Rate Optimism Supports Stock Investor Enthusiasm In the U.S. and Europe

Barry Adams
27 Mar, 2024
New York City

Stock market indexes lacked direction as investors debated the durability of the recent market rally and future rate paths. 

Investors are also looking ahead to the release of the price consumption expenditure price index on Friday, an alternative measure of inflation that takes into account customers' behavior to substitute cheaper products. 

The PCE price index generally understates inflation, as the metric calculates inflation after consumers adjust to cheaper alternatives, reflecting a lower standard of living. 

The S&P 500 index and the Nasdaq Composite are set to extend monthly and quarterly gains after an artificial intelligence boom powered market rally lifted two popular indexes. 

The S&P 500 index has gained 9.1%, and the Nasdaq Composite index has advanced 8.7% as of Tuesday's close.

In March, as of Tuesday's close, the S&P 500 increased 2.1% and the Nasdaq Composite advanced 1.4%. 

Investors have bid up stocks in the hopes that the Federal Reserve is more likely to lower interest rates as early as June after the Federal Reserve maintained its projection to cut interest rates by three times in the year. 

However, investor hopes may be dashed if core inflation, which excludes volatile food and energy prices, stays above 2%. 

Moreover, rising tensions in the Middle East are keeping crude oil prices elevated, and that is keeping goods and services inflation at an elevated pace. 

In addition, wages are still rising at a rate of more than 4% annually, and the pace of wage inflation is inconsistent with the Fed's target rate of 2%. 

Investors' rate-cut hopes may be dented if core inflation stays above 3% and wage inflation stays above 4%, forcing the central bank to keep interest rates higher for longer until the end of the year. 

 

U.S. Indexes and Yields

The S&P 500 index increased 0.6% to 5,217.04, and the Nasdaq Composite fell 0.01% to 16,315.56. 

The yield on 2-year Treasury notes decreased to 4.58%, 10-year Treasury notes inched up to 4.22%, and 30-year Treasury bonds edged down to 4.39%.

WTI crude oil decreased $0.22 to $81.40 a barrel, and natural gas prices decreased 5 cents to $1.72 a thermal unit.

Gold decreased by $12.88 to $2,190.88 an ounce, and silver rose 11 cents to $24.53. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.44.

 

U.S. Stock Movers

GameStop Corp. declined 14.5% to $13.26 after the specialty retailer said fiscal fourth quarter sales declined to $1.8 billion compared to $2.2 billion a year ago. 

The company is battling the industry's shift away from physical games to online games and streaming services with subscription models. 

Net income in the quarter ending on February 3 rose to $63.1 million from $48.2 million, and diluted earnings per share advanced to 21 cents from 16 cents a year ago. 

Merck & Company increased 4% to $130.93 after the U.S. Food and Drug Administration approved the company's drug for the treatment of a lung disease. 

Robinhood Markets advanced 2.9% to $19.85 after the company launched a new credit card for its customer base and offered personal finance services. 

Lands' End soared 12.4% to $10.46 after the apparel retailer reported a wider loss, but quarterly sales were ahead of market expectations. 

Trump Media and Technology Group gained 11.8% to $64.83 and extended gains for the second day after the parent company of social media platform Truth Social made its initial public offering. 

Shockwave Medical soared 3.3% to $326.67 after the medical device company extended gains for the second day in a row on a report that the company was in talks to be acquired by Johnson & Johnson.  

 

European Markets Inch Higher In Record Territory 

European markets advanced in record territory, and investors debated the outlook for interest rates in the holiday-shortened week. 

Benchmark indexes in Paris and Frankfurt inched higher into record territory and extended this year's gain to more than 9%, while the index in London struggled to retain the previous session's gain. 

 

Spain's Inflation Accelerated In March

Spain's inflation accelerated in March to 3.2% from a six-month low of 2.8% in January, according to the latest data released by the statistical agency, INE, on Wednesday. 

Faster inflation in fuel and electricity prices outweighed slower inflation in food and non-alcoholic beverages. 

