U.S. Stocks May See Initial Strength As Treasury Yields Extend Pullback

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to move back to the upside after ending yesterday’s lackluster session mostly lower.

Early buying interest may be generated in reaction to a continued decrease by treasury yields, as the yield on the benchmark ten-year note is moving lower for the fourth straight day after reaching its highest closing level in over a year on Monday.

The recent retreat by treasury yields comes as the U.S. inflation data released over the past few days has led to renewed optimism about the outlook for interest rates.

Adding to the interest rate optimism, Federal Reserve Governor Christopher Waller told CNBC the central bank could lower interest rates multiple times this year if inflation eases as he is expecting.

“As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening sooner than maybe the markets are pricing in,” Waller said during an interview with Sara Eisen on CNBC’s “Squawk on the Street” on Thursday.

Waller said the number of rate cuts would be driven by the data, suggesting the Fed could cut rates three or four times if there is a lot of progress on inflation or cut rates twice or only once if inflation remains sticky.

The upward momentum on Wall Street may also reflect optimism about the outlook for the markets under President-elect Donald Trump, who is due to be sworn in for the second time on Monday.

Stocks surged in reaction to Trump’s election in November amid expectations of more pro-business policies in the new administration, although there are also concerns about impact of proposed tariffs.

Following the substantial rally seen during Wednesday’s session, stocks turned in a relatively lackluster performance during trading on Thursday. The major averages fluctuated over the course of the trading day before eventually closing in negative territory.

The tech-heavy Nasdaq ended the day more firmly in the red amid a slump by shares of Apple (AAPL), sliding 172.94 points or 0.9 percent to 19,338.29.

The Dow and the S&P 500 posted more modest losses. The Dow dipped 68.42 points or 0.2 percent to 43,153.13 and the S&P 500 slipped 12.57 points or 0.2 percent to 5,937.34.

The choppy trading on Wall Street came as traders took a step back to assess the near-term outlook for the markets following Wednesday’s rally, which saw the major averages post their largest daily percentage gains in over two months.

Traders were also digesting a slew of U.S. economic data, including reports on weekly jobless claims, retail sales and import prices.

The Labor Department released a report showing initial jobless claims climbed to 217,000 in the week ended January 11th, an increase of 14,000 from the previous week’s revised level of 203,000. Economists had expected jobless claims to rise to 210,000.

The bigger than expected increase came after jobless claims fell to their lowest level since hitting 200,000 in the week ended February 17, 2024.

The Commerce Department also released a report showing retail sales in the U.S. increased by less than expected in the month of December.

The report said retail sales rose by 0.4 percent in December after advancing by an upwardly revised 0.8 percent in November. Economists had expected retail sales to climb by 0.6 percent.

Meanwhile, the report said core retail sales, which exclude automobiles, gasoline, building materials and food services, climbed by 0.7 percent in December after rising by 0.4 percent in November.

“Retail sales in December were flattered by a price-related increase in gasoline station sales, but the details were generally encouraging, with a broad-based underlying control group rising at a strong pace,” said Michael Pearce, Deputy Chief U.S. Economist at Oxford Economics.

Following yesterday’s more closely watched report on consumer price inflation, the Labor Department also released a report showing import prices in the U.S. crept up in line with estimates in the month of December.

The Labor Department said import prices inched up by 0.1 percent in December, matching the upticks seen in November and October as well as expectations.

“Import prices rose modestly in December, capping off an encouraging week of inflation data and keeping the Fed on track to cut rates in the first half of this year,” said Matthew Martin, Senior U.S. Economist at Oxford Economics.

He added, “The recent rise in global oil prices will feed through to higher fuel import prices and some volatility to the data, but we expect the Fed will look through any temporary sources of inflation.”

Reflecting the lackluster performance by the broader markets, most of the major sectors ended the day showing only modest moves.

Interest rate-sensitive utilities and commercial real estate stocks saw considerable strength, however, with the Dow Jones Utility Index and the Dow Jones U.S. Real Estate Index jumping by 2.3 percent and 2.2 percent, respectively.

Brokerage stocks also added to the strong gains posted on Wednesday, driving the NYSE Arca Broker/Dealer Index up by 1.7 percent to its best closing level in over a month.

Natural gas and pharmaceutical stocks also saw notable strength on the day, while some weakness was visible among computer hardware and gold stocks.

Commodity, Currency Markets

Crude oil futures are falling $0.42 to $78.26 a barrel after slumping $1.36 to $78.68 a barrel on Thursday. Meanwhile, after surging $33.10 to $2,750.90 an ounce in the previous session, gold futures are sliding $13.80 to $2,737.10 an ounce.

On the currency front, the U.S. dollar is trading at 155.59 yen versus the 155.16 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0294 compared to yesterday’s $1.0301.

Asia

Asian stocks ended mixed on Friday as Trump tariff fears offset upbeat Chinese data and comments from Federal Reserve Governor Christopher Waller that officials could lower rates again in the first half of 2025 if inflation data continue to be favorable.

