Worries of Inflation In U.S. and Growth In Europe and China Dragged Down Market Indexes

Alexander Garcia
12 Dec, 2024
Miami

An acceleration in producer price inflation put tech stocks on the back foot, and broader markets eased. 

The S&P 500 index and the Nasdaq Composite declined around 0.2% after the producer price inflation was higher than anticipated. 

Producer price inflation increased 0.4% in November from the previous month and accelerated from 0.3% in October, according to the latest data released by the U.S. Bureau of Labor Statistics. 

Core producer price inflation, which excludes volatile food and energy prices, accelerated to a monthly 0.3% from 0.2% and stalled at an annual 3.4%. 

On Wednesday, the government agency reported consumer prices accelerated in November, largely driven by higher costs of shelter, medical care, and vehicles. 

Investors have bid up stocks in 2024 in the hopes that inflation is on a sustained downward path and likely to reach the Fed's target rate of 2% in the near future. 

However, inflation has stalled near 3% for nearly six months and shows no sign of easing. In addition, most of the slowdown in inflation is reflecting a sharp fall in energy prices, which are not impacted by the Fed's actions. 

Core consumer price inflation is likely to stay above 3% in 2025 and beyond for two reasons: first, because of wage inflation of 4%, and second, most service providers are still passing on higher prices to consumers at a faster than 3% annual rate. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.2% to 6,071.92, the Nasdaq Composite fell 0.2% to 19,995.63, and the Russell 2000 index declined by 0.8% to 2,376.42. 

The yield on 2-year Treasury notes edged higher to 4.18%, 10-year Treasury notes inched up to 4.30%, and 30-year Treasury bonds increased to 4.52%.

WTI crude oil increased $0.09 to $70.38 a barrel, and natural gas prices edged up 12 cents to $3.50 a thermal unit.

Gold decreased by $35.98 to $2,684.98 an ounce, and silver fell by $0.85 to $31.03. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher by 0.07 to 106.79.

 

U.S. Stock Movers 

Chewy Inc. decreased 3.3% to $31.44 after the company announced a fully underwritten stock offering of $500 million by a key shareholder. 

Buddy Chester Sub LLC will receive all proceeds from the offering, and concurrently Chewy said it plans to acquire $50 million of its share directly from the investor. 

Adobe Inc. dropped 10.6% to $491.50 after the software company issued a weaker-than-expected revenue outlook for the fiscal first quarter. 

Total revenue in the fiscal fourth quarter ending in November increased to $5.6 million from $5.0 million, net income rose to $1.68 million from $1.48 million, and diluted earnings per share advanced to $3.79 from $3.23 a year earlier. 

The company estimated fiscal first quarter revenue to range between $5.63 billion and $5.68 billion and earnings per share between $3.85 and $3.89. 

 

European Markets Hold Steady After ECB Rate Decisions

Stock market indexes across Europe held steady after the European Central Bank lowered rates as expected. 

The ECB lowered its key lending rate by 25 basis points to 3%, its fourth consecutive rate cut in 2024.  

The central bank estimated inflation to decline at a gradual pace to 2.4% in 2004, 2.1% in 2025, and 1.9% in 2026. 

The central bank also anticipated a gradual recovery in economic  growth over the next three years, and GDP is expected to grow at 0.7% in 2024, 1.1% in 2025, and 1.6% in 2026. 

The Euro Area is grappling with a looming trade war with the U.S. and China, political uncertainty in France and Germany, and slowing business activities in the currency union. 

Meanwhile, investors are looking for a timetable for additional rate cuts over the next six months, and many market watchers are looking for at least four additional rate cuts of 25 basis points, bringing down the key rate to 2%. 

 

Switzerland Lowers Rates by 50 Basis Points, Steepest Decline in 10 Years

The Swiss National Bank lowered its key lending rate by a whopping 50 basis points to 0.5%, as the central bank battles strong currency and rising economic uncertainty. 

The central bank lowered its rate for the fourth consecutive meeting in a row and dropped the rates by the largest amount in ten years, bringing borrowing costs to the lowest level since November 2022. 

The Swiss economy is highly dependent on goods and services exports, and the stronger currency has become a headwind for many exporters. 

Policymakers also weighed annual economic growth of less than one percent against the rising geopolitical tensions and weakening demand growth outlook for the nation's premium goods. 

 

Europe Indexes and Yields

The DAX index increased by 0.1% to 20,426.27; the CAC-40 index fell by 0.03% to 7,420.94; and the FTSE 100 index inched higher by 0.1% to 8,311.76.

The yield on 10-year German bonds edged higher to 2.15%, French bonds inched up to 2.90%, the UK gilts increased to 4.35%, and Italian bonds increased to 3.24%.

The euro edged higher to $1.05; the British pound inched up to $1.27; and the U.S. dollar eased to 88.66 Swiss cents.

Brent crude decreased $0.19 to $73.71 a barrel, and the Dutch TTF natural gas fell by €2.12 to €42.61 per MWh. 

 

Europe Stock Movers

Mining companies advanced after China's political leaders agreed to increase the fiscal deficit ratio and issue new bonds to finance fiscal stimulus. 

Antofagasta declined 1% to 1,745.0 pence, Anglo American edged up 0.1%, and Glencore dropped 0.3% to 382.0 pence. 

