A surprise overnight mortgage rate cut in China has global stocks on the rise Friday, but U.S. markets remain focused on the Fed’s inflation fight.
U.S. equity futures moved firmly higher Friday, although are still well on pace for another weekly decline that would keep stocks amid their start to any year in nearly a century, as investors look for bargains in a beat-down market shrouded by central bank rate threats of higher interest rates.
As Kansas City Fed president Esther George said yesterday, central banks may not be gunning for stock markets, but they aren’t going to be deterred by their recent slump in pushing rate hikes to fight the fastest inflation in four decades.
“What we are looking for is the transmission of our policy through markets understanding that tightening should be expected,” George told CNBC. “It is not aimed at the equity markets in particular but it is one of the avenues through which tighter financial conditions would emerge.”
While not aimed at equity markets specifically, they certainly seem to have weathered the bulk of the their affect: Bank of American ‘Flow Show’ data indicates that global stock markets have shed around $23.4 billion in value from their November 21 peak, a level that nearly matches an entire quarter of U.S. GDP.
Even still, rate traders are pricing in a 91.1% chance of a 50 basis point hike next month, according to the CME Group’s FedWatch tool, as well as an 13% chance of a 75 basis point move in July, despite Jerome Powell’s assertion that a rate hike of that magnitude isn’t being “actively considered” by he and his colleagues.
Curiously, global stocks got an overnight boost from the opposite tack — a rate cut from China’s central bank aimed at easing borrowing costs in the housing market — as the world’s second largest economy appears at risk of recession as a result of its Covid resurgence and draconian lockdown orders.
The region-wide MSCI ex-Japan index was marked 2.2% higher heading into the close of trading, while Europe’s Stoxx 600 rose 1.55% for its first gain in three days.
Benchmark 10-year Treasury bond yields held at 2.868% while and the dollar index rose 0.1% against a basket of six global currencies to 102.926 in early European trading.
The market’s key volatility gauge, the VIX, fell 7.17% in overnight trading and was last seen firmly south of the 30 point mark that normally triggers big intra-day moves on Wall Street, although the expiration of around $1.9 trillion in equity options tomorrow — which must be closed out today — will likely keep stocks active throughout the session.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 245 point opening bell advance while those linked the S&P 500, which is down 18.2% for the year, are priced for a 39 point move to the upside. Futures linked to the Nasdaq are looking at 160 point opening bell gain.
Ross Stores (ROST) – Get Ross Stores, Inc. Report shares were one of the more active names in pre-market trading, plunging 28% as the budget retailer became the last victim of sector sentiment after a weaker-than-expected April quarter
Ross Stores, which operates the ‘Dress for Less’ and “dd’s Discounts’ brands, posted first quarter sales of $4.3 billion, missing Street forecasts, and cautioned that same-store sales for the three months ending in July would likely decline by as much as 6% when compared to last year’s tally, which was supported by post-pandemic stimulus.
Full-year sales are also likely to decline, the company said, and rising input costs will likely add to the margin pressures retailers around the country are facing, clipping fiscal 2023 profits.
Palo Alto Networks (PANW) – Get Palo Alto Networks, Inc. Report shares, meanwhile, surged 11.6% following a better-than-expected third quarter earnings report and another solid near-term outlook for its cybersecurity products.
Deere & Co. (DE) – Get Deere & Company Report was also active, falling 4.8% despite posting better-than-expected second quarter earnings and boosting its full-year profit forecast as farm equipment demand looks set to outpace inflation and supply-chain pressures that are disrupting delivery schedules.
Applied Materials (AMAT) – Get Applied Materials, Inc. Report was also moving lower, falling 2.1%, after the semiconductor equipment maker posted softer-than-expected second quarter earnings a muted near-term outlook.