The core rate of inflation, which excludes volatile food and energy prices, slowed to 3.3% from 3.5%. 

The European Union's harmonized annual inflation rate accelerated to 3.2% from 2.9%. 

France and Italy are scheduled to release their inflation updates on Friday, and investors will have their first chance to react on Tuesday after the Easter holiday. 

 

Sweden Holds Rates and Lowers Inflation Outlook

Riksbank held its interest rate at 4.0% and signaled a possible rate cut in May or June if forward-looking data supported the move. 

Policymakers also lowered their estimate of inflation by the end of the year to 3.8% from the previous estimate of 4.1% in November. 

Moreover, the central bank also revised its 2024 economic growth projection to 0.3% from the previous estimate of a contraction of 0.2% but held its 2025 outlook at 1.9%. 

 

Europe Indexes and Yields

The DAX index increased by 0.5% to 18,480.07, the CAC-40 index rose by 0.2% to 8,200.09, and the FTSE 100 index inched lower by 0.3% to 7,926.51.

The yield on 10-year German bonds edged down to 2.33%; French bonds inched lower to 2.81%; the UK gilts edged higher to 4.01%; and Italian bonds inched higher to 3.67%.

The euro edged higher to $1.082, the British pound inched higher to $1.262, and the U.S. dollar held steady at 90.57 Swiss cents.

Brent crude decreased $0.22 to $86.04. a barrel, and the Dutch TTF natural gas rose by €0.02 to €27.12 per MWh.

 

Europe Stock Movers

H&M jumped 13.5% to SEK 172.78 after the Swedish retailer reported better-than-expected quarterly results. 

Revenue in the quarter ending in February declined 2% to SEK 53,7 billion from SEK 54.8 billion, net income rose to SEK 1.2 billion from SEK 540 million, and earnings per share advanced to 75 cents from 33 cents a year ago. 

Assa Abloy AB decreased 1% to SEK 310.20, and the Swedish manufacturing conglomerate announced the purchase of Wi-Fi service providers for hospitality and commercial real estate groups.

Nomadix and Global Reach, managed by the same group with offices in Los Angeles and London, will become part of the company's hospitality group. 

The two companies collectively generate $30 million in annual revenue, and the purchase of the company is expected to be immediately accretive to Assa Abloy's earnings.   

CRH increased 1% to 6,952.0 pence, and the building materials company confirmed it has completed the second divestment phase of its lime operations in the U.K. and Europe. 

DS Smith Group soared 7.5% to 391 pence after the paper and packaging company confirmed preliminary deal talks with International Paper that could lead to an offer of £5.7 billion or $7.2 billion. 

BP plc decreased 1.5% to 492.10 pence and Shell plc dropped 1.4% to 2,611.50 pence after crude oil prices declined for the second day in a row following the U.S. government agency weekly report showing rising crude inventories. 

 

Japanese Yen Weakness and China Property Market Worries Dominate Asian Trading 

Stock markets in Asia diverged as investors prepared for the Easter holiday on Friday and Monday. 

In thin trading, market indexes in Japan advanced, in China declined, and in India rebounded from losses in the previous sessions. 

In a holiday-shortened week, investors avoided taking new positions and awaited the release of retail sales, industrial production, and unemployment data in Japan on Thursday. 

Profits at Chinese industrial companies rose in the first two months of 2024, but investor confidence was weak after BYD issued a cautious outlook and Alibaba canceled its logistics unit's listing in Hong Kong. 

India's current account deficit narrowed sharply in the December quarter after foreign remittances and service sector surpluses expanded. 

 

Nikkei Soars to a New Record High After Yen Trades at a 34-year Low

Stocks in Tokyo rebounded and trimmed losses in recent sessions on the continued weakness in the yen. 

The yen dropped to a 34-year low of 151.96 against the U.S. dollar as traders ramped up bets that the Bank of Japan will hold rates steady and the U.S. interest rates will stay higher for longer, increasing the difference between the two interest rates.

