Morning Markets

March E-Mini S&P 500 futures (ESH24) are down -0.30%, and March Nasdaq 100 E-Mini futures (NQH24) are down -0.19%. 

Stock index futures this morning are mildly lower as higher bond yields weigh on market sentiment. Bond yields rose on hawkish Fed comments as Fed Chair Powell pushed back against hopes of a Fed rate cut next month and Minneapolis Fed President Kashkari said a higher neutral rate gives the Fed room to wait on interest rate cuts.  The markets are awaiting the Jan ISM services index later this morning for further direction.

Corporate news today was mixed for stocks.  On the bearish side, Air Products and Chemicals is down more than -7% in pre-market trading after reporting weaker-than-expected Q1 adjusted EPS and cutting its full-year adjusted EPS forecast.  Also, Boeing is down more than -2% in pre-market trading after it found more misdrilled holes on its 737 Max jets, potentially further delaying deliveries.

On the positive side, Caterpillar is up more than +4% in pre-market trading after reporting Q4 adjusted operating income above consensus.  Also, Estee Lauder jumped more than +14% after saying it is cutting as many as 3,000 positions as part of a restructuring plan. 

Fed Chair Powell Sunday evening said in an interview on “60 Minutes” that the Fed is wary of cutting interest rates too soon and reiterated that a March rate cut is unlikely.

Minneapolis Fed President Kashkari said today that the neutral policy rate has possibly risen. That "gives the FOMC time to assess upcoming economic data before starting to lower the federal funds rate, with less risk that too-tight policy is going to derail the economic recovery."

The markets are discounting the chances for a -25 bp rate cut at 18% at the March 19-20 FOMC meeting and 78% for that -25 bp rate cut at the following meeting April 30-May 1.

U.S. and European government bond yields today are higher.  The 10-year T-note is up +9.8 bp at 4.117%.  The 10-year German bund yield rose to a 1-week high of 2.309% and is up +6.7 bp at 2.308%.  The 10-year UK gilt yield rose to a 1-week high of 4.009% and is up +9.0 bp at 4.008%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.06%.  China’s Shanghai Composite Index closed down -1.02%.  Japan’s Nikkei Stock Index closed up +0.54%.

The Euro Stoxx 50 today is slightly lower on higher bond yields and mixed corporate news. The 10-year German bund yield climbed to a 1-week high on hawkish comments from ECB Governing Council member Vujcic, who said the ECB needs to be patient before cutting interest rates. Banco Santander SA tumbled more than -5% on a Financial Times report that said Iran evaded sanctions by covertly using British accounts at the bank.  However, UniCredit SpA jumped more than +6% after reporting stronger-than-expected Q4 income and revenue.  Stocks also found support on some bullish economic news after the Eurozone Feb Sentix investor confidence index rose more than expected to a 10-month high, and Eurozone produce prices fell more than expected. 

ECB Governing Council member Vujcic said the ECB "needs to have patience at the moment before getting into an easing cycle to make sure that wage costs aren't translating into sustained wage pressure."

The Eurozone Dec PPI fell -10.6% y/y, weaker than expectations of -10.5% y/y.

The Eurozone Feb Sentix investor confidence index rose +2.9 to a 10-month high of -12.9, stronger than expectations of -15.0.

German trade data was below expectations as Dec exports fell -4.6% m/m, weaker than expectations of -2.8% m/m and the biggest decline in a year.  Also, Dec imports fell -6.7% m/m, weaker than expectations of -1.9% m/m and the biggest decline in a year.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 14% for its next meeting on March 7 and at 65% at the following meeting on April 11.

China’s Shanghai Composite Index dropped to a 5-year low and has closed lower in the last six sessions.  China’s ongoing property slump, weak economic news, and trade tensions with the U.S. continue to weigh on stocks.  Also, the forced selling of stocks weighed on the overall market as leveraged shareholders who pledged stock as collateral were forced to sell their shares as stock values continued to fall.  The market recovered from its worst levels on short covering after the China Securities Regulatory Commission pledged to prevent abnormal stock fluctuations, saying it would guide more medium and long-term funds into the market.

