Futures Flat With US Markets Closed For President's Day
US futures inched higher on Monday, after the S&P 500’s first weekly drop since early-January ended a streak of 15 weekly gains in 16 weeks, as markets braced for the most important earnings report of the quarter from AI bellwether Nvidia, while Goldman again raised its year-end price target for the S&P to 5,200 from 5,100. With US cash equity markets closed on Monday for Presidents’ Day, futures were open for trading and contracts on the Nasdaq 100 gained 0.2% by 8:15a.m. in New York, while S&P 500 futures advanced 0.1%. Cash bond markets are closed while the Bloomberg dollar index ticked marginally lower. Bitcoin jumped back over $52,000 while ether surged to a fresh two year high above $2,900.
Last week’s stocks pause came after 2024 YTD gains hit almost 5% on the S&P 500 after 5 straight weeks of gains, fueled by expectations of a dovish policy shift by the Fed and continued frenzy around artificial intelligence.
With the economic calendar slowing down, and earnings season approaching its tail end, Nvidia’s results Wednesday are now everyone's focus: “No one really wants to make a move before that given the tension on the stock and its huge rally since last year,” David Kruk, head of trading at La Financiere de L’Echiquier in Paris, noting the stock is already up about 47% this year, following its 230% surge in 2023. Minutes from the Fed’s January meeting are also due Wednesday, and Kruk said those would be closely watched, given “recent robust robust inflation data and the fact rate cut expectations have been melting down recently.”
Goldman strategists still expect the S&P 500 index to break new records and rise to 5,200 points by the end of the year. The new target implies a 3.9% jump from Friday’s close. They also upped their earnings-per-share forecasts to reflect expectations for “stronger economic growth and higher profits,” especially in the tech sector.
Meanwhile, the recent rebound in inflation has put a damper on rate cut expectations.
Swaps now see less than 90 basis points of rate cuts in 2024, from around 150 basis points in early February. Atlanta Fed President Raphael Bostic said Friday that for now he favors two cuts this year, starting summer, while Larry Summers and others are wondering if the Fed's next move won't be another hike.
Meanwhile, in the latest conundrum facing markets, US and global stocks have yet to respond to the sharp selloff in Treasuries this month, after a string of better-than-expected economic data and hawkish comments by policy makers. Investors also have to contend with mixed earnings, while the Middle East and Red Sea shipping chaos pose major risks to the outlook for profits.
“Our base case remains that equities will end the year higher than current levels, but we do not expect it to be a straight path,” said Mohit Kumar, the chief economist for Europe at Jefferies INternational Ltd. “We are looking for a bit of a pull-back in the near term, which would provide better levels to reset long positions.”
European stocks were little changed following the previous week’s 1.4% surge that took the gauge to within four points of its January 2021 record high. The Stoxx 600 was down 0.2%, with basic resources leading declines after iron ore tumbled, while chemicals and tech also underperformed. Defensive sectors, including telecoms and health care, posted gains. Among individual movers, AstraZeneca climbed more than 3% after trial data showed its Tagrisso drug slowed disease progression in lung cancer patients. German arms manufacturer Rheinmetall AG advanced as much as 4% after announcing it will open a new plant in Ukraine. Banco Santander SA rose after kicking off a share buyback. Here are some of the other most notable movers:
- Currys soars as much as 38% after the UK electronics retailer said over the weekend it rejected a preliminary offer of 62p/share from Elliott; Currys now have two potential bidders
- Temenos rises as much as 6.9%, the most in a month, recouping part of the losses incurred after a report by Hindenburg last week, which accused the company of irregular accounting
- Telecom Italia shares rise as much as 4.7% after Bank of America upgraded the carrier to buy on an improved outlook for its customer-facing arm, as the network segment inches closer to a sale
- Forvia rises as much as 5.9% after reporting 2023 results Oddo said could “reassure” investors amid challenges in Europe, with a further boost from a new competitiveness plan
- Icade shares advance as much as 4.4% after the real estate investment trust reported group net current cash flow that beat estimates, and launching its new ‘ReShapE’ strategic plan
- Bank of Georgia rises as much as 6.2% to touch a new record high after agreeing to buy Armenia’s Ameriabank. Analysts say deal potentially gives the London-listed lender a valuation premium
- Bechtle falls as much as 3.2% as Barclays initiates the stock at underweight, seeing no profit growth for the German IT company in 2024 and cites the firm’s E-Com division as a “structural drag”
- Thales falls as much as 3.5%, the most in a month, after UBS downgraded the aerospace and defence company to sell from neutral, citing challenges faced by its space division
- AQ Group falls as much as 6.5% after SEB cut its recommendation for the industrial component manufacturer to hold, with a recent strong run limiting upside for the stock going forward
Earlier in the session, Chinese stocks finished higher in their first trading session after reopening from more than a weeklong holiday thanks to what appeared to be another intervention by Beijing's plunge protection team; shares dropped in Hong Kong after a three-day rally. Elsewhere, Asian stocks were little changed as Chinese shares traded mixed, with mainland markets rising. The MSCI Asia Pacific Index moved in a narrow range, with Tencent and Nintendo among the biggest drags, while Samsung and BHP provided boosts. South Korean benchmarks rose more than 1% on continued enthusiasm for the government’s efforts to boost valuations, while most other markets were little changed. Stocks in India rose for a fifth consecutive session to push key gauge NSE Nifty 50 Index to its all-time high as regional peers advanced. The NSE Nifty 50 Index rose 0.5% to 22,157.40, surpassing its prevision peak seen in early January, while the S&P BSE Sensex advanced by a similar measure. The benchmark Sensex is now 0.8% short of its all-time high.
