U.S. stocks are soaring in pre-market trading amid a softer-than-expected November consumer price inflation report. The report seems to be soothing concerns regarding how aggressive the Fed will remain with its rate hikes. This comes ahead of tomorrow’s highly anticipated Fed monetary policy meeting, as the markets are expecting a 50-basis point increase to the target fed funds rate. In other economic news, the NFIB Small Business Optimism Index unexpectedly rose. Equity news is light, as Oracle beat earnings estimates despite the significant impact of the strengthening U.S. dollar, while Raytheon Technologies authorized a $6 billion share repurchase program. Treasury yields are plummeting following the inflation data, and the U.S. dollar is falling, while crude oil and gold prices are rising. European stocks are climbing higher as investors digest the CPI report and await central bank actions that will be announced later this week. Asian stocks were mixed as markets in the region waited for today’s key inflation data.
As of 8:50 a.m. ET, the March S&P 500 Index future is 128 points above fair value, the DJIA future is 688 points north of fair value, and the Nasdaq Index future is 489 points over fair value. WTI crude oil is rising $1.53 to $74.70 per barrel, and Brent crude oil is increasing $1.70 to $79.69 per barrel. The gold spot price is gaining $30.00 to $1,822.30 per ounce. Elsewhere, the Dollar Index is falling 1.2% to 103.94.
Oracle Corporation (ORCL $81) reported adjusted fiscal Q2 earnings-per-share (EPS) of $1.21, besting Factset’s $1.17 estimate, as revenues rose 25% year-over-year (y/y) in constant currency to $12.28 billion, versus the expected $11.96 billion. The multinational computer technology company discussed how the strengthening U.S. dollar had a significant impact on results, and if not for the foreign exchange impact, EPS would have been $0.09 higher. ORCL also noted how each of its strategic businesses delivered solid revenue growth, and how the growth “was powered by our infrastructure and applications cloud businesses that grew 59% and 45% respectively, in constant currency.”
In other equity news, Raytheon Technologies (RTX $100) authorized a $6 billion share repurchase program.
The equity markets have been choppy after last week’s losses snapped a two-week rally, with investors wrestling with the impact of aggressive monetary policy tightening from the Fed and how long and at what pace the Central Bank will continue to raise rates. Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, U.S. Outlook: How Many More Times, Fed?, how Powell, among other Fed officials, has seemingly shifted his attention from the rear-view mirror to the windshield. She points out how inflation is a lagging indicator, but the impact of monetary policy changes is in the future.
Inflation data came in softer-than-expected, small business optimism unexpectedly rose
The Consumer Price Index (CPI) (chart) rose 0.1% month-over-month (m/m) in November, compared to the Bloomberg consensus estimate calling for a 0.3% gain, and versus October's unrevised 0.4% increase. The core rate, which strips out food and energy, gained 0.2% m/m, below expectations calling for it to match October’s 0.3% rise. Compared to last year, prices were 7.1% higher for the headline rate, below estimates calling for the rate to decline to a 7.3% increase from the prior month's unrevised 7.7% rise. The core rate was up 6.0% y/y, south of projections of a 6.1% gain, and versus September's unadjusted 6.3% rise.
The Bureau of Labor Statistics (BLS) said the index for shelter was by far the largest contributor to the increase, and more than offset the decreases in energy. Gasoline and electricity prices both declined, as did utility gas services. Prices for transportation services and medical care services decreased, along with used cars and trucks, and airline fares. However, food prices increased along with apparel, while new vehicles were unchanged.
Today marks the start of the Federal Open Market Committee’s (FOMC) December meeting, which will culminate in tomorrow’s announcement of their monetary policy decision. The FOMC is expected to raise its target for the fed funds rate by 50 basis points (bps) and will deliver updated economic projections. Also, heavy focus will be on the press conference following the decision from FOMC Chairman Jerome Powell to see if he signals that the Central Bank will begin to dial down its aggressive monetary policy tightening.
The National Federation of Independent Business (NFIB) Small Business Optimism Index for November unexpectedly rose to 91.9, above the anticipated decline to 90.4, and versus October’s 91.3 level. The index posted the eleventh-consecutive month below the 48-year average of 98. According to the report, 32% of small business owners noted that inflation was their single most important problem in operating their business.
