Stock Markets Dip Amid Mixed Economic Signals and Earnings Anticipation

by Yuki

Stock markets experienced a downturn on Friday as a hotter-than-expected U.S. inflation report created uncertainty surrounding the interest rate outlook. Investors are also gearing up for the upcoming earnings season.

In Europe, the Stoxx 600 index remained largely unchanged, while France’s CAC 40 index managed to recover from an earlier decline following the announcement of a budget that will increase taxes on businesses and wealthy individuals. Futures contracts on the Nasdaq 100 fell by 0.3%, influenced by a 6% drop in Tesla Inc.’s shares in premarket trading, attributed to the perceived lack of detail in its new robotaxi, the Cybercab.

U.S. Treasury bond yields maintained levels above 4% after Thursday’s data revealed strong inflation figures alongside a significant rise in jobless claims. This data highlights the challenges faced by the Federal Reserve in managing inflation. Investors are awaiting producer price index (PPI) numbers later today to assess whether the Fed’s efforts to stabilize prices are losing momentum.

“The data is mixed and it’s probably confusing markets,” commented Justin Onuekwusi, Chief Investment Officer at UK wealth manager St. James’s Place. “This is a critical time for the Fed, which is becoming increasingly data-dependent, and the current data may not provide a clear direction.”

Despite the higher-than-expected consumer price index (CPI), Federal Reserve policymakers, including John Williams, Austan Goolsbee, and Thomas Barkin, expressed confidence, indicating that rate reductions could continue. Current market swaps suggest an approximately 80% probability of a 25 basis-point cut in rates come November.

Today also marks the release of third-quarter earnings from major financial institutions, including JPMorgan Chase & Co., Wells Fargo & Co., and Bank of New York Mellon Corp. Investors will pay close attention to JPMorgan’s outlook on net interest income, particularly after executives have sought to temper expectations regarding this key revenue source. For Wells Fargo, updates regarding its asset cap are anticipated.

Wolf von Rotberg, equity strategist at Bank J. Safra Sarasin, raised his S&P 500 targets for upcoming quarters, suggesting that “earnings have room to surprise on the upside, given that the cycle has generally improved since the beginning of September.”

Earlier in the day, China’s CSI 300 Index fell by 2.4% as investors awaited a significant briefing over the weekend, which is expected to reveal details of Beijing’s economic support plans. Analysts anticipate that China may introduce up to 2 trillion yuan ($283 billion) in fresh fiscal stimulus.

“The market has anticipated a 2 trillion yuan fiscal package, so anything less could be seen as disappointing,” noted Benjamin Melman, Chief Investment Officer at Edmond de Rothschild Asset Management. However, he cautioned that these measures will take at least two to three quarters to effectively influence the market, projecting that no significant impact will be felt before the latter half of 2025.

In commodities, oil prices dipped, offsetting some of Thursday’s 3.6% increase, which was fueled by news of Israel’s security cabinet meeting to discuss possible retaliation against Iran.

Key Events This Week:

  • Earnings from JPMorgan and Wells Fargo commence the earnings season for major Wall Street banks today.
  • Release of U.S. producer price index (PPI) and University of Michigan consumer sentiment data today.
  • Remarks from Federal Reserve officials Lorie Logan, Austan Goolsbee, and Michelle Bowman scheduled for today.

Market Overview:

Stocks

  • Stoxx Europe 600: little changed as of 10:07 a.m. London time
  • S&P 500 futures: fell 0.1%
  • Nasdaq 100 futures: fell 0.2%
  • Dow Jones Industrial Average futures: fell 0.1%
  • MSCI Asia Pacific Index: little changed
  • MSCI Emerging Markets Index: rose 0.2%

Currencies

  • Bloomberg Dollar Spot Index: little changed
  • Euro: rose 0.1% to $1.0948
  • Japanese Yen: fell 0.1% to 148.79 per dollar
  • Offshore Yuan: rose 0.2% to 7.0716 per dollar
  • British Pound: little changed at $1.3071

Cryptocurrencies

  • Bitcoin: rose 1.6% to $60,680.51
  • Ether: rose 1.6% to $2,404.88

Bonds

  • 10-year Treasury yield: increased by two basis points to 4.08%
  • Germany’s 10-year yield: increased by two basis points to 2.28%
  • Britain’s 10-year yield: increased by one basis point to 4.22%

Commodities

  • Brent crude: fell 1% to $78.58 per barrel
  • Spot gold: rose 0.4% to $2,640.41 an ounce

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