U.S. Stocks May Continue To Benefit From Interest Rate Optimism

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to extend the substantial rally seen in the previous session.

The markets may continue to benefit from optimism about the outlook for interest rates following yesterday’s tamer than expected consumer price inflation data.

Potentially adding to the interest rates optimism, the Labor Department released a separate report this morning showing an unexpected decrease in U.S. producer prices in the month of October.

The Labor Department said its producer price index fell by 0.5 percent in October after rising by a revised 0.4 percent in September.

Producer prices were expected to inch up by 0.1 percent compared to the 0.5 percent increase originally reported for the previous month.

The report also said the annual rate of producer price growth slowed to 1.3 percent in October from 2.2 percent in September. Economists had expected the pace of price growth to slow to 1.9 percent.

While the data may reinforce investor confidence the Federal Reserve is done raising rates, traders may be reluctant to continue buying stocks following yesterday’s surge.

A rebound by treasury yields may also keep buying interest somewhat subdued, with the yield on the benchmark ten-year note bouncing off its lowest levels in almost two months.

With tamer than expected inflation data generating considerable buying interest, stocks showed a substantial move to the upside during trading on Tuesday. The major averages all moved sharply higher after ending Monday’s trading narrowly mixed.

The major averages pulled back off their highs of the session going into the close but still posted strong gains. The Nasdaq soared 326.64 points or 2.4 percent to 14,094.38, the S&P 500 surged 84.15 points or 1.9 percent to 4,495.70 and the Dow jumped 489.83 points or 1.4 percent to 34,827.70.

The tech-heavy Nasdaq reached its best closing level in over three-months, while the Dow and the S&P 500 set new two-month closing highs.

The rally on Wall Street came following the release of the Labor Department’s highly anticipated report on consumer price inflation in the month of October.

The Labor Department said its consumer price index was unchanged in October after climbing by 0.4 percent in September. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices edged up by 0.2 percent in October after rising by 0.3 percent in September. Core prices were expected to rise by another 0.3 percent.

The report also said the annual rate of consumer price growth slowed to 3.2 percent in October from 3.7 percent in September. Economists had expected the pace of growth to decelerate to 3.3 percent.

Core consumer prices were up by 4.0 percent compared to the same month a year ago, reflecting the smallest year-over-year increase since September 2021.

The annual rate of core consumer price growth was expected to come in unchanged from 4.1 percent in the previous month.

Michael Pearce, Lead U.S. Economist at Oxford Economics, said the slowdown in core price growth should “give Fed officials more confidence that inflation is on a firm downward trajectory, staying its hand for rate hikes.”

Treasury yields moved sharply lower following the release of the report, adding to the buying interest on Wall Street.

Airline stocks moved sharply higher over the course of the trading session, with the NYSE Arca Airline Index soaring by 6.7 percent to its best closing level in a month.

Substantial strength was also visible among housing stocks, as reflected by the 5.5 percent spike by the Philadelphia Housing Sector Index. The index jumped to a three-month closing high.

Interest rate-sensitive commercial real estate stocks also saw considerable strength, resulting in a 5.4 percent surge by the Dow Jones U.S. Real Estate Index.

Gold, networking, banking and utilities stocks also moved significantly higher, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.66 to $77.60 a barrel after closing unchanged at $78.26 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,971.20, up $4.70 compared to the previous session’s close of $1,966.50. On Tuesday, gold climbed $16.30.

On the currency front, the U.S. dollar is trading at 150.84 yen compared to the 150.37 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0842 compared to yesterday’s $1.0879.

Asia

Asian stocks rose sharply on Wednesday as signs of cooling U.S. inflation bolstered hopes of a pause in interest rate hikes and China reported strong industrial output and retail sales data.

A drop in the dollar index and Treasury yields lifted bullion prices, while oil edged up slightly after ending little changed on Tuesday.

Chinese shares rose on the back of largely positive economic data and a decision by the country’s central bank to boost liquidity injection through seven-day reverse repos aimed at shoring up sluggish economic growth.

Traders also looked ahead to a meeting between Chinese President Xi Jinping and his U.S. counterpart Joe Biden later in the day, though expectations remain low due to disagreement over a range of issues, including Taiwan, the South China Sea, the Israel-Hamas war and Russia’s invasion of Ukraine.

China’s Shanghai Composite Index rose 0.6 percent to 3,072.83, while Hong Kong’s Hang Seng Index spiked 3.9 percent to 18,079, breaking above its 50-day moving average on the back of strength in heavyweight tech stocks. Tencent Holdings surged 4.8 percent ahead of its earnings release.

Data showed earlier in the day that Chinese industrial production and retail sales grew more than expected in October, while fixed asset investment slowed and property sales continued to decline.

Japanese markets rose sharply despite data suggesting that the economy slipped back into reverse over the summer. Third quarter GDP shrank 0.5 percent from the previous quarter versus expectations for a drop of 0.1 percent.

The Nikkei 225 Index soared 2.5 percent to 33,519.70, closing above the psychological 33,000 level for the first time in nearly two months as the GDP reading backed the case for more support from the government and the Bank of Japan. The broader Topix Index settled 1.2 percent higher at 2,373.22.

