Economists had expected consumer prices to rise by 0.2 percent.
Excluding food and energy prices, core consumer prices still rose by 0.3 percent in December, matching the increase seen in November as well as economist estimates.
The report also showed the annual rate of consumer price growth accelerated to 3.4 percent in December from 3.1 percent in November. The annual rate of growth was expected to tick up to 3.2 percent.
Meanwhile, the annual rate of growth by core consumer prices slowed to 3.9 percent in December from 4.0 percent in November. Economists had expected the pace of core price growth to decelerate to 3.8 percent.
A number of economists have said the data makes the Federal Reserve less likely to cut interest rates in March, with many predicting the central bank will hold off until its May meeting.
Nonetheless, persistent optimism about a March rate cut may have contributed to the late-day recovery attempt by stocks, with CME Group’s FedWatch Tool currently still indicating a 70.0 percent chance the Fed will lower rates.
The late-day recovery attempt on Wall Street also came as treasury yields showed a notable move to the downside after showing a lack of direction for much of the day.
Despite the recovery by the broader markets, interest rate-sensitive utilities stocks continued to see substantial weakness, with the Dow Jones Utility Average tumbling by 2.2 percent.
Natural gas stocks also saw considerable weakness amid a decrease by the price of the commodity, dragging the NYSE Arca Natural Gas Index down by 1.4 percent.
Telecom, biotechnology and banking stocks also moved to the downside on the day, while some strength emerged among software and oil stocks.
U.S. Economic Reports
Producer prices in the U.S. unexpectedly edged slightly lower in the month of December, according to a report released by the Labor Department on Friday.
The Labor Department said its producer price index for final demand slipped by 0.1 percent in December, matching a revised dip in November.
Economists had expected producer prices to inch up by 0.1 percent compared to the unchanged reading originally reported for the previous month.
Meanwhile, the report said the annual rate of producer price growth accelerated to 1.0 percent in December from a downwardly revised 0.8 percent in November.
The annual rate of producer price growth was expected to speed up to 1.3 percent from the 0.9 percent originally reported for the previous month.
At 10 am ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a fireside chat before a virtual 2024 Regional Economic Conditions Conference.
Stocks in Focus
Shares of Delta Air Lines (DAL) are moving sharply lower in pre-market trading even though the airline reported fourth quarter earnings that exceeded analyst estimates.
Electric vehicle maker Tesla (TSLA) may also move to the downside after the company announced it is cutting prices on the Model 3 and the Model Y in China.
Meanwhile, shares of Qualcomm (QCOM) may move to the upside after Citi upgraded its rating on the chipmaker’s stock to Buy from Neutral.
Europe
European stocks have advanced on Friday following dovish comments from European Central Bank President Christine Lagarde, who said the central bank will start lowering rates once inflation heads back to the 2 percent goal.
In economic news, French inflation accelerated for the first time in four months in December, as initially estimated, provisional data from the statistical office INSEE showed.
The consumer price index posted an annual increase of 3.7 percent in December, faster than the 3.5 percent gain in November – largely due to higher energy and services prices. That was in line with the flash data published on January 4.
EU harmonized inflation also rose to 4.1 percent from 3.9 percent in the prior month, as estimated.
Elsewhere, the U.K. economy recovered as expected in November, underpinned by services and production, the Office for National Statistics said earlier today.
Real gross domestic product expanded 0.3 percent in November, offsetting the 0.3 percent decrease in October.
The euro traded range-bound following the publication of the latest European Central Bank economic bulletin, highlighting the ECB’s data-dependency stance on rate outlook.
While the U.K.’s FTSE 100 Index has climbed by 0.7 percent, the German DAX Index and the French CAC 40 Index are both up by 0.8 percent.
Maersk has moved to the upside. The Danish shipping giant said it would use rail transport to avoid the drought-hit Panama Canal.
Santhera Pharmaceuticals Holding AG has also jumped. The Swiss biotech firm said its AGAMREE has been approved by the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) for the treatment of Duchenne muscular dystrophy (DMD) in patients 4 years and older.
BP Plc and Shell have also moved higher in London as crude prices surged following strikes carried out by the United States and Britain against Houthi military targets in Yemen.
Vistry Group, a house-building company, has also rallied after an announcement that it expects its full year adjusted pre-tax income ahead of its outlook.
Airbus shares have also jumped in Paris after the plane maker reported record annual jet orders, driven largely by mega deals from India’s IndiGo and Air India, as well as a purchase by Turkish Airlines.
On the other hand, luxury brand Burberry has moved sharply lower as it issued a profit warning in response to slowing demand.
Asia
Asian stocks ended mostly lower on Friday as strong U.S. inflation data dented hopes of an early interest rate cut and oil prices jumped amid signs of an escalating conflict in the Red Sea region.
Crude prices jumped more than 2 percent in Asian trading after Iran’s navy captured an oil tanker in the Gulf of Oman and heavy U.S. and British air strikes pounded targets in Yemen, adding to concerns over potential supply disruptions in the Red Sea.
The dollar held steady against peers, while gold edged up slightly after falling to a one-month low the previous day on diminished hopes for an interest rate cut in March.
Chinese and Hong Kong markets fluctuated before finishing slightly lower as investors digested mixed economic readings and braced for the tense weekend elections in Taiwan.
China’s exports grew slightly for a second consecutive month in December even as deflationary pressures continued, a slew of data showed earlier in the day.
China’s Shanghai Composite Index eased 0.2 percent to 2,881.98, while Hong Kong’s Hang Seng Index dropped 0.4 percent to 16,244.58.
Meanwhile, Japanese markets extended their recent rally to log a fresh 34-year high amid expectations that the Bank of Japan will delay its plan to pivot away from its ultra-dovish stance in the wake of the recent devastating earthquake.
The Nikkei 225 Index jumped 1.5 percent to 35,577.11, reaching its highest level since February 1990. The broader Topix Index settled 0.5 percent higher at 2,494.23, its highest level since March 1990.
Heavyweight Fast Retailing, which operates the Uniqlo clothing chain, soared 6.3 percent after reporting a 25 percent jump in first-quarter operating profit. Japan Petroleum and Inpex climbed 2-3 percent as the oil rally continued amid tight supply outlook.
Seoul stocks fell notably to extend losses for the eighth consecutive session on weaker-than-expected corporate earnings. The Kospi slid 0.6 percent to 2,525.05. Chipmaker SK Hynix dropped 1.4 percent and drug maker Celltrion lost 4 percent.
Australian markets ended slightly lower as consumer discretionary stocks fell amid mounting pressure for a federal government inquiry into rising grocery prices. Coles fell 2.1 percent and Woolworths declined 1.5 percent.
Gains in energy stocks helped limit the downside in the broader market. Santos rose 1.5 percent and Beach Energy added 2.9 percent.
The benchmark S&P ASX 200 Index edged down 0.1 percent to 7,498.30, while the broader All Ordinaries Index ended little changed with a negative bias at 7,730.50.
Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index rose 0.5 percent to 11,858.31.
Commodities
Crude oil futures are surging $2.31 to $74.33 a barrel after climbing $0.65 to $72.02 a barrel on Thursday. Meanwhile, after falling $8.60 to $2,019.20 an ounce in the previous session, gold futures are spiking $40.70 to $2,059.90 an ounce.
On the currency front, the U.S. dollar is trading at 144.82 yen versus the 145.29 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0956 compared to yesterday’s $1.0972.
