U.S. Indexes Overcame Morning Doldrums to Advance 1%

Alexander Garcia
17 Jun, 2024
Miami

In a holiday-shortened week, market indexes rested around the flatline in Monday's trading. 

The S&P 500 index and the Nasdaq Composite lacked direction on Wall Street but managed to stay above the flatline and extend gains to new record highs in the early afternoon as investors awaited the release of retail sales data on Tuesday and housing starts and completions updates later in the week. 

Retail sales in May are expected to rebound by 0.3%, and industrial output is expected to rise by 0.2%.

Investors are hoping that building permits, housing starts, and completions will show sustained increases reflecting the prior month's growth rate.

The S&P500 index and the Nasdaq Composite advanced in seven of the last eight weeks, and market participants are hoping that the benchmark indexes can retain their upward bias. 

Last week, market indexes in the U.S. created a series of new highs, political turmoil engulfed many countries in Europe in the wake of the European Union elections, and trade tensions rose between China and the EU.

The U.S. Federal Reserve held steady its key interest rate range as widely expected and also retained its economic growth and jobless rate outlook.

But the central bank also lowered the number of possible rate cuts to only one from the previous estimate of as many as three in March.

Moreover, the pace of consumer price inflation slowed to 3.3% in May, and the core rate of inflation slowed to a three-year low of 3.4%.

Fed policymakers have struggled over the last year in bringing down inflation from over 3% to the Fed’s target rate of 2%, despite eleven rate cuts spread over 2022 and 2023.

On the earnings front, CarMax, Darden Restaurants, Kroger, and Lennar are some of the leading companies scheduled to release earnings this week. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.8% to 5,474.08, and the Nasdaq Composite rose 1% to 17,870.31. 

The yield on 2-year Treasury notes edged lower to 4.74%, 10-year Treasury notes decreased to 4.26%, and 30-year Treasury bonds edged higher to 4.40%.

WTI crude oil increased $0.53 to $78.98 a barrel, and natural gas prices fell 5 cents to $2.82 a thermal unit.

Gold decreased by $14.31 to $2,318.15 an ounce, and silver fell 29 cents to $29.25. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 105.56.

 

U.S. Stock Movers

Autodesk increased 4.5% to $235.03 after activist investor Starboard Value acquired a $500 million stake in the software developer. 

Nvidia edged up 0.1% to $131.94 after State Street said its Technology Select SPDR Fund will have nearly 21% weighting in the ETF after the rebalancing from the current 5%. 

The Technology Select Fund has about $71 billion, meaning the fund will acquire about $10 billion of Nvidia towards the end  of this week. 

The ETF will lower its stake in Apple from 21% to 4.5% while rebalancing at the end of this week.  

Lennar Corp. declined 0.4% to $154.50 ahead of the company's quarterly results this week. 

The home builder reported, in the quarter ending in May 2023, revenue of $8.05 billion, net income of $871.69 million, and diluted earnings per share of $2.94. 

 

European Market Sentiment Remains Weak, French Bond Stabilized

European markets lacked direction in Monday's trading after falling sharply last week amid rising political turmoil in France. 

Benchmark indexes in Paris, Frankfurt, and London traded around the flatline, and the French bond yields stabilized after rising to a seven-month high of 3.24% last week. 

Investor sentiment was on edge after French President Emmanuel Macros called a snap election, following the European Union election results showing the sharp rise of far-right parties. 

Local opinion polls indicate that the National Rally Party is likely to make significant gains in the parliamentary elections scheduled for June 30 and July 7, which could worsen the country's fiscal situation and threaten the stability of the eurozone. 

France's debt to gross domestic product is hovering just over 110% and its annual budget deficit is near 5%, which is likely to miss the 3% target in 2027. 

On the economic front, wages in the eurozone rose in the first quarter, matching the rate in the final quarter of 2022, Eurostat reported on Monday. 

In Europe, the Bank of England is expected to hold steady its key policy rate at 5.25%, and the UK’s consumer price inflation is expected to slow to 2%.