In Fx, the Bloomberg Dollar Spot Index is flat while the kiwi tops the G-10 FX pile, rising 0.3% versus the greenback.
In rates, bond markets were muted, with no cash trading of Treasuries due to the US holiday. They fell on Friday, with two-year yields up seven basis points to 4.65% after the producer price index rose on a sizable jump in costs of services. The greenback weakened against most of its Group-of-10 peers.
In commodities, oil slid from the highest level in three weeks as lingering concerns over the demand outlook offset ongoing Middle East tensions. Gold held a two-day gain. Concerns over China’s economy also led iron ore to slump after five days of gains.
DB's Jim Reid concludes the overnight wrap
It's a US holiday today so expect a quiet start to what is a quiet week for data. I'm going to a 2-hour junior concert tonight where 8yr-old Maisie is performing a 60-second solo piece at some point on the piano. I suspect the other 1 hour 59 minutes might not go that quickly and I suspect all the other parents will feel similar after their child has performed.
Talking of going solo, it's a reflection of the world we live in that the most important event of the week may be Nvidia's earnings on Wednesday. It is now the 4th largest company in the world and the best performer in the S&P 500 so far this year (+46.6% YTD), so this will be very important for sentiment. China's return from holidays will also add some interest after its recent equity market volatility and weak growth/inflation numbers. Overnight our Chinese economist has written about how the Lunar New Year consumer activity was moderately encouraging. See the piece here for more.
Elsewhere, we do have the FOMC January minutes on Wednesday but a lot of data has flowed under the bridge since then and market pricing has moved closer to the Fed's dots and tone since then so its hard to see how much we'll learn from their thoughts three weeks earlier. The account of the January ECB meeting on Thursday will also be of note.
In terms of data, the global flash PMIs come out on Thursday and in the US this week's claims on the same day correspond to survey week for payrolls. Winter storms may make data challenging to interpret in the next few weeks though. Tomorrow's leading indicators and Thursday's existing home sales are the other US highlights.
Over in China, after leaving the 1-yr MLF rate unchanged yesterday (as expected), tomorrow sees them decide on the 1-yr and 5-yr loan prime rates. The market is expecting the latter to be cut 10bps to 4.1%.
You can see the rest of the week ahead, including earnings and central bank speakers at the end as usual. Thursday is a big day for Fed speak including Vice Chair Jefferson who we haven’t heard from since the FOMC, so his views at the centre of the committee will hold some weight.
As I check my screens in Asia, the KOSPI (+1.10%) is leading gains across the region with the CSI (+0.46%) and the Shanghai Composite (+0.62%) trading higher after their week long break. Elsewhere, the Nikkei (-0.15%) is slightly lower, tantalisingly close to its all-time high last seen 34 years ago, while the Hang Seng (-1.11%) is lower after a decent run since it returned from hols last Wednesday. Outside of Asia, S&P 500 futures are just in positive territory with the Nasdaq equivalent +0.22%. Meanwhile, there is no cash trading of US Treasuries on account of the President’s Day holiday.
Early morning data showed that core machine orders in Japan rebounded +2.7% m/m in December, in line with Bloomberg estimates, swinging back from the prior month’s decline of -4.9%.
Looking back at last week now, the key theme was renewed concerns about persistent high US inflation after a red-hot CPI print on Tuesday was followed by another upside surprise in producer prices on Friday. Headline January PPI rose 0.3% month-on-month (vs 0.1% expected), and 0.9% in year-on-year terms (vs 0.6% expected), exceeding expectations across every aggregate. Following the CPI and PPI prints, our US economists see January core PCE inflation tracking at +0.36% month-on-month, which would be the strongest print since early 2023. In other data on Friday, we had the University of Michigan’s inflation expectations for February, which saw both 1yr and 5-10yr inflation expectations beat estimates at 3.0% (vs 2.9% expected) and 2.9% (vs 2.8% expected), respectively.
Off the back of this, investors significantly dialled back the amount of rate cuts they were expecting this year. The amount of Fed cuts expected by December fell to as low as 80bp intra-day after the PPI print, though this was back to 90bps by the close (still down -22.3bps over the week and -5.8bps on Friday). So that’s nearly a full 25bps hike being taken out last week, with expected 2024 easing shrinking almost in half since a peak of 168bps on January 12.
This backdrop sent 10yr Treasury yields up +4.9bps on Friday, and +10.5bps on the week to 4.28%, their highest weekly close since late November. The more interest-rate sensitive 2yr yield jumped +16.1bps (and +6.8bps on Friday). Across the pond in Europe, the bond sell-off was more muted, but 10yr bund yields did reach their highest level since the end of November at 2.40% (+4.3bps on Friday and +2.1bp over the week).
The sell-off in rates put some pressure on equities but they were fairly resilient given the rate implications of the data. The S&P 500 fell by -0.42% last week as a decline late on Friday (-0.48%) ended a streak of five consecutive weekly gains. The volatility following the CPI and PPI prints sent the VIX up +1.3pts to 14.24 (+0.2pts on Friday). This is well below its peak of 15.85 after the CPI print but still the highest weekly close since early November. Tech stocks underperformed, with the NASDAQ falling -1.34% (and -0.82% on Friday) and the Magnificent 7 down -1.50% (-0.84% Friday). Although it fell by -1.39% on Friday, the Russell 2000 index of smallcap stocks was an outperformer last week, rising +1.13%, returning the index into the black in year-to-date terms. This was mostly driven by a bout of AI optimism sending small tech stocks up so you can't escape their influence. European equities outperformed with the STOXX 600 rising +1.39% (and +0.62% on Friday).
