Inflation Views and AI Optimism Lifted S&P 500 and Nasdaq 1%, ECB Held Rates Steady

Barry Adams
07 Mar, 2024
New York City

Benchmark indexes on Wall Street extended 2-day gains after struggling to advance in the previous three sessions. 

Semiconductor stocks led the gainers amid the continuing enthusiasm about the boom related to artificial intelligence applications. 

The market rally also gained steam after the European Central Bank lowered its view on inflation in 2024. 

Treasury yields held steady ahead of the release of nonfarm payroll data on Friday, and investors reviewed the slight decline in the number of job openings to 8.9 million at the end of January, released on Wednesday. 

Initial jobless claims in the week ending on March 2 held steady at 217,000, up from the previous week's revised level, the Department of Labor reported Thursday. 

Market indexes are trading near record highs, and sentiment remains positive despite the growing consensus that interest rates are likely to stay higher for at least three more months. 

The four-week moving average eased from 750 to 212,250 from the previous week's revised level of 213,000. 

 

U.S. Trade Gap Rebounds to 9-month High 

The U.S. goods and services trade deficit increased to $67.4 billion in January from the revised $64.2 billion in December, the Bureau of Economic Analysis reported Thursday. 

The trade deficit in goods and services was the widest in nine months, after exports struggled to advance and imported energy rebounded. 

Exports edged up 0.1% to $257.2 billion, and imports advanced 1.1% to $324.6 billion. 

The goods and services deficit decreased $2.9 billion from a year ago, or 4.1%, after exports fell 0.4%, or $1.0 billion, and imports decreased 1.2%, or $3.9 billion.

The January increase in the goods and services deficit reflected an increase in the goods deficit of $3.0 billion to $91.6 billion and a decrease in the services surplus of $0.3 billion to $24.2 billion. 

The U.S. recorded a goods deficit with China of $22.9 billion, the European Union $18.1 billion, Mexico $12.7 billion, Vietnam $8.5 billion, Japan $7.3 billion, Germany $6.3 billion, Ireland $6.0 billion, Canada $5.7 billion, South Korea $5.5 billion, Taiwan $4.8 billion, Italy $3.8 billion, and India $3.7 billion. 

 

U.S. Indexes and Yields

The S&P 500 index increased 0.9% to 5,147.90, and the Nasdaq Composite advanced 1.2% to 16,229.52. 

The yield on 2-year Treasury notes decreased to 4.55%, 10-year Treasury notes inched down to 4.08%, and 30-year Treasury bonds edged down to 4.22%.

WTI crude oil decreased $0.16 to $78.96 a barrel, and natural gas prices decreased 6 cents to $1.86 a thermal unit.

Gold increased by $7.50 to $2,155.90 an ounce, and silver rose 23 cents to $24.39. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.23.

 

U.S. Stock Movers

American Eagle jumped 11.7% to $26.20 after the specialty apparel retailer reported better-than-expected quarterly results. 

The company also took on an impairment and restructuring charge of $98.3 million related to its internal logistics business, Quiet Platform, which the company put together through various acquisitions during the COVID-19 pandemic years between 2020 and 2022. 

Revenue in the holiday quarter increased 12% to $1.68 billion from $1.5 billion, net income plunged to $6.3 million from $54.6 million, and diluted earnings per share dropped to 3 cents from 28 cents a year ago. 

Novo Nordisk increased 6.7% to $133.22 after the Danish pharmaceutical company announced positive Phase 1 trial data for its experimental obesity drug, amycretin. 

New York Community Bancorp advanced 1.1% to $3.50 after the company announced a $1 billion capital raise on Wednesday.

Victoria's Secret dropped 27.4% to $18.60 after the specialty apparel retailer reported mixed quarterly results and announced an outlook that fell short of market expectations. 

 

ECB Holds Rates and Lowers Inflation and Growth Outlook

European markets rebounded, and investors reacted positively to the monetary policy decisions from the European Central Bank and comments from President Christine Lagarde. 

