Scott Olson
Stock index futures struggled to clear direction Thursday as rates eased back slightly from their recent rise.
S&P futures (SPX) +0.1% and Nasdaq 100 futures (NDX:IND) +0.3% were higher after cutting losses into the close in the previous session. Dow futures (INDU) were down slightly.
“The big question for markets at the moment is whether 2024 to date is just an understandable hangover to an exceptionally good end to 2023 or a marker for a more challenging year ahead,” Deutsche Bank’s Jim Reid said. “I suppose our highest conviction thought so far this year has been that the least likely scenario would be the level of rate cuts priced in by the market occurring without a recession.”
“Such a scenario has felt completely out of place with history and still does. We have corrected back a bit this week after a slew of relatively ‘hawkish’ central bank speak (vs. market expectations), and yesterday’s surprisingly strong US retail sales, but it still feels optimistic to assume such levels of cuts without economic troubles.”
The strong retail sales numbers prompted a rise in rates, especially on the short end. This morning, yields eased a bit.
The 10-year Treasury yield (US10Y) was down 3 basis points to 4.08% and the 2-year yield (US2Y) was down 4 basis points to 4.32%.
“Market rates are still calibrating higher on the back of hawkish data and central bank rhetoric,” ING said. “The reflex is bear flattening highlighting the sensitivity of the market to central banks’ and their stated data dependency. But the broader move remains the correction from the extremes at the end of last year which entailed a resteepening of curves.”
Before the bell, housing starts and building permits figures for December are due. Economists expect a fall in starts to 1.462M, but a rise in payments to 1.48M.
“Housing starts data are volatile, but the November leap in single-family starts is impossible to reconcile with building permits, which have flattened in recent months,” Pantheon Macro’s Ian Shepherdson said. “Starts and permits can diverge for a time, but the November gap was startling.”
The January Philly Fed manufacturing index hits at the same time, coming on the heels of a huge plunge in the Empire State Manufacturing Index. The forecast is for a rise to -7, still in contraction territory.
“We suspect that this collapse (in Empire State) says more about the volatility of small sample surveys than about the broader state of manufacturing, but a big drop in the Philly index today would make it much harder to dismiss the Empire State data,” Shepherdson said.
Weekly initial jobless claims are also due. The consensus is for a small rise to 207K. Claims have remained stubbornly low of late.
