Stocks Remain Under Pressure Across Atlantic After U.S. Interest Rate Uncertainties Heightened

Barry Adams
11 Jan, 2024
New York City

Stocks turned lower after consumer price inflation accelerated in December and poured cold water over the expectation of interest rate cuts as early as March.

The S&P 500 index and the Nasdaq Composite traded in a tight range in early trading, and bank stocks were in focus ahead of the release of quarterly results on Friday.

The latest update on the labor market showed tight conditions persisting in the first week of the new year.

The initial jobless claims declined by 1,000 from the previous week's upwardly revised 202,000 for the week ending January 6, the U.S. Department of Labor reported Thursday.

Continuing claims declined by 34,000 to 1.834 million in the previous week.

The decline in initial and continuing claims was larger than expected, suggesting that tight labor market conditions are likely to persist and may support higher wage growth in the weeks ahead.

Higher inflation combined with tight labor market conditions is likely to encourage policymakers to keep higher rates for longer and extend stock market losses in the second week in a row.

 

Consumer Price Inflation Accelerated In December 

The consumer price index advanced to 3.4% in December, from a five-month low of 3.1% in November, the U.S. Bureau of Labor Statistics reported Thursday. 

Over half of the increase in inflation was driven by a rise in shelter prices, and the index for shelter rose at 6.2% compared to 6.5% in the previous month.  

The slower decline in energy prices by 2.0% compared to 5.4% fall in November, supported the rebound in inflation in the month. 

Compared to November, consumer prices rose 0.3%, the largest increase in three months. 

Annual core inflation, which excludes food and energy, eased to 3.9% in December from 4.0% in November, and monthly core inflation rose 0.3% in the month, matching the rate in the previous month. 

The shelter inflation was the largest contributor to core inflation in the month, after prices rose at 0.5% in December, faster than 0.4% rise in the previous month.   

 

U.S. Indexes and Yields

The S&P 500 index decreased 0.1% to 4,776.81, and the Nasdaq Composite declined 0.1% to 14,731.08.

The yield on 2-year Treasury notes decreased to 4.34%. 10-year Treasury notes edged down to 3.98%, and 30-year Treasury bonds eased to 4.16%.

WTI crude oil increased $1.54 to $72.91 a barrel, and natural gas prices increased 17 cents to $3.21 a thermal unit.

Gold decreased $7.04 to $2,016.31 an ounce, and investors debated the future interest rate path.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 102.27.

 

U.S. Stock Movers

KB Home declined 3% to $61.28 after the home builder reported its fourth-quarter results.

Revenue in the quarter decreased to $1.67 billion from $1.94 billion, net income dropped to $150.3 million from $216.4 million, and diluted earnings per share fell to $1.85 from $2.47.

Homes delivered in the quarter decreased 10% to 3,407, and the average selling price declined 4.5% to $487,300 from $510,400 a year ago.

However, demand for new homes increased in the final quarter, and the cancellation rate declined.

Net orders for the fourth quarter were up 176% to 1,909, and net order value grew 157% to $932.6 million.

However, the backlog of home orders declined to 5,510 from 7,662, and the backlog value fell to $2.67 billion from $3.69 billion a year ago.

Bitcoin-focused stocks traded higher after the SEC approved the launch of spot bitcoin-focused ETFs.

Robinhood Markets rose 4.4% to $12.63, Marathon Digital Holdings gained 6.6% to $27.30, and MicroStrategy jumped 4.9% to $593.20.

 

Sharp Reversal In European Markets . Industrial Production Growth In Italy and Spain Diverge 

Market indexes in Europe advanced after falling for two days in a row in early trading, and investors debated the path of interest rates and the economic outlook.

However, market indexes dropped more than 1% in late afternoon trading after the release of December U.S. inflation, denting hopes of interest rate cuts in March. 

Market indexes in 2024 have been down between 1% and 2% in Frankfurt, Paris, and London, amid a cautious economic outlook and interest rate uncertainties.

Closer to home, investors reviewed the latest update on industrial output in Italy and Spain and awaited the release of consumer price inflation in the U.S. later in the day.

Italy's industrial production decreased 1.5% from the previous month in November after falling 0.2% in October, the statistical agency ISTAT reported Thursday.

Industrial production dropped 3.1% from a year ago, the tenth monthly decline in a row.

Spain's industrial production increased by 0.8% from a year ago in November, the statistical agency INE reported Thursday.

On a seasonally adjusted basis, industrial production increased by 1% in November, rebounding from an upwardly revised 0.7% decline in the previous month.