Benchmark indexes in Frankfurt, Paris, and London lacked direction in subdued trading as investors focused on rate decisions, the growth outlook, and inflation views from the European Central Bank. 

The European Central Bank as widely expected held rates steady for the fourth time in a row, and policymakers lowered economic growth outlook and inflation expectations. 

The central bank acknowledged that inflation is falling faster than anticipated, but policymakers signaled that rates are likely to stay higher as long needed. 

“We are in the disinflationary process and we are making progress,” ECB President Lagarde said during a press conference on Thursday.

President Lagarde also signaled rate cut is likely after June meeting added that market view "seems to be converging better" with the policymakers at the ECB.  

The main refinancing operation stayed at 22-year high of 4.5%, and deposit facility rate unchanged at 4%. 

The central bank also lowered its 2024 estimate of inflation to 2.3% from 2.7%, and economic growth outlook was lowered to 0.6% from 0.8% estimated in December.   

Market indexes are trading near record highs in Paris and Frankfurt as investors react positively to rising corporate earnings despite the weak economic backdrop. 

 

German Factory Orders Dropped In January

On the economic front, German factory orders declined sharply in January following a high volume of large orders in the previous month. 

New manufacturing orders adjusted for seasonal and calendar factors decreased 11.3% from the previous month, and December orders were revised to a jump of 12%, Destatis reported Thursday. 

On an annual basis, factory orders declined 6.0%.

In all three main groups, orders declined, capital goods fell 13.1%, intermediate goods declined 9.3%, and consumer goods eased 5.7%.

Domestic and foreign orders fell during the month. 

Foreign orders fell by 11.4%, and orders from the Eurozone decreased by 25.7%. Orders from outside the eurozone, however, rose by 1.6%. 

Domestic orders fell by 11.2%, largely because of the higher base effect in the previous month. 

 

UK Home Price Growth Slowed In February 

Home prices rose at a slower pace in February, signaling relatively stable home prices at the start of 2024, according to the mortgage lender Halifax. 

The Halifax House Price Index rose 1.7% in February, slower than the revised 2.3% growth in the previous month. 

On a monthly basis, home prices rose 0.4%, an increase for the fifth month in a row, supported by a decline in mortgage rates and rising wages. 

The home price in London led all regions with an average price of £536,996. 

 

Europe Indexes and Yields

The DAX index increased by 0.8% to 17,856.26, the CAC-40 index rose by 0.8% to 8,018.42, and the FTSE 100 index inched higher by 0.2% to 7,692.46.

The yield on 10-year German bonds edged down to 2.31%; French bonds inched lower to 2.76%; the UK gilts edged lower to 4.01%; and Italian bonds inched lower to 3.64%.

The euro edged higher to $1.089, the British pound inched higher to $1.276, and the U.S. dollar weakened to 88.09 Swiss cents.

Brent crude decreased $0.08 to $82.87 a barrel, and the Dutch TTF natural gas decreased by €0.47 to €26.11 per MWh.

 

Europe Stock Movers

Stellantis NV increased 0.04%, and the Italian automaker said it plans to invest €5.6 billion in South America between 2025 and 2030.

Grafton Group decreased 0.8% to 957.50 pence after home improvement retailer reported 2023 pre-tax profit declined 27% from the previous year. 

Aviva plc rose 2.3% to 465.40 pence after the UK-based insurance company reported a 9% increase in annual operating profit. 

Hugo Boss dropped 17.4% to €52.24 after the German fashion house warned that 2024 operating profit is likely to lag market expectations. 

Deutsche Lufthansa declined 0.3% to €7.02 after the German airline signaled a subdued outlook for the fiscal year 2024. 

Continental AG decreased 3% to €70.56 after the German tire maker reported annual operating results that fell short of market expectations.

Virgin Money UK jumped 37% to 216.20 pence after the Nationwide Building Society agreed to acquire the lender for £2.9 billion. 

 

Earning Worries In China and Rate Jitters in Japan Dominate Asian Trading

Asian markets traded mixed amid rate uncertainties, rising geopolitical tensions between China and the U.S., and growing worries of deflation in China. 