In addition, the Norges Bank and the Swiss National Bank are also scheduled to release their monetary policy decisions.

In other economic news in the region, investors are looking forward to the release of the EU's new car registration, the UK's retail sales, and Germany’s producer price inflation.

 

Eurozone Wage Growth Accelerated in the First Quarter

Negotiated hourly wages and salaries in the eurozone advanced 5.3% from a year ago in the first quarter, following an upwardly revised 3.2% increase in the previous quarter. 

Of the four largest economies in the region, calendar-adjusted wages in Germany accelerated to 6.3% from 2.1% in the previous quarter; Italy rose 3.3% from flat; Spain edged slightly higher to 4.5% from 4.4%; and France slowed to 2.6% from 2.7%, respectively. 

Wage growth accelerated in professional scientific and technical activities to 6.7% from 1.6%, construction to 6.1% from 4.4%, manufacturing to 5.8% from 4.7%, and financial and insurance activities to 5.8% from 4.4%, respectively. 

Meanwhile, wage growth slowed for the mining and quarrying sector to 7.8% from 11.1% in the previous quarter, water supply and sewage to 5.7% from 5.5%, transport and storage to 5.1% from 5.8%, utilities to 2.3% from 5.3%, and retail trade to 4.6% from 4.9%. 

 

Europe Indexes and Yields

The DAX index increased by 0.4% to 18,068.21; the CAC-40 index rose by 0.9% to 7,571.57; and the FTSE 100 index declined by 0.1% to 8,142.15. 

In the last week, the CAC-40 declined 4.3% and fell the most since March 2022, the DAX index dropped 2.4%, and the FTSE 100 index decreased 1.0%. 

The yield on 10-year German bonds edged lower to 2.38%. French bonds inched lower to 3.14%; the UK gilts edged lower to 4.07%; and Italian bonds decreased to 3.94%.

The euro edged lower to $1.077; the British pound inched higher to $1.277; and the U.S. dollar weakened to 89.20 Swiss cents.

Brent crude decreased $0.14 to $82.47 a barrel, and the Dutch TTF natural gas rose by €0.72 to €34.24 per MWh.

 

Europe Stock Movers

China-linked French luxury stocks traded down after a flood of China's economic data showed a fragile and uneven economic recovery. 

Retail sales growth accelerated in May, but property prices continued to drift lower in search of a bottom. 

LVMH declined 0.7% to €706.80, Kering dropped 0.1% to €302.15, and Hermes fell 0.6% to €2,100.0.

ING Group increased 1.7% to €15.58 after the Dutch bank targeted annual total income growth between 4% and 5% over the next three years to 2027. 

Carl Zeiss Meditec AG dropped 15.5% to €71.10 after the medical devices and technology maker said revenue in the first 8 months to May declined 3% from a year ago to €1.26 billion from €1.3 billion a year ago. 

The company said that because of weak order flows in April and May, it has lowered its full-year revenue outlook for the current fiscal year.

The company lowered its full-year fiscal 2024 revenue to €2 billion, excluding the recent acquisition of DORC. 

Topdanmark soared 22% to DKK 349.20 after the Finland-based insurer Sampo agreed to acquire its rival for DKK 33 billion, or $4.7 billion.

Ascential PLC increased 1.9% to 337.0 pence after the UK-based event management company reiterated its full-year revenue outlook ahead of its presentation to investors on June 19. 

The company recently completed its £300 million stock tender offer and £450 million special dividend. 

 

Japan Indexes Plunge Nearly 2% 

Stocks in Tokyo faced selling pressure in Monday's trading as investors stepped back, reassessed the Bank of Japan's monetary policy decisions on Friday, and reversed gains in the previous session. 

The Nikkei and the Topix indexes dropped as much as 2% on the worry that persistent weakness in the yen in the long term will negatively impact consumer spending and corporate earnings. 

The Bank of Japan held its short-term interest rate steady and said it would continue with its purchase of government bonds at the current level until the next meeting in July. 

