U.S. Major Averages Hover Near Record Highs, European Markets Rebound On Rate Cut Hopes

Alexander Garcia
20 Jun, 2024
Miami

Market indexes on Wall Street flirted with new intraday record highs as investors stayed positive on the durability of the market rally powered by artificial intelligence-linked stocks. 

The S&P 500 index and the Nasdaq Composite inched up 0.3% before losing steam in early afternoon, taking both indexes to record new highs as Nvidia continues to power ahead to new highs, forcing many analysts to review their price targets. 

Nvidia jumped 3.3% to $140.76 in early trading in New York, creating another intraday record high for the most valued company.  

On the economic front, housing starts and permits declined in May, and initial jobless claims rose in the previous week, according to two different government reports. 

Initial jobless claims decreased from 5,000 to 238,000 for the week ended June 15, and continuing claims increased by 15,000 to 1,828 million, the U.S. Labor Department reported in its weekly update on Thursday. 

The job market continues to moderate but remains in tight conditions, despite eleven rate hikes over 2022 and 2023, as employers struggle to fill positions in the service industry. 

 

Housing Starts and Permits Plunged in May

Housing starts decreased 5.5% from the previous month to 1.277 million, building permits fell 3.8% to 1.386 million, and completions fell 8.4% to 1.65 million, according to the latest data released by the U.S. Census Bureau. 

From a year ago, housing starts declined 19.3%, permits fell 9.5%, and completions rose 1.0%. 

The annualized housing start rate dropped to the lowest since July 2020. 

The unexpected decline in starts showed that elevated interest rates are weighing on the housing market. 

Single-family starts declined 5.2% from the previous month to 982,000, and multi-unit starts declined 10.2% to 278,000. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.3% to 5,505.13, and the Nasdaq Composite rose 0.3% to 17,923.03. 

The yield on 2-year Treasury notes edged lower to 4.74%, 10-year Treasury notes decreased to 4.24%, and 30-year Treasury bonds edged higher to 4.40%.

WTI crude oil increased $0.27 to $80.94 a barrel, and natural gas prices fell 5 cents to $2.85 a thermal unit.

Gold increased by $12.70 to $2,341.70 an ounce, and silver rose 12 cents to $30.24. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 105.44.

 

U.S. Stock Movers

Darden Restaurants gained 1.4% to $154.04, and the parent company of Olive Garden reported revenue of $2.96 billion and adjusted earnings per share of $2.65, slightly ahead of market expectations. 

Total sales increased 6.8%, driven by sales from the addition of 80 company-owned Ruth's Chris Steak House restaurants and 37 other net new restaurants in the quarter.

During the quarter, the company repurchased approximately 600,000 shares of its common stock for a total of approximately $97.3 million. 

As of the end of the fiscal fourth quarter, the company had approximately $915 million remaining under the current $1 billion repurchase authorization.

However, consolidated same-store sales declined for the second quarter in a row, and fine dining sales fell 2.6%. 

Accenture soared 7.2% to $305.86, and the company reported weaker-than-expected quarterly results but added that it won $900 million in new generative artificial intelligence-related contracts. 

Trump Media & Technology declined 11.6% to $27.67, and the company said its registration of additional shares was declared effective by the Securities and Exchange Commission, allowing the company to sell shares and warrants and raise as much as $247 million. 

 

Bank of England and Norway Hold Rates, Swiss National Bank Cuts Rates Again 

European markets advanced as investors reviewed the flood of monetary policy decisions. 

The Bank of England held its policy rate at 5.25%, as widely expected, and policymakers showed no urgency in lowering rates despite inflation declining to 2% in May. 

Policymakers, in a 7-to-2 vote, decided to leave rates at 5.25%, a 16-year high, and held rates for the seventh time in a row since August 2023. 

However, policymakers held out for inflation to rebound in the second half due to the lower base of energy prices last year. 

Despite the majority of policymakers voting for holding rates, most committee members struggled to decide between holding and cutting rates, according to the minutes of the meeting released by the Bank of England. 

"For some members within this group, the return of headline inflation to 2%, while welcome, was not necessarily indicative of the required sustained return to target," the Bank of England noted in a statement released after the policy meeting. 

"For other members within this group, the upside news in service price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on," highlighted the BoE in the statement. 

The Swiss National Bank decided to lower its benchmark rate by 25 basis points to 1.25%, following a similar-sized cut in the previous meeting in March. 

The SNB held its annual inflation outlook at 1.3% in 2024 and 1.5% in 2025, and the central bank estimated the economy to expand at 1.0% in the current year and accelerate at 1.5% in 2025. 

Policymakers estimated growth "to remain moderate" in the following quarter, unemployment is expected "to rise slightly," and capacity utilization "is likely to decline slightly" as the manufacturing sector stagnates on weak global demand growth. 

The Norges Bank held its policy rate steady at 4.5%, and estimated rates are likely to stay at the current level for "some time ahead." 

Despite the rapid increase in interest rates, inflation is still above the central bank's long-term target rate, but economic growth has cooled. 

The policy committee worried that wage inflation is likely to pick up in the coming quarters, and a premature rate cut could fan inflationary forces. 

"The Committee judges that the policy rate is sufficiently high to bring inflation down to target within a reasonable time horizon, but that there will be a need to maintain a tight monetary policy stance for somewhat longer than previously projected," according to the statement released by the Norges Bank. 

“If the economy evolves as currently envisaged, the policy rate will continue to lie at 4.5 percent until the end of the year, before gradually being reduced,” says Governor Ida Wolden Bache. 

Economic growth is projected to pick up a little in the years ahead, but unemployment is likely to edge up. Inflation is projected to decline further and approach 2% towards the end of 2027.

