Pre-Market Brief: Stocks Rebound As China Reopening Hopes Boost Sentiment

March S&P 500 futures (ESH23) are trending up +0.09% this morning after three major U.S. benchmark indices finished the regular session in the red as new data on the labor market sparked investors’ fears that the Federal Reserve would maintain its aggressive path of rate hikes. Three major U.S. stock indices were weighed down primarily by losses in the Industrials, Consumer Services, and Consumer Goods sectors.

The Labor Department’s report on Thursday showed claims for state unemployment benefits unexpectedly fell to 190K last week, stronger than expectations of 214K, highlighting labor market resilience that could convince the Fed to continue its aggressive rate hikes. 

“One of the pieces of data that continues to be a conundrum for the Fed is the tight labor market. There’s virtually no signs of any weakness in the labor market, and that’s one of the things the Fed’s been leaning against to keep rates higher for longer,” said Art Hogan, chief market strategist at B. Riley in New York.

Fed vice chair Lael Brainard said on Thursday that inflation is still high and the Fed will have to keep interest rates elevated “for some time” to control inflation. Boston Fed President Susan Collins supported the case for interest rates to rise to “just above” 5%. At the same time, Collins said she favors a more moderate pace of rate hikes. She added, “More measured rate adjustments in the current phase will better enable us to address the competing risks monetary policy now faces.” 

Meanwhile, U.S. rate futures have priced in a 97.2% chance of a 25 basis point rate increase and a 2.8% chance of a 50 basis point hike at February’s monetary policy meeting. 

Investors’ attention continues to be focused on the fourth-quarter earnings season. Analysts anticipate year-over-year earnings from S&P 500 companies to drop 2.8% for the quarter, compared with an expected decline of 1.6% at the beginning of the year.

Today, all eyes are focused on the U.S. Existing Home Sales data in a couple of hours. Economists, on average, forecast that December Existing Home Sales will stand at 3.96M, compared to the previous value of 4.09M.

In addition, investors are likely to focus on speeches from Fed officials Harker and Waller for further clues on the Fed’s rate hike path. 

In the bond markets, United States 10-Year rates are at 3.429%, up +0.89%.

The Euro Stoxx 50 futures are up +0.37% this morning as investors look for a partial recovery from Thursday’s selloff, with concerns about slowing economic growth and tight monetary policy still firmly in focus. European Central Bank President Christine Lagarde said on Thursday that inflation figures remained “way too high,” emphasizing the need for aggressive monetary policy decisions. However, she also said that the Eurozone economy would fare “a lot better” this year than initially feared. In corporate news, shares of Sandvik Ab (SAND.S.DX) gained over +3% following better-than-expected fourth-quarter earnings from the metal-cutting tools and mining gear marker.

U.K. Core Retail Sales, U.K. Retail Sales, and Germany’s PPI data were released today.

U.K. December Core Retail Sales stood at -1.1% m/m and -6.1% y/y, weaker than expectations of +0.4% m/m and -4.4% y/y.

U.K. December Retail Sales came in at -1.0% m/m and -5.8% y/y, weaker than expectations of +0.5% m/m and -4.1% y/y.

The German December PPI has been reported at -0.4% m/m and +21.6% y/y, stronger than expectations of -1.2% m/m and +20.8% y/y.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.76%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.56%. 

China’s Shanghai Composite today closed higher amid growing optimism over the country’s economic recovery this year, with markets positioning for a solid boost from the week-long Lunar New Year holiday. Chinese equities notched a fourth straight week of gains even as the country faces its worst-yet COVID-19 outbreak. Also, the People’s Bank of China kept its benchmark loan prime rate at historic lows on Friday, keeping liquidity conditions flush for a fifth successive month to shore up local growth. 

At the same time, Japan’s Nikkei 225 Stock Index closed higher even after data showed consumer price index inflation rose to a 41-year high in December. The index’s upward momentum was fueled by gains in the Transport, Retail, and Fishery sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 8.41% and hit a new 1-month low of 17.54.

Pre-Market U.S. Stock Movers

Netflix Inc (NFLX) climbed over +5% in pre-market trading after the company easily topped Wall Street and management expectations for subscriber growth. Also, the company announced a CEO transition and intentions to resume buybacks this year.

Warner Bros Discovery Inc (WBD) rose about +1% in pre-market trading on Netflix’s strong subscriber numbers.

Kala Pharmaceuticals Inc (KALA) plunged over -5% in pre-market trading after the company filed to sell up to $40M in common stock.

T-Mobile US Inc (TMUS) dropped over -1% in pre-market trading after forecasting ‘significant expense’ due to a cyber attack.

Nordstrom Inc (JWN) dropped about -4% in pre-market trading after the company announced a net sales decrease of 3.5% for the nine-week holiday period and cut its FY22 outlook. 

Costco Wholesale Corp (COST) gained about +1% in pre-market trading after the company announced a $4B buyback.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - January 20th

Schlumberger (SLB), State Street (STT), Sandvik AB ADR (SDVKY), Regions Financial (RF), Huntington Bancshares (HBAN), LM Ericsson B ADR (ERIC), Ally Financial Inc (ALLY), Bankinter ADR (BKNIY), Adams Diversified Equity Closed (ADX), ADTRAN (ADTN), PAM (PTSI), Capstar Financial (CSTR), Citizens&Northern (CZNC), Blade Air Mobility (BLDE), Byrna Technologies (BYRN), Lifecore Biomedical (LFCR), Heartland Banccorp (HLAN), Oak Valley Bancorp (OVLY), Mainstreet Bank (MNSB), Private Bancorp of America (PBAM), Bassett (BSET), ShiftPixy (PIXY), Loop Industries (LOOP).

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