U.S. stocks are subdued in pre-market action as the global markets remain choppy amid the backdrop of uncertainty regarding the ultimate impact of aggressive monetary policy tightening. Treasury yields are trading mostly higher, and the U.S. dollar is little changed. Crude oil prices are rallying and gold is seeing pressure. Q4 earnings season continues to wrap up, with Target topping forecasts but offering disappointing guidance, while Zoom Video Communications bested forecasts but delivered a mixed outlook. The economic calendar showed home prices dipped compared to the prior month, while the trade deficit widened more than expected, and wholesale inventories unexpectedly declined. After the opening bell, we will get a look at regional manufacturing activity out Chicago and the Conference Board's Consumer Confidence report. Asia finished mixed and Europe is also diverging amid the grappling with monetary policy uncertainty.
As of 8:51 a.m. ET, the March S&P 500 Index future is 6 points above fair value, the Nasdaq Index future is 13 points north of fair value, and the DJIA future is 57 points above fair value. WTI crude oil is increasing $1.86 to $77.54 per barrel, and Brent crude oil is gaining $1.70 to $83.74 per barrel. The gold spot price is down $9.20 to $1,815.70 per ounce. Elsewhere, the Dollar Index is dipping 0.1% to 104.63.
Target Corporation (TGT $167) reported adjusted Q4 earnings-per-share (EPS) of $1.89, above the $1.40 FactSet estimate, as revenues rose 1.3% year-over-year (y/y) to $31.40 billion, versus the Street's expectation of $30.67 billion. Q4 same-store sales rose 0.7% y/y, compared to the anticipated 1.6% decline. However, the company issued Q1 and full-year EPS and same-store sales guidance that came in below estimates, noting that it is planning cautiously in the near term to ensure it remains agile and responsive to the current operating environment.
Zoom Video Communications Inc. (ZM $74) posted adjusted Q4 EPS of $1.22, versus the forecasted $0.81, with revenues rising 4.0% y/y to $1.12 billion, compared to the expected $1.10 billion. ZM issued Q1 and full-year earnings guidance that came in above estimates, but its revenue outlooks missed projections.
Q4 earnings season continues down the home stretch this week and of the 481 S&P 500 companies that have reported thus far, about 58% have topped revenue estimates and approximately 68% have exceeded earnings projections, per data compiled by Bloomberg. Results have been mixed, along with guidance as corporations try to determine the ultimate impact of the aggressive Fed monetary policy tightening on the economy and profit margins.
Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, The Price You Pay: A Look at Equity Valuations, how valuation metrics broadly look more attractive relative to where they were a year ago, but history shows they don't provide clear guidance on future returns.
Home prices dip m/m
The 20-city composite S&P CoreLogic Case-Shiller Home Price Index for December showed a 4.7% y/y rise in home prices, below the Bloomberg consensus estimate of a 4.8% increase, and south of the prior month's upwardly revised 6.8% increase. Home prices were down 0.1% month-over-month (m/m) on a seasonally adjusted basis, compared to forecasts calling for a 0.2% decline, and matching the prior month's unrevised dip.
A preliminary look at the advance goods trade balance for January showed that trade deficit widened more than expected to $91.5 billion, versus forecasts calling for it to increase to $91.0 billion from December's downwardly revised $89.7 billion deficit.
Preliminary wholesale inventories declined 0.4% m/m for January, below expectations calling for a match of December's unrevised 0.1% increase.
Treasury rates are rising, as the yield on the 2-year note is little changed at 4.80%, while the yield on the 10-year note is increasing 2 basis points (bps) to 3.94%, and the 30-year bond is gaining 3 bps to 3.94%.
Treasury yields have jumped as a tight labor market and still elevated inflation have preserved Fed expectations that it could stay on the hawkish path of tighter monetary policy. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, Mind the Gap: Bond Yields Appear Set for a Rebound, how over the next few months, we see room for yields to move higher, especially if the inflation data come in stronger than anticipated.
Shortly after the opening bell, the economic calendar will introduce the Conference Board's February Consumer Confidence Index, forecasted to rise to 108.5 from January's 107.1 reading. Additionally, more manufacturing data will be released, courtesy of the Chicago PMI for February, which is expected to improve slightly to 45.5 from the previous month’s 44.3 figure. A reading below 50 denotes a contraction in manufacturing activity.
Europe mixed after yesterday's rebound
Stocks in Europe are mixed in afternoon action, after the markets rebounded yesterday from last week's drop. Equities have been choppy as the markets wrestle with the potential impact of monetary policy tightening out of the Fed in the U.S., the Bank of England and the European Central Bank. Yesterday, ECB President Christine Lagarde noted that there is "every reason" to believe the ECB will hike rates by 50 bps in March and could do more in the future if needed to bring down inflation. She added that after March it will be data dependent regarding rate hikes.
In economic news, French consumer price inflation accelerated m/m for this month, and was hotter than expected y/y, while Spain's consumer price inflation rose more than anticipated m/m and y/y for this month. The euro is ticking higher, and the British pound is rising versus the U.S. dollar. Bond yields in the Eurozone and rates in the U.K. are mostly moving to the upside. The pound is extending yesterday's gain that came as the British Prime Minister Rishi Sunak signed a new trade deal with the European Union.
Despite some recent volatility, equities in the region have had a strong start for 2023, buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening, and expectations that global central bank aggressive tightening may cool off. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists.
The U.K. FTSE 100 Index is down 0.5%, Germany's DAX Index is gaining 0.3%, France's CAC-40 Index is ticking 0.1% higher, Italy's FTSE MIB Index is rising 0.6%, Spain's IBEX 35 Index is rallying 1.2%, and Switzerland's Swiss Market Index is trading 0.3% lower.
Asia mixed following data and amid continued monetary policy uncertainty
Stocks in Asia finished mixed as investors continued to focus on monetary policy tightening out of the U.S and Europe and the implications on global financial conditions and the economy. Moreover, some economic data in the region came into focus, with Japan's industrial production for January falling more than expected, while the nation's retail sales grew more than anticipated for last month. Elsewhere, Hong Kong's exports dropped more than projected in January and Australia's retail sales for last month increase more than anticipated. Meanwhile, anxiety and volatility continues to be exacerbated by heightened geopolitical tensions between the U.S. and China.
Schwab's Jeffrey Kleintop discusses in his latest article, Investors' Guide to Geopolitical Risk, how while investor attention is on the Fed, changes at the Bank of Japan might bring shifts to the economic environment, impacting the global markets.
Japan's Nikkei 225 Index ticked 0.1% higher, with the yen holding onto yesterday's gains versus the U.S. dollar. China's Shanghai Composite Index advanced 0.7%, the Hong Kong Hang Seng Index declined 0.8%, and India's S&P BSE Sensex 30 Index decreased 0.6%. Australia's S&P/ASX 200 Index rose 0.5%, and South Korea's Kospi Index moved 0.4% to the upside.
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