 

Europe Indexes and Yields

The DAX index increased by 0.6% to 18,180.11; the CAC-40 index rose by 0.9% to 7,642.93; and the FTSE 100 index advanced by 0.4% to 8,238.69. 

The yield on 10-year German bonds edged lower to 2.42%. French bonds inched higher to 3.16%; the UK gilts edged lower to 4.07%; and Italian bonds increased to 3.93%.

The euro edged lower to $1.073; the British pound inched higher to $1.269; and the U.S. dollar weakened to 88.94 Swiss cents.

Brent crude decreased $0.14 to $85.19 a barrel, and the Dutch TTF natural gas fell by €0.30 to €35.03 per MWh.

 

Europe Stock Movers

Tate & Lyle declined 8.2% to 622.0 pence after the British food ingredient maker agreed to acquire nature-based ingredient provider CP Kelco for $1.8 billion. 

Danone SA declined 3.2% to €57.0 after the French food company said it is targeting comparable sales growth between 3% and 5% in the period between 2025 and 2028 and recurring operating income to grow faster than net sales. 

The company said its current growth plan is expected to support its long-term objective of free cash flow of €3 billion. 

 

Japan Indexes Struggle Ahead of Inflation and Business Activities Surveys On Friday

Stocks opened lower in Tokyo and traded down for most of the session amid interest rate uncertainty, persistent weakness in the yen, and ahead of the release of economic data. 

Investors are looking forward to the release of consumer inflation data in May and business activity updates in the manufacturing and services sectors on Friday. 

The Nikkei 225 and the Topix index traded down in the session, but the Nikkei managed to climb above the flatline in the final thirty minutes of the session. 

The yen weakened to 158.24 against the U.S. dollar in Tokyo amid interest rate uncertainty and the Bank of Japan's lack of urgency in fixing the persistent and wide rate differential between the U.S. and Japanese government bonds. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average closed up 0.2% to 38,631.0, and the Topix Index declined 0.1% to 2,725.05. 

Tech sector stocks turned lower amid a lack of clues from New York trading. Financial markets in the U.S. were closed for a public holiday on Wednesday. 

Advantest, Tokyo Electron, and Screen Holding dropped as much as 1%. 

Banks were among the leading decliners due to rate uncertainty and the persistent weakness of the yen. 

Mitsubishi UFJ Financial, Sumitomo Mitsui, and Mizuho Financial dropped between 1% and 2%.

Among other widely held stocks, Fujikura, Kawasaki Heavy Industries, and Nidec fell between 3% and 5%. 

 

Toyota Chairman Reelected With Fewer Votes of Approval

Toyota Motor decreased 0.7% to ¥3,084.0, and earlier this week only 71.93% of shareholders approved the company Chairman Akio Toyoda reelection, according to a tally released by the finance ministry. 

Akio Toyoda's approval took a big hit after the certification scandal and fell from 84.57% in 2023 to 96% in 2022. 

Earlier this month, Japan's transportation ministry suspended the shipment of six Japanese vehicles, including three made by Toyota. 

Despite the ongoing regulatory challenges linked to the embarrassing certification scandal, the company is enjoying record global sales and holding onto its number one positive for the fourth year in a row, surpassing Volkswagen AG. 

In its latest fiscal year, Tokyo posted five trillion yen, or $31.7 billion, in operating profit, making it the first Japanese company to achieve the record. 

In early 2023, Akio Toyoda stepped down from its chief executive position after 14 years and assumed the role of chairman, leading the company's transition to hybrid cars when the industry was shifting to electric vehicles. 

 

PBOC Holds Loan Prime Rates Steady, China-controlled Funds Step Up Buying 

China stocks lacked momentum in Thursday's trading, and the central bank held its loan prime rates steady as widely expected but failed to announce new stimulus measures. 

The Hang Seng and the CSI 300 indexes traded down 0.5% after the Hang Seng index gained 2.9% in the previous session, the best one-day gain in three months. 

Investors welcomed the People's Bank of China's decision to hold its rates steady, but they were disappointed that the bank failed to provide additional measures to facilitate property transactions. 

On Wednesday, China's top securities regulator announced broad outlines of financial market reforms for tech start ups to encourage more new company listings and support financing activities for emerging companies.  

 

PBoC Holds Rates Steady 

The People's Bank of China held its lending rates unchanged as the second-largest economy struggles to meet its ambitious annual economic growth target of 5%.

The People's Bank of China held its one-year loan prime rate at 3.45% and its five-year loan prime rate, the reference rate for mortgage lending, at 3.95%.

The central bank last lowered the 5-year LPR rate by 25 basis points in February. 

Both lending rates are at record lows as the central bank steers the economy through the protracted property market malaise, weakening labor market, and rising capital flight. 

Earlier in the week, the central bank held its medium-term lending rate at 2.5% while draining 55 billion yuan from the banking system to retain an appropriate level of liquidity. 

 

China Stock Movers 

The CSI 300 index decreased 0.6% to 3,507.78, and the Hang Seng index dropped 0.6% to 18,312.82. 

State-owned companies were in focus in active trading for the second day in a row after China-controlled funds stepped up buying on Wednesday. 

CNOOC advanced 3.5% to HK$23.50, China Petroleum Chemical gained 1.9% to HK$4.94, and PetroChina added 2.4% to HK$7.81. 

Consumer-focused stocks headed lower on the persistent worries of weak consumer sentiment. 

Haidilao International decreased 6.5% to HK$15.26, Budweiser Brewing declined 3.3% to HK$8.82, Li Ning fell 2.5% to HK$17.86, and Shenzhou International dropped 4.% to HK$80.10. 

Real estate developers turned lower after the PBOC's rate decisions. 

China Vanke decreased 4% to HK$4.92, China Resources Land declined 0.5% to HK$27.45, and Longfor Group turned down 4.4% to HK$11.48.