Bodycote PLC jumped 0.8% to 669.27 pence after the thermal processing services provider expanded its stock repurchase plan by £30 million to £90 million. 

SThree Plc plunged 22% to 279.25 pence after the specialist recruitment company estimated a sharp decline in profits. 

Net fees for the fiscal year ending in November dropped 9% to £369.1 million, driven by a 7% fall in the contract segment, which represents 84% of net fees. 

The annual revenue in the UK, U.S., and Germany declined between 12% and 14%. 

The contract order book plunged 10% to £161 million. 

The company estimated fiscal 2025 pre-tax profit to hover around £25 million, including a one-time charge of £7 million related to cost-cutting efforts.

Curry PLC advanced 13.5% to 89.74 pence after the electronics retailer reported a narrower loss in the first half, and the company reiterated its annual outlook. 

Revenue in the first half increased 1% to £3.9 billion, net loss shrank to 8 million from 39 million, and diluted loss per share eased to 0.7 pence from 3.3 pence a year earlier. 

"Trading during the six weeks since the period end has remained in line with the Board's expectations, and the Group expects to see growth in profits and free cash flow for the year," according to the company's trading update released to investors. 

 

Japan Indexes Near Multi-Month Highs as Rate Decisions Approach 

Stock market indexes in Tokyo advanced, tracking gains in New York as investors debated rate outlook in Japan. 

The Nikkei 225 stock average and the broader Topix index gained around 1% amid uncertainty surrounding the Bank of Japan's rate policy. 

Later today, the European Central Bank is widely expected to lower its benchmark lending rates by 25 basis points, and the Federal Reserve is also expected to cut its policy rate by the same. 

However, traders are not sure if the Bank of Japan will raise rates at the end of its policy meeting next week. 

Governor of the Bank of Japan Kazuo Ueda has supported the gradual increase in interest rates following the sustained increase in inflation and other mixed economic signals. 

Sentiment among large export-driven businesses has remained weak amid demand growth slowdown in the U.S. and China, and real household spending has struggled to advance in 2024. 

However, Governor Ueda and other policymakers have favored a gradual increase in rates so as not to destabilize stock and currency markets. 

The Japanese yen weakened to 152.75 against the U.S. dollar, and currency traders are divided about the BoJ's rate actions next week. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average increased 1.2% to 39,849.14, and the broader Topix index gained 0.9% to 2,773.03. 

Retail stocks advanced following the weakening of the yen. 

Fast Retailing Co. Ltd. increased 0.9% to ¥54,470.0, Seven & I Holdings Co. Ltd. decreased 1.6% to ¥2,510.50, Isetan Mitsukoshi Holdings Ltd. gained 1% to ¥2,311.0, and Takashimaya advanced 0.7% to ¥1,250.0. 

Financial stocks were among the most actively traded stocks in Tokyo as the yen resumed its downward slide ahead of the BoJ's rate decisions. 

Sumitomo Mitsui Financial Group decreased 0.1% to ¥3,807.0, Mitsubishi UFJ Financial gained 0.5% to ¥1,851.50, and Mizuho Financial Group advanced 0.2% to ¥3,847.0. 

Osaka Gas Co. Ltd. rose 1.7% to ¥3,268.0, Chubu Electric Power jumped 4.5% to ¥1,624.0, Furukawa Electric advanced 1.6% to ¥6,606.0, and Mitsubishi Electric jumped 2% to ¥2,698.50. 

 

Speculators Drive Up China Indexes Ahead of Economic Policy Announcements 

Stock market indexes in China and Hong Kong advanced ahead of announcements at the conclusion of a key economic policy meeting. 

The Hang Seng index gained 1.4%, and the CSI 300 index gained 0.7% as investors raised expectations for additional stimulus measures with a clear timetable for implementation. 

The yield on China's 10-year bonds edged lower for the seventh day in a row and hovered near 1.813%, and the yuan eased to 7.20 against the U.S. dollar. 

The Hang Seng index rebounded about 40% from its low on September 11 over the next three weeks following a raft of economic stimulus measures announced by the People's Bank of China and political leaders. 

However, those measures failed to revive consumer confidence and property market activities, and benchmark indexes trimmed gains by half over the next two months. 

Investors are skeptical that Chinese leaders are serious about implementing broad and structural economic reforms in the imminent future amid rising government debt and lack of demand growth from consumers. 

A statement at the end of a two-day policy meeting later today is likely to show additional measures agreed by top political leaders. 

 

China Stock Movers 

The Hang Seng index increased 1.4% to 20,436.94, and the CSI 300 index advanced 0.7% to 4,018.29. 

China Mengniu Dairy advanced 8.2% to HK $19.02, China Resources Beer Holdings Co. Ltd jumped 7.7% to HK $28.40, and Haidilao Pot jumped 5.4% to HK $17.84. 

BYD gained 2.2% to HK $279.60, Li Auto soared 2.9% to HK $91.15, and Xpeng advanced 1.3% to HK $51.25. 

Alibaba Group Holding gained 2.6% to HK $88.45, Tencent Holdings increased 2.4% to HK $419.80, and Meituan expanded 1.7% to HK $169.80.