OPENING CALL
Stock index futures pointed to a mixed start just shy of record highs on Wednesday as bond markets were calmer and investors eyed more corporate earnings reports.
With 10-year Treasury yields again consolidating around the 4.1% level, as traders come to terms with the prospect of waiting until May for a likely Federal Reserve interest rate cut, so more investor attention is re-focused on corporate prospects.
And to that end the earnings season trundles on, with traders keen to see that profits can support a market sitting near record highs.
Souring the mood somewhat early Wednesday was a 30% fall in shares of Snap after the company late on Tuesday reported a revenue miss and offered a disappointing outlook.
In contrast, sentiment was supported by a 6% pop in shares of Ford and a 3% gain for Chipotle Mexican Grill after they delivered well-received results and forecasts.
Indications that the U.S. economy has managed to thrive during a period of sharply rising interest rates, thus supporting company earnings growth, has been a primary driver of the latest equity rally, according to SPI asset Management.
"S&P 500 operating earnings growth of around 5% year-on-year fosters bullish sentiment among investors," SPI said.
"Higher rates don't appear to burden consumers or corporations significantly, enabling the Fed to wait longer to ensure inflation control without disrupting the stock market's momentum amid robust U.S. growth dynamics."
There is another raft of Fed officials making comments later on Wednesday.
Adriana Kugler will speak on policy and the economic outlook at 11 a.m., Susan Collins will discuss the economic outlook at 11:30 a.m., Tom Barkin will speak to the Economic Club of Washington, DC at 12:30 p.m., and Michelle Bowman will talk about supporting small businesses at 2 p.m.
Premarket Movers
Enphase Energy shares rose 13% after the company reported earnings that were in line with analysts' forecasts.
Fortinet rose 10% after it posted fourth-quarter adjusted earnings of 51 cents a share, topping estimates of 43 cents.
Fox is teaming up with ESPN and Discovery to create a supersize sports-streaming service. Shares of Fox 5%.
VF was down 7.1% after it reported fiscal third-quarter adjusted earnings and revenue that missed Wall Street estimates.
Post-Close Movers
Container Store reduced its outlook for fiscal 2024 sales and comparable store sales after the company's top-line results fell sharply in the fiscal third quarter. Shares fell 9.4%.
Sonos's fiscal first-quarter profit rose and topped analysts' estimates, despite revenue falling in the period. Shares rose 13%.
Market Insight
Slowing inflation and a resilient economy is a good backdrop for bonds and more so for equities, Societe Generale said.
The most recent reading of PCE inflation is falling toward 2% and is opening the door for Fed interest-rate cuts to come, it added. "The U.S. economy is moving away from overheating and is moving towards resilience."
Societe Generale expects the Fed to start cutting interest rates before the European Central Bank. It said it makes sense to buy into equities ahead of anticipated rate cuts, and eventually tactically reduce the weighting when the cuts actually come.
Watch For:
Trade for December; Canada Trade for December; earnings from CVS Health, Disney, Fox, Uber
Today's Headlines/Must Reads
- Meta Has Joined the Dividend Club. Are Its Best Days Behind It?
- A China-U.S. Decoupling? You Ain't Seen Nothing Yet
- Why Americans Are So Down on a Strong Economy
MARKET WRAPS
Forex:
The dollar edged lower, retracing some of its recent sharp gains, though it remains well supported following Friday's very strong jobs data, ING said, adding that a quiet week with low volatility could be a good opportunity to park money in the currency.
"Paying 5.3% on overnight deposits, the dollar...remains an attractive place to park money until some clearer trends develop."
ING said the DXY dollar index should stay in a 104.00-104.75 range.
Energy:
Oil futures were higher after the EIA said it doesn't expect domestic production to reach a new record until early 2025, easing concerns over market oversupply.
Meanwhile, heightened tensions in the Middle East are having only a marginal impact on prices in absence of major disruptions to oil supply, according to analysts.
"Market participants appear to be assuming that we will not see a significant escalation in the Middle East, at least an escalation which puts oil supply at risk," ING said.
Metals:
Base metals and gold were marginally weaker in Europe but fairly stable, as the market processes a flurry of recent economic and monetary policy news.
Although the dollar and yields have corrected slightly after a Fed-driven rally in recent days, they are still relatively high, indicating the market has adjusted its expectations for U.S. monetary policy, according to analysts.
Base metals have found new levels of support after navigating a recent market downturn, thanks to the calming of macroeconomic pressures, while precious metals have recouped some of their recent losses, Sucden Financial said.