The latest decline in the yen prompted Japan's Finance Minister, Shunichi Suzuki, to warn financial markets that the government may take steps to support the currency if the yen fails to reflect economic fundamentals. 

Suzuki's comments follow similar comments from Vice Finance Minister Masto Kanda a day earlier. 

Stocks in Tokyo advanced on the hopes that a weaker yen would drive an increase in earnings for exporting companies. 

The Nikkei 225 Stock Average rose 1.3% to 40,919.93, and the Topix index advanced 1% to 2,809.05. 

Tech stocks led the gainers, and Tokyo Electron, SoftBank, Advantest, and Screen Holdings rose between 0.2% and 0.4%. 

Financials traded mixed, and Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho Financial Group gained between 1% and 2%. 

General trading groups, also known as Sogo Shosha,  Marubeni, Mitsui & Company, Itochu, Mitsubishi Corp., and Sumitomo Corp., advanced between 0.5% and 1.5%. 

 

BYD Outlook Weighs on China Stocks; Alibaba Cancels Logistic Unit IPO

Stocks in Shanghai and Hong Kong traded down after market anxieties were compounded by weak corporate earnings. 

The electric vehicle maker reported strong financial results, but the December quarter earnings growth slowed to 18.7%, the slowest increase in the last eight quarters. 

Investors overlooked the electric vehicle makers' record annual 2023 earnings and focused on the cautious sales and earnings outlook in the current year and weak consumer demand. 

BYD fell 6.4% to HK$202.20, and Li Auto declined 3.2% to HK$117.80. 

Moreover, market jitters amplified after Alibaba Group was forced to shelve the listing of its logistics unit Cainiao in Hong Kong after weak investor demand. 

Alibaba announced its plans to acquire stakes held by minority shareholders in its logistics unit, and the company stressed its strategic importance. 

Alibaba Group, with 8.3%, the second largest constituent in Hong Kong's benchmark index, declined 2.2% to $68.70. 

In light trading, benchmark indexes drifted lower ahead of the Easter holiday break on Friday and Monday. 

The decline in market indexes was limited after profits at Chinese industrial companies rose 10.2% in the first two months of the year, the statistics bureau reported Wednesday. 

The rise in industrial profit followed the increase in industrial production in the period, supporting the case for a stronger-than-estimated economic recovery. 

The CSI 300 index fell 0.5% to 3,527.41, and the Hang Seng index dropped 0.6% to 16,512.92. 

 

India Indexes Advanced in Cautious Trading

Stocks in Mumbai inched higher, and bond yields held steady amid rising geopolitical tensions. 

The Sensex and the Nifty indexes advanced in early trading as investors set aside the worry of elevated inflation and global interest rate uncertainties. 

The Sensex index increased 0.3% to 72,670.55, and the Nifty index edged up 0.3% to 22,070.80. 

On the Mumbai stock exchange, 49 stocks traded at their 52-week highs and 45 stocks traded at their 52-week lows.

 

India's Current Account Deficit Narrowed After Service Surplus Expanded

India's current account deficit fell sharply in the December quarter after service exports soared, according to the latest update released by the Reserve Bank of India on Tuesday. 

The current account deficit in the December quarter narrowed to $10.5 billion from $16.8 billion in the corresponding quarter a year ago. 

The service export surplus expanded to $45.0 billion from $38.7 billion, driven by the expansion of software, travel, and business services. 

However, the international goods deficit was nearly unchanged at $71.6 billion compared to $71.3 billion a year ago, due to persistently elevated energy and gold imports. 

The secondary income surplus, which reflects remittances by Indians employed abroad, expanded to $29.3 billion from $28.5 billion. 

The primary income gap, which reflects investment income transfers, rose to $13.2 billion from $12.7 billion. 

In the financial account, foreign direct investment recorded a net inflow that rose to $4.2 billion from $2.0 billion, and foreign portfolio investment increased to a net inflow of $12.0 billion from $4.6 billion a year ago. 

Overall, India's current account deficit declined to 1.2% of gross domestic product compared to 2.0% in the corresponding quarter a year ago.