The China Jan Caixin services PMI unexpectedly fell -0.2 to 52.7, weaker than expectations of an increase to 53.0.

Japan’s Nikkei Stock Index today climbed to a 1-1/2 week high and closed moderately higher. Japanese stocks garnered carryover support from last Friday’s rally in major U.S. stock indices to record highs. Also, exporter stocks rallied today to lead the overall market higher after the yen tumbled to a 2-month low against the dollar.  Some positive economic news boosted stocks after the Jan Jibun Bank services PMI was revised upward to a 4-month high.  Japanese bank stocks rallied today after the 10-year JGB bond yield moved back above 0.7%, boosting optimism for the sector’s profitability.

The Japan Jan Jibun Bank services PMI was revised upward by +0.4 to 53.1 from the previously reported 52.7, the fastest pace of expansion in 4 months.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 21% for its next meeting on March 19 and at 83% for the following meeting on April 26.

Pre-market U.S. Stock Movers

Boeing (BA) fell more than -2% in pre-market trading after it found more misdrilled holes on its 737 Max jets, potentially further delaying deliveries.   

Air Products and Chemicals (APD) tumbled more than -7% in pre-market trading after reporting Q1 adjusted EPS of $2.82 billion, weaker than the consensus of $3.01 billion, and cutting its full-year adjusted EPS forecast to $12.20-$12.50 from a previous estimate of $12.80-$13.10, below the consensus of $12.98. 

Zscaler (ZS) dropped more than -3% in pre-market trading after COO Rajic unexpectedly resigned last Friday. 

Mattel (MAT) fell more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to neutral from overweight. 

Cytokinetics (CYTK) dropped more than -3% in pre-market trading after CFO Jaw announced he is resigning effective Feb 23 due to health reasons. 

WW Grainger (GWW) fell more than -1% in pre-market trading after CFRA downgraded the stock to strong sell from hold with a price target of $830. 

Caterpillar (CAT) climbed more than +4% in pre-market trading after reporting Q4 adjusted operating income of $3.23 billion, stronger than the consensus of $3.10 billion. 

Estee Lauder (EL) surged more than +14% in pre-market trading after saying it’s cutting as many as 3,000 positions as part of a restructuring plan. 

4D Molecular Therapeutics (FDMT) soared more than +60% in pre-market trading after reporting interim data from its phase 2 PRISM clinical trial of its 4D-150 treatment for wet AMD that showed positive results that “check all of the boxes.” 

Catalent (CTLT) rallied more than +11% in pre-market trading after Novo Holdings agreed to buy the company for $16.5 billion or $63.50 per share. 

CNA Financial (CNA) climbed more than +4% in pre-market trading after reporting Q4 book value per share of $36.52, above the consensus of $30.95.

Elanco Animal Health (ELAN) jumped more than +8% in pre-market trading after it sold its Aqua business to Merck & Co for $1.3 billion in cash. 

Earnings Reports (2/5/2024)

AECOM (ACM), Affiliated Managers Group Inc (AMG), Air Products and Chemicals Inc (APD), Caterpillar Inc (CAT), CNA Financial Corp (CNA), Coherent Corp (COHR), Crown Holdings Inc (CCK), Estee Lauder Cos Inc/The (EL), FMC Corp (FMC), IDEXX Laboratories Inc (IDXX), Kilroy Realty Corp (KRC), Loews Corp (L), McDonald's Corp (MCD), NXP Semiconductors NV (NXPI), ON Semiconductor Corp (ON), Palantir Technologies Inc (PLTR), Simon Property Group Inc (SPG), Timken Co/The (TKR), Tyson Foods Inc (TSN), Vertex Pharmaceuticals Inc (VRTX).

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