The NFIB said, “Going into the holiday season, small business owners are seeing a slight ease in inflation pressures, but prices remain high. The small business economy is recovering as owners manage an ongoing labor shortage, supply chain disruptions, and historic inflation.”
Inflation has been a driving factor behind the aggressive monetary policy from the Federal Reserve. As a result, the Fed has raised rates by 75 bps for four-straight meetings. Treasury yields have moved higher this year amid the tightened monetary policy and Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article, Fixed Income Outlook: Bonds Are Back, how we see opportunities in 2023 for the bond market to provide attractive yields at lower risk than we've seen for several years.
Treasury rates are plummeting, as the yield on the 2-year note is dropping 20 bps to 4.19%, the yield on the 10-year note is falling 15 bps to 3.47%, and the 30-year bond rate is down 14 bps to 3.44%.
Europe rising sharply amid inflation data out of the U.S.
Stocks in Europe are soaring in afternoon action as markets in the region are reacting to softer-than-expected inflation data out of the U.S. that precedes tomorrow’s monetary policy action announcement from the Fed. Additionally, the European Central Bank and Bank of England are also set to release their monetary policy decisions, and all are expected to raise their benchmark interest rates by 50 bps. Conviction remains constrained by uncertainty regarding the ultimate economic impact of the recent aggressive monetary policy tightening globally as signs of slowing economic growth amid this backdrop have emerged. However, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks.
The region was full of economic reports, as Germany’s CPI decreased in line with expectations m/m, and declined slightly y/y but remained elevated. The docket was full of labor reports, as the U.K.’s 3-month moving average on employment change unexpectedly rose m/m, while the unemployment rate rose in line with analysts’ predictions. Additionally, France’s nonfarm payrolls in Q3 rose 0.4% as anticipated. Italy’s industrial production went down more than expected, while ZEW Economic Sentiment Surveys out of Germany and the Eurozone both contracted at a slower pace than forecast.
The energy markets remain in focus amid the recent choppiness in crude oil prices that has come in the wake of recent developments, including last week's decision by OPEC and its allies, known as OPEC+, to hold its production plans steady, the G-7's imposed $60 per barrel price cap on Russian oil, and new sanctions by Europe on Russian oil activity. The euro and British pound are soaring versus the U.S. dollar, while bond yields in the Eurozone are lower, and rates in the U.K. are unchanged.
The U.K. FTSE 100 Index is increasing 1.0%, France's CAC-40 Index is climbing 1.8%, Spain's IBEX 35 Index is advancing 1.7%, Germany's DAX Index is soaring 2.1%, Italy's FTSE MIB Index is rising 1.8%, and Switzerland's Swiss Market Index is trading 1.3% higher.
Asia mixed ahead of U.S. inflation data and central bank actions
Stocks in Asia finished mixed ahead of today’s U.S. inflation data, as investors prepared to digest the report and its potential impact on the Fed’s target fed funds rate. Additionally, the markets awaited further monetary policy actions later this week from central banks around the world, including out of the U.K. and the Eurozone.
Hong Kong equities led the rally in the region as the markets reacted to further reopening news, which has boosted optimism lately. However, China’s key Central Economic Work Conference meeting was delayed amid a surge in new COVID cases in. In this closed-door economic meeting, analysts believe China’s leadership will discuss a recovery course for the COVID-impacted economy, and other relevant topics, which could include more stimulus plans. Additionally, China has recently provided measures to try to help its struggling property market, while also recently delivering stimulus measures, including lowering the reserve requirements for its largest banks and more. Inflation has been a main driver of aggressive monetary policy tightening around the globe and in his latest article, Global Outlook: Recovery and Risk, Schwab's Jeffrey Kleintop notes how markets may continue to see volatility in 2023 as they navigate between global economic growth and inflation fears, with central banks' decreasing rate hikes and China's reopening. In economic news in the region, Australia’s business confidence worsened in November, below the prior month’s unchanged mark. On the other hand, consumer sentiment increased, compared to last month’s sharp decline.
Japan's Nikkei 225 Index increased 0.4%, with the yen giving back some of last week's gains versus the U.S. dollar. China's Shanghai Composite Index dipped 0.1%, while the Hong Kong Hang Seng Index gained 0.7%. Additionally, Australia's S&P/ASX 200 Index traded 0.3% to the upside, India's S&P BSE Sensex 30 Index rose 0.7%, and South Korea's Kospi Index was mostly unchanged.
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