The dollar weakened in Asian trading, while oil and gold were poised for weekly gains.

China’s Shanghai Composite index reversed an early slide to end 0.2 percent higher at 3,241.82 after fourth quarter GDP beat estimates.

GDP expanded 5.4 percent year-on-year in the fourth quarter, faster than the 4.6 percent growth in the third quarter, the National Bureau of Statistics reported.

For the whole year of 2024, the economy expanded 5.0 percent, in line with the official growth target.

Separate data revealed that industrial production climbed 6.2 percent in December, while it was expected to log steady growth of 5.4 percent.

Retail sales improved an annual 3.7 percent, again topping expectations for 3.5 percent.

Fixed asset investment was higher by 3.2 percent year-on-year in 2024, shy of expectations for 3.3 percent. Property investment was down 10.6 percent in 2024 from the last year.

The jobless rate rose slightly to 5.1 percent in December from 5.0 percent in November.

Hong Kong’s Hang Seng Index edged up by 0.3 percent to 19,584.06. China Vanke shares tumbled 3.6 percent after state media reported the detention of its Chief Executive Officer Zhu Jiusheng.

Japanese markets fell slightly as the yen surged amid expectations of a Bank of Japan rate hike next week. Earlier this week, BoJ Governor Kazuo Ueda said that a hike was possible if economic and price conditions continue to improve.

The Nikkei 225 Index dipped 0.3 percent to 38,451.46, while the broader Topix Index settled 0.3 percent lower at 2,679.42. Videogame giant Nintendo slumped 4.3 percent as teaser for new console failed to impress.

Seoul stocks ended slightly lower a day after the Bank of Korea surprised markets by keeping its policy interest rate at 3.0 percent, contrary to widespread expectations of a 25-basis point cut. The Kospi slipped 0.2 percent to 2,523.55.

SK Hynix climbed 2.1 percent after Taiwan Semiconductor Manufacturing beat analyst estimates for the fourth quarter, thanks to strong sales of AI chips.

Australian markets ended lower as caution prevailed ahead of a U.S. holiday weekend and President-elect Donald Trump’s inauguration.

The benchmark S&P/ASX 200 Index ended down 0.2 percent at 8,310.40, dragged down by banks. The broader All Ordinaries Index edged down 0.1 percent to 8,557.40.

Rio Tinto shed 0.7 percent after reports suggested that it had held talks with Glencore last year about combining part or all of their businesses.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index rallied 1 percent to 13,130.43, powered by heavyweight Fisher and Paykel Healthcare.

Europe

European stocks have extended gains on Friday after hittiing their highest level in a month the previous day on the back of strong results from Cartier owner Richemont and renewed rate-cut hopes.

While the U.K.’s FTSE 100 Index is up by 1.4 percent, the French CAC 40 Index and the German DAX Index are both up by 1.1 percent.

Federal Reserve Governor Christopher Waller told CNBC on Thursday that the U.S. central bank could lower interest rates multiple times this year if inflation continues to ease as expected.

He sees three or four quarter-percentage-point rate reductions this year “if the data cooperates.” If the data doesn’t cooperate, then you’re going to be back to two and going maybe even one, he said.

Closer to home, ECB Governing Council member Yannis Stournaras said on Thursday that “policy should continue with a series of rate cuts at the next meetings.” Traders expect a 100-basis point cut from ECB this year.

The British pound weakened against other major currencies after data showed British retail sales declined unexpectedly in December on falling food store sales.

Retail sales volume decreased 0.3 percent on a monthly basis in December, in contrast to the revised 0.1 percent increase in November and confounding expectations for an increase of 0.4 percent.

On a yearly basis, retail sales grew 3.6 percent, weaker than forecast of 4.2 percent. The data added to expectations for a Bank of England interest rate cut next month.

In corporate news, Glencore and Rio Tinto have jumped after reports emerged that both held talks last year about combining part or all of their businesses.

AstraZeneca has also risen. The pharmaceutical giant said that the FDA approved its drug Calquence (acalabrutinib) to treat previously untreated mantle cell lymphoma (MCL) in adults who cannot have a stem cell transplant.

U.S. Economic News

A report released by the Commerce Department on Friday showed new residential construction in the U.S. skyrocketed by much more than anticipated in the month of December.

The Commerce Department said housing starts soared by 15.8 percent to an annual rate of 1.499 million in December after tumbling by 3.7 percent to a revised rate of 1.294 million in November.

Economists had expected housing starts to jump by 2.4 percent to an annual rate of 1.320 million from the 1.289 million originally reported for the previous month.

Meanwhile, the report said building permits slid by 0.7 percent to an annual rate of 1.483 million in December after surging by 5.2 percent to a revised rate of 1.493 million in November.

Building permits, an indicator of future housing demand, were expected to slump by 3.0 percent to an annual rate of 1.460 million from the 1.505 million originally reported for the previous month.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of December. Industrial production is expected to rise by 0.3 percent in December after edging down by 0.1 percent in November.