U.S. Federal Reserve Chairman Jerome Powell reiterated the central bank's stance to hold interest rates but confirmed that rates are likely to go down later in the year. 

Powell added that it is too early to discuss a rate cut until there are signs of a sustained decline in inflation to 2%. 

In addition, later in the day, the European Central Bank is set to announce its rate decision and growth outlook. 

Investors are looking for the central bank to hold rates steady, which may provide insights into the future direction of interest rates. 

 

Nikkei In Tokyo Turned Lower Amid BoJ Rate Decision Speculations 

Benchmark indexes in Tokyo traded at a new intra-day high before receding after the yen fell below 149 against the dollar in the hopes that the Bank of Japan is likely to end its ultra-loose monetary policy as early as this month. 

Investors also reacted negatively to the real wage decline of 0.6% in February. Real wages fell for the 22nd month in a row, but the decrease was the smallest in eleven months amid weakening goods and service prices in the economy. 

The Nikkei 225 Stock Average declined 1.3% to 39,593.69, and the Topix index fell 0.4% to 2,718.23. 

Financial stocks trimmed gains in the afternoon trading, and Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho Financial Group rose between 1% and 3%. 

Tech stocks were among the leading decliners, and Advantest, Tokyo Electron, Screen Holdings, and Disco Corp. dropped between 3% and 6%. 

SoftBank bucked the trend and gained 1.4% to ¥8,997.0. 

 

China Stocks Extend Weekly Losses 

Stocks in Shanghai and Hong Kong struggled to stay above the flatline amid rising geopolitical tensions. 

Market sentiment was dented after lawmakers in the annual parliamentary session failed to announce specific stimulus to stabilize financial markets. 

Investors overlooked stronger-than-expected exports in the January–February months, and the smaller-than-expected increase in imports suggested persistent broader economic weakness. 

The U.S. Senate committee advanced a bill that will prevent federal agencies from doing business with certain Chinese biotech companies linked to "foreign adversaries."

The CSI 300 index decreased 0.4% to 3,536.13, and the Hang Seng index fell 0.6% to 16,339.12. 

Wuxi Biologics plunged 21.2% to HK$17.12 and Wuxi AppTec plunged 17% to HK$46.85, extending this year's losses to 40% and 38%, respectively. 

JD.com jumped 6% to HK$95.30 after the e-commerce company reported better-than-expected earnings. 

BYD declined 1.9% to HK$190.0 after the electric vehicle maker announced its plan to buyback 400 million yuan, or $55.5 million, of its shares. 

 

China's Goods Exports Surpass Estimates

China's exports and imports rose more than expected during the January–February period. 

China's exports soared 7.1% to $528 billion in the two-month period, following a 2.3% increase in December, the General Administration of Customs reported Thursday. 

China's trade surplus in the two-month period soared to $125.2 billion from $104.4 billion in December. 

In 2023, China's exports eased 4.6% to $3.38 trillion and imports declined 5.5% to $2.56 trillion, resulting in a trade surplus of $823 billion. 

 

India's Economic Growth Likely to Surpass Target Rate

Stocks in Mumbai opened higher tracking gains in overnight trading in New York. 

The Sensex and the Nifty indexes danced around the flatline as investors debated interest rate outlooks at home and abroad. 

Market sentiment was positive after Reserve Bank of India Governor Shaktikanta Das, in an interview with ETNow on Wednesday, said fiscal fourth quarter economic growth is likely to surpass the 5.9% estimate suggested by the statistical agency. 

Governor Das added that there is a "good chance" that fiscal year 2024 economic growth will be "close to 8.0%," but he reiterated the fiscal 2025 outlook at 7.0%. 

The Sensex index increased 0.02% to 74,108.98, and the Nifty index rose 0.03% to 22,482.90.

On the Mumbai stock exchange, 61 stocks traded at their 52-week highs and 21 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds increased to 7.05%, and the Indian rupee strengthened to ₹82.82 against the U.S. dollar.