Semiconductor-related shares topped the gainers list, with Tokyo Electron, Screen Holdings and Advantest spiking 4-7 percent. Tech investor SoftBank Group surged 5.2 percent.

Idemitsu Kosan shares soared 18.3 percent after the refiner raised its profit forecast and announced a share split. Conglomerate Toshiba ended little changed after it posted a net loss of ¥52.14 billion ($344 million) for the six months ended September.

Seoul stocks closed higher on hopes of an end to U.S. rate hikes. The Kospi jumped 2.2 percent to 2,486.67, led by battery makers, tech and auto stocks. Samsung Electronics, LG Energy Solution and Hyundai Motor rallied 2-4 percent.

Australian markets closed near a two-month high, led by mining, tech and real estate stocks. Investors shrugged off data showing that Australian wages accelerated at the fastest pace in over 14 years in the three months through September.

The benchmark index S&P/ASX 200 Index closed 1.4 percent higher at 7,105.90, marking its highest closing level since September 20 and the largest single-day gain since September 15. The broader All Ordinaries Index settled 1.5 percent higher at 7,316.70.

Across the Tasman, New Zealand benchmark S&P/NZX 50 Index rose 1.6 percent to 11,352.84, marking the highest closing level since September 25.

Europe

European stocks have moved mostly higher on Wednesday as softer inflation data eased worries about the Fed’s rate trajectory and China reported strong industrial output and retail sales data for October.

U.K. stocks are outperforming after official data showed U.K. consumer price inflation eased sharply to a two-year low in October.

Consumer prices grew 4.6 percent year-on-year in October, slower than the 6.7 percent jump in the previous month, the Office for National Statistics (ONS) reported.

Elsewhere, consumer inflation data from France and wholesale price figures from Germany added to recent signs of moderating price pressures.

While the U.K.’s FTSE 100 Index has surged by 1.2 percent, the German DAX Index is up by 0.8 percent and the French CAC 40 Index is up by 0.6 percent.

Infineon Technologies has surged. The German semiconductor company proposed higher demand after posting increased earnings for the fourth quarter.

Energy technology company Siemens Energy has also jumped after securing 7.5 billion euros ($8.15 billion) in project-related state guarantees from the German government.

Experian has also soared after the credit data firm reported an increase in half-yearly profit, while Tullow Oil has moved sharply higher after raising its 2023 cash flow outlook.

On the other hand, Swiss eye-care company Alcon has plummeted 6 percent after its third quarter sales missed estimates.

Alstom shares have also plunged. The French train manufacturer plans a simplification of its operational setup, including around 1,500 job cuts, representing close to 10 percent of total S&A positions.

U.S. Economic Reports

After yesterday’s report showing consumer prices were unchanged, the Labor Department released a separate report on Wednesday showing an unexpected decrease in U.S. producer prices in the month of October.

The Labor Department said its producer price index fell by 0.5 percent in October after rising by a revised 0.4 percent in September.

Producer prices were expected to inch up by 0.1 percent compared to the 0.5 percent increase originally reported for the previous month.

The report also said the annual rate of producer price growth slowed to 1.3 percent in October from 2.2 percent in September. Economists had expected the pace of price growth to slow to 1.9 percent.

A report released by the Commerce Department on Wednesday showed retail sales in the U.S. edged slightly lower in the month of October.

The Commerce Department said retail sales slipped by 0.1 percent in October after jumping by an upwardly revised 0.9 percent in September.

Economists had expected retail sales to dip by 0.3 percent compared to the 0.7 percent increase originally reported for the previous month.

Excluding a decrease in sales by motor vehicle and parts dealers, retail sales inched up by 0.1 percent in October after climbing by 0.8 percent in September. Ex-auto sales were expected to come in unchanged.

New York manufacturing activity unexpectedly showed a significant turnaround in the month of November, according to a report released by the Federal Reserve Bank of New York on Wednesday.

The New York Fed said its general business conditions index surged to a positive 9.1 in November from a negative 4.6 in October, with a positive reading indicating growth. Economists had expected the index to rise to a negative 2.8.

Meanwhile, the New York Fed said firms became much less sanguine about the outlook, with the index for future business conditions plunging to a negative 0.9 in November from a positive 23.1 in October.

At 9:30 am ET, Federal Reserve Vice Chair for Supervision Michael Barr is scheduled to testify before a U.S. House Financial Services Committee hearing on “Oversight of Prudential Regulators.”

The Commerce Department is due to release its report on business inventories in the month of September at 10 am ET. Business inventories are expected to increase by 0.4 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 10th.

Richmond Federal Reserve President Thomas Barkin is due to speak on “The Housing Challenge” before the Virginia Governor’s Housing Conference at 3:30 pm ET.

Stocks In Focus

Shares of Target (TGT) are moving sharply higher in pre-market trading after the retail giant reported third quarter results that exceeded analyst estimates on both the top and bottom lines.

Satellite radio company Sirius XM (SIRI) is also likely to see initial strength after billionaire investor Warren Buffet revealed that he purchased 9.7 million shares of the company’s stock in the third quarter.

Meanwhile, shares of Energizer (ENR) may gave back ground after JPMorgan downgraded its rating on the battery maker’s stock to Underweight from Neutral.