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Markets Today: Stocks Climb on Strength in Chip Stocks

Barchart - Thu Jan 18, 8:05AM CST

Morning Markets

March E-Mini S&P 500 futures (ESH24) are up +0.28%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.68%. 

Stock index futures this morning are moderately higher on strength in technology stocks. Chipmakers are climbing in pre-market trading to lead technology stocks higher after Taiwan Semiconductor Manufacturing Co, the main supplier to Apple and Nvidia, said it expects a return to solid growth this quarter.

Stock index futures fell back from their best levels as bond yields ticked higher after U.S. weekly jobless claims unexpectedly fell to a 16-month low and after Atlanta Fed President Bostic said he doesn’t expect the Fed to start cutting interest rates until Q3 of this year.  Also, today’s report on U.S. Dec housing starts and building permits was stronger than expected, a hawkish factor for Fed policy.

U.S. weekly initial unemployment claims unexpectedly fell -16,000 to a 16-month low of 187,000, showing a stronger labor market than expectations of 205,000.

U.S. Dec housing starts fell -4.3% m/m to 1.460 million, stronger than expectations of 1.425 million. Dec building permits, a proxy for future construction, rose +1.9% m/m to 1.495 million, stronger than expectations of 1.477 million.

The U.S. Jan Philadelphia Fed business outlook survey rose +2.2 to -10.6, weaker than expectations of -6.5.

Atlanta Fed President Bostic said he wants to see more evidence inflation is on track toward the Fed's 2% target, and his outlook "is for our first cut in rates sometime in the third quarter this year."

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 56% 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 climbed to a 5-week high of 4.131% and is up +2.1 bp at 4.123%. The 10-year German bund yield rose to a 1-1/2 month high of 2.341% and is up +2.0 bp at 2.336%.  The 10-year UK gilt yield is down -3.5 bp to 3.951%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.49%.  China’s Shanghai Composite Index closed up +0.43%.  Japan’s Nikkei Stock Index closed down -0.03%.

The Euro Stoxx 50 today is moderately higher.  Some positive corporate news is lifting the overall market, with Richemont SA up more than +9% to lead luxury stocks higher after reporting stronger-than-expected Q4 sales.  Also, European chip stocks rose after Taiwan Semiconductor Manufacturing Co, the main chipmaker for Apple and Nvidia, said it expects a return to solid growth in Q3. On the negative side, European automakers were on the defensive after Eurozone Dec new car registrations fell by the most in 17 months. 

The account of the Dec 13-14 ECB meeting was a bit hawkish as policymakers pushed back on rate cut expectations and said they were concerned that speculation in the market for monetary easing "could derail the disinflationary process."  The ECB also said, "It was widely felt that market expectations reflected significant optimism and were inconsistent with the outlook in the staff projections, with respect to both the inflation outlook and the rate path embodied in the technical assumptions."

Eurozone Dec new car registrations fell -3.3% y/y to 867,000, the biggest decline in 17 months.

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 22% for the following meeting on March 7.

China’s Shanghai Composite Index today recovered from a 3-1/2 year low and closed moderately higher.  Chinese stocks staged a sharp recovery in afternoon trading as signs of buying by state funds sparked short covering.  Some of China’s top exchange-traded funds (ETFs) saw record turnover today, with a spike in volumes coinciding with the rally.  During previous market slumps, state funds were suspected of being behind increases in the turnover of such ETFs as they stepped in to prop up prices.  Today’s rally comes after this week’s plunge in the Shanghai Composite to a 3-1/2 year low amid skepticism over the economy.  Economic reports this week showed China’s property crisis deepening and GDP growth below estimates.   

Foreign investors remain net sellers of mainland Chinese stocks as they dumped 13 billion yuan ($1.8 billion) worth of shares during Wednesday’s session, the most in over a year.

Japan’s Nikkei Stock Index today closed slightly lower as prices consolidated below Wednesday’s 34-year high.  Higher Japanese government bond yields today strengthened the yen and weighed on exporter stocks after the 10-year JGB bond yield rose to a 4-week high.  Weak economic news also weighed on the overall market after Japan Nov core machine orders fell by the most in 6 months. Losses were limited due to strength in chipmakers after Taiwan Semiconductor Manufacturing Co said it expects a return to solid growth this quarter.

Foreign buying of Japanese stocks is a supportive factor after Japan’s Ministry of Finance reported today that foreign investors bought a net 1.2 trillion yen ($8.1 billion) of Japanese stocks last week, the most in 3 months.

Japan Nov core machine orders fell -4.9% m/m, weaker than expectations of -0.8% m/m and the biggest decline in 6 months.

Pre-market U.S. Stock Movers

Chip stocks are climbing in pre-market trading after Taiwan Semiconductor Manufacturing Co said it expects a return to solid growth this quarter.  As a result, Analog Devices (ADI), Intel (INTC), KLA Corp (KLAC), Nvidia (NVDA), Texas Instruments (TXN), and Qualcomm (QCOM) are up more than +1%.

Apple (AAPL) rose more than +1% in pre-market trading after Bank of America upgraded the stock to buy from neutral with a price target of $225. 

Microchip Technology (MCHP) climbed more than +3% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $105. 

Advanced Micro Devices (AMD) rose more than +2% in pre-market trading after Cowen raised its price target on the stock to $185 from $130. 

Marvel Technology (MRVL) is up more than +2% in pre-market trading after Cowen raised its price target on the stock to $75 from $65. 

Pinterest (PINS) climbed more than +2% in pre-market trading after Argus Research upgraded the stock to buy from hold.

Tempur Sealy International (TPX) rose more than +2% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral. 

Hertz Global Holdings (HTZ) jumped more than +8% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $15. 

Discover Financial Services (DFS) tumbled more than -10% in pre-market trading after reporting Q4 EPS of $1.54, well below the consensus of $2.52, and said provision for credit losses in Q4 was $1.91 billion, above the consensus of $1.63 billion.

Humana (HUM) sank more than -11% in pre-market trading after cutting its adjusted 2023 earnings outlook to $26.09 a share from a previous estimate of $28.25 a share.  Other health insurers are falling on the news, with Cigna Group (CI), Elevance Health (ELV), UnitedHealth Group (UNH), Centene (CNC), and CVS Health (CVS) down more than -3%

KeyCorp (KEY) fell more than -3% in pre-market trading after reporting Q4 EPS from continuing operations of 3 cents, well below the consensus of 22 cents. 

Earnings Reports (1/18/2024)

Bank OZK (OZK), Birkenstock Holding Plc (BIRK), Commerce Bancshares Inc/MO (CBSH), Fastenal Co (FAST), First Horizon Corp (FHN), FNB Corp/PA (FNB), JB Hunt Transport Services Inc (JBHT), KeyCorp (KEY), M&T Bank Corp (MTB), Northern Trust Corp (NTRS), PPG Industries Inc (PPG), Truist Financial Corp (TFC).



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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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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