TODAY'S TOP HEADLINES
LG Chem, GM Sign $19 Billion Deal on Cathode Materials
South Korea's LG Chem has signed a $19 billion deal with General Motors to supply cathode materials used to make electric-vehicle batteries.
The South Korean chemical company said in a press release Wednesday that it will supply 24.750 trillion won ($18.65 billion) worth of cathode materials to GM from 2026 through 2035.
China Offers Support to Accelerate EV Makers' Global Push
China is encouraging its electric vehicle makers to expand their overseas presence, including forging tie-ups with foreign research institutions and countries to build industrial clusters.
Companies are encouraged to establish research & development centers overseas and collaborate with shipping companies to integrate warehousing and logistics resources in foreign markets, the Ministry of Commerce said in a statement on Wednesday.
Judge Tosses Lawsuit Over Apple Watch Heart Rate Algorithm
A federal judge has tossed out a lawsuit filed by the venture-backed medical products company AliveCor against Apple over heart-rate monitoring technology in the Apple Watch.
Judge Jeffrey White, sitting in the Northern District of California, granted Apple's motion for summary judgment in the case. The detailed decision remains under seal.
King Cash Is Being Dethroned. What to Buy Now.
The mantra "cash is king" reigned supreme last year. Now it's time to dethrone the king and start putting cash to work.
Lured by 5% yields, investors have flooded into money-market funds and other cash proxies, plowing more than $7 trillion into the holdings. But the outlook for cash is dimming. The Federal Reserve is widely expected to cut its benchmark federal-funds rate this year; the timing and magnitude are a coin toss, but even small rate cuts would erode yields on cash.
China removes its securities regulator after slide in the stock market
China has removed the head of its securities regulator after a steep drop in the country's stock market, according to a report from state media.
Yi Huiman has been removed as head of the China Securities Regulatory Commission, Xinhua News Agency reported. He'll be replaced by Wu Qing, a veteran of the agency who also ran the Shanghai Stock Exchange for two years.
Moody's Cuts NYCB to Junk, Extending Sharp Decline in Shares
Moody's Investors Service cut New York Community Bancorp's credit rating two notches to junk late Tuesday, delivering another blow to the besieged Hicksville, N.Y., lender.
Moody's cited "financial, risk-management and governance challenges" for NYCB, which reported a surprise quarterly loss and slashed its dividend last week, as the ratings firm downgraded the bank to Ba2 from Baa3. Fitch Ratings on Friday downgraded NYCB to the lowest possible investment-grade rating.
Biden Gets Real Win, Haley Takes Symbolic Loss in Unusual Nevada Primaries
LAS VEGAS-President Biden easily won Nevada's Democratic primary while Nikki Haley suffered an embarrassing-though symbolic-defeat to "none of these candidates" on the Republican side.
The Associated Press called the Democratic race Tuesday night, with Biden easily dispatching self-help author Marianne Williamson. Another Democratic challenger, Minnesota Rep. Dean Phillips, wasn't on the Nevada ballot. Soon after, AP said Haley had lost the GOP contest to a ballot choice that was seen as a sign of support for Donald Trump.
Senators Rush to Salvage Ukraine Aid After Border Deal Fails
WASHINGTON-Senators threw in the towel Tuesday on a $118 billion national-security and border package after sharp opposition from Republicans scuttled the deal, forcing frustrated lawmakers to urgently seek for a backup plan to deliver aid to Ukraine as it loses ground in its campaign to repel Russia.
The surrender to political reality left Democrats seething over what they called a bait and switch by Republicans after four months of talks, while GOP lawmakers said the deal's border provisions weren't strong enough. Both sides, however, signaled they could try to move to a narrower bill focused on foreign assistance and weapons once they get past Wednesday, when the doomed package will get a vote in the Senate.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
ATS 3Q
Brookfield Asset Management 4Q
Canaccord Genuity 3Q
Computer Modelling 3Q
Dayforce 4Q
Heroux-Devtek 3Q
Medexus Pharmaceuticals 3Q
Sun Life Financial 4Q
Economic Calendar (ET):
0830 Dec Trade Report
1330 Bank of Canada Summary of Monetary Policy Deliberations
Stocks to Watch
Looking Glass Labs to Acquire Climate, AI Web3 Assets of Bot Media for $765,000
Stingray Group 3Q EPS C$0.13; 3Q Rev C$100.3M; 3Q Adj EPS C$0.27
Expected Major Events for Wednesday
(MORE TO FOLLOW) Dow Jones Newswires
02-07-24 0618ET
