U.S. equity futures slumped lower Friday, while Treasury bond yields extended their weekly decline and the dollar tested fresh six-month lows, as markets looked to re-set rate hike expectations into the unofficial start to the fourth quarter earnings season.
A largely in-line reading for U.S. inflation, which slowed to the lowest levels in more than year last month, alongside last week’s better-than-expected jobs report and a host of data indicating softening price pressures, has triggered big changes in rate bets and sparked notable rally in Treasuries.
Benchmark 10-year note yields, which move in the opposite direction of prices, were trading at a four-week low of 3.43% in overnight dealing and are down nearly 20 basis points for the week. Over the same timeframe, 2-year have retraced by around 17 basis points to 4.112% as bets on big near-term rate hikes continue to fade.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.19% higher at $102.432, but still close to the lowest levels in in more than six months.
The CME Group’s FedWatch now indicates a 93.3% chance of a 25 basis point rate hike from the Fed on February 1, up from around 75.7% this time last week, with traders expecting the Fed Funds rate to peak at a range of between 4.75% and 5% in the early spring.
That’s given stocks solid momentum heading into the earnings season, which kicks-off with a series of investment banking earnings, along with Dow component UnitedHealth Group, prior to the start of trading.
Analysts expect S&P 500 earnings to fall 2.2% from last year to a share-weighted $447.1 billion, the first quarterly decline in more than two years. Stripping out the energy sector, however, and the decline expands to around 6.7%.
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 are priced for a 39 point opening bell decline while those linked to the Dow Jones Industrial Average are set for a 275 point slump. The tech-focused Nasdaq, which is on its best four-day run since November, is looking at a 130 point pullback.
JPMorgan (JPM) – Get Free Report shares moved 2.6% lower after it topped Street forecasts with earnings of $3.57 per share on revenues of $34.38 billion, but set aside $2.3 billion in reserves to set against bad loans and credit losses, topping analysts’ forecast of a $1.8 billion total for credit provisions.
Wells Fargo (WFC) – Get Free Report also posted stronger-than-expected fourth quarter earnings, but booked a larger portion of its reserves to compensate for rising loan risks as interest rates rise and the economy slows. Share were down 4% in pre-market trading.
UnitedHealth Group (UNH) – Get Free Report fell 1.5% despite posting better-than-expected fourth quarter earnings, powered once again by double-digit revenue gains from its Optum division, and confirmed its full-year profit forecasts.
Tesla (TSLA) – Get Free Report shares slumped 5.6% after the carmaker unveiled yet another round of deep price cuts in its key global markets ahead of its fourth quarter earnings later this month.
Boeing (BA) – Get Free Report shares edged 0.97% lower following news that the planemaker’s workhorse 737 Max jet made its first commercial flight in China in nearly four years.
In overseas markets, the the region-wide MSCI ex-Japan index rose 1.27