 

Europe Indexes and Yields

The DAX index decreased 0.9% to 16,547.03, the CAC-40 index fell 0.3% to 7,387.62, and the FTSE 100 index dropped 1% to 7,576.59.

The yield on 10-year German bonds edged down to 2.18%; French bonds inched lower to 2.71%; the UK gilts edged down to 3.78%; and Italian bonds decreased to 3.80%.

The euro edged higher to $1.096, the British pound inched higher to $1.274, and the U.S. dollar eased to 85.12 Swiss cents.

Brent crude decreased $1.82 to $78.62 a barrel, and the Dutch TTF natural gas decreased by €0.05 to €30.94 per MWh.

 

Europe Stock Movers

Mining companies advanced after copper prices rebounded in London trading following the decline in the U.S. dollar in the last three days.

Anglo American rose 2.5% to 1,868.0 pence, Antofagasta advanced 2.2% to 1,617.31 pence, and Glencore inched up 0.3% to 449.25 pence.

Informa PLC decreased 3% to 761.49 pence despite the education and trade show organizers reporting stronger-than-expected results.

The in-person event organizer estimated 2024 revenue between £3.425 billion and £3.475 billion and adjusted operating income in the range of £945 million and £965 million, or between $1.21 billion and $1.23 billion.

The company estimated 2023 revenue of £3.165 billion and adjusted operating income around £945 million.

The company confirmed an annual 18 pence per share dividend for 2023.

Marks & Spencer Group decreased 4.9% to 264.10 pence after the UK-based retailer reported strong holiday sales but warned of an uncertain sales outlook in the current year.

Vinci SA increased 0.07% to €115.16 after the French construction and engineering company reduced the size of its revolving credit line with a syndicate of 23 banks.

VAT Group AG rose 1.5% to CHF 406.50 after the Swiss industrial valve maker reported better-than-expected orders in the fourth quarter.

VAT recorded preliminary fourth-quarter orders of around CHF 237 million, down 5% from a year earlier but up 44% sequentially from the third quarter of 2023.

The rise in sequential orders showed improving market conditions in the semiconductor industry, but the company also won new orders in the advanced industrial business unit.

Preliminary fourth quarter net sales came in slightly above the mid-point of the guidance range of CHF 200 to 230 million provided in October 2023 and amounted to approximately CHF 221 million, down 24% from a year ago but up 6% from the previous quarter.

 

Nikkei Jumps to a 34-year High; China Stocks Struggle Near Lows 

Asian markets traded higher following the rise in New York overnight trading.

The Nikkei 225 average jumped nearly 1.9% to 35,091.50 and traded at a 34-year high for the second day in a row after the yen eased near 145 against the U.S. dollar.

In a broad rally, Japanese stocks advanced on the hopes that the Bank of Japan would continue its massive stimulus program and retain its ultra-loose policy, making domestic assets cheaper for foreign investors.

The KOSPI index edged up 0.1% to 35,091.50 after the Bank of Korea left its key lending rate unrevised at 3.5%, matching market expectations.

The central bank held its reference rate steady for the eighth time in a row amid record household debt, rising financial stress among real estate developers, and falling inflation.

Stocks in China advanced in a technical rebound after fund managers searched for bargains amid cheap valuations, weak investor interest, and the exodus of foreign investors.

Tech stocks led the gainers in Hong Kong, and financial stocks were among the leading gainers in Shanghai trading.

The Hang Seng index jumped 1.5% to 16,339.83, and the CSI 300 index added 0.3% to 3,286.77, amid improving sentiment in Chinese stocks.

The Hong Kong index halted a seven-day slide, supported by buying from fund managers based in mainland China, but the broader index on the mainland continued to drift lower.

Both indexes are down 4% since the start of the new year and extended 4-year losses to above 40%.

China is scheduled to release its inflation and international trade data on Friday.

 

India Stocks Advance Ahead of Inflation and Industrial Output Reports

Stocks in Mumbai traded higher, and investors awaited the release of earnings from tech services exporters and economic updates on inflation and industrial output.

Benchmark indexes advanced 0.4% amid a positive global market backdrop after mega-cap stocks led another day of advance in overnight trading in New York.

Crude oil prices in international trade edged down after the U.S. government agency showed an increase in crude oil inventories at the end of last week by 1.38 million barrels.

Over the last three weeks, crude oil prices have been volatile, with a downward bias.

Traders are confronting two diverging forces impacting the energy market.

Houthi rebel attacks on merchant ships in the Red Sea are raising the prospect of a wider war in the Middle East and driving prices higher.

But crude oil prices are kept in check by the growing international supply of crude oil from the U.S. and weaker demand growth in China.