The central bank also said it plans to announce the tapering of its bond purchase at the conclusion of the next meeting in July, in a nod to letting the market decide long-term interest rates. 

Governor Kazuo Ueda ended the negative interest rate in March after the central bank kept it in negative territory for 8 years and raised rates for the first time in 17 years. But the wide interest rate gap between the U.S. and Japan has weakened the yen to a 34-year low. 

Japan's core machinery orders, which exclude large and volatile orders for ships and power generation equipment, declined seasonally by 2.9% from the previous month to 885.3 billion yen in April, reversing the 2.9% increase in March. 

Core machinery orders from a year ago rose 0.7% after rising 2.7% in the previous month, the Cabinet Office said. 

Benchmark indexes soared in the first four months, backed by robust corporate earnings and a weaker yen, but the persistent weakness in the yen is now seen as a liability for the economy. 

The yen traded at 157.40 against the U.S. dollar in late afternoon trading in Tokyo. 

In the week ahead, ministries in Japan are set to release international trade balance data and inflation updates this week. 

 

Japan Movers 

The Nikkei 225 stock average declined 1.9% to 38,081.47, and the Topix index dropped 1.7% to 2,700.51. 

Tokyo Electron, Advantest, and Screen Holdings declined between 1% and 3%. 

Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho Financial fell between 1% and 3%. 

Major exporters declined despite the weakness in the yen, and Panasonic, Mitsubishi Electric, Canon, and Sony declined between 2% and 4%. 

 

China's Improving Consumer Spending Overshadowed by Weakening Property Sector

Benchmark indexes in Shanghai and Hong Kong attempted to rebound after consumer spending rose in May, but the weaker-than-expected growth in fixed-investment key investors on edge. 

Retail sales in May rose 3.7% from a year ago, accelerating from 2.3% in April. Industrial production growth slowed to 5.6% from 6.7%, the National Bureau of Statistics reported Monday. 

The increase in retail sales was supported by the spending during the five-day holiday period, during which tourism revenue rose 12.3% to 166.9 billion yuan, or $23 billion, and surpassed the 2019 level of spending by 13.5%. 

Fixed-asset investment growth slowed to 4.0% in the first five months of May as high-tech manufacturing and services expanded by 11.5%, offsetting the 10.1% decrease in property investment. 

Residential property developers are experiencing falling demand; the floor space of new homes sold plunged by 20.3% in the first five months to May from a year ago, and the total sales value of new homes plunged by 27.9%, respectively. 

“We must acknowledge that it will take some time for the effects of policy measures to be shown and that the real estate market is still in the process of adjustment,” NBS spokeswoman Liu Aihua commented in a press conference on Monday after the release of the data. 

New home prices declined by 3.9% in May, accelerating from the 3.1% decrease in April, the government report highlighted. 

New home prices declined for the eleventh month in a row and fell at the fastest pace since June 2015, despite property market stimulus announced by regional governments. 

Prices declined in Guangzhou to 8.3% from 6.9% in the previous month, in Beijing to 1.8% from 0.5%, but in Shanghai prices advanced at a faster pace of 4.5% compared to 4.2%. 

A separate report by the statistical agency showed that the urban jobless rate held steady in May at 5.0%, matching the rate in the previous month. 

The People's Bank of China held its one-year medium-term lending rate at 2.5%. 

 

China Movers 

The CSI 300 index decreased 0.2% to 3,534.45, and the Hang Seng index inched higher by 0.4% to 17,978.30. 

Market sentiment was positive in the early morning after consumer spending growth accelerated, but indexes turned lower in the afternoon amid rising trade tensions with the European Union. 

The noodle maker Tingyi Holding Corp. increased 4.2% to HK$9.70, and China Mengniu advanced 2.3% to HK$13.06 on the back of improving retail sales. 

China Vanke decreased 3.4% to HK$5.12, Longfor Group Holding fell 2.4% to HK$12.08, and China Resources Land edged up 0.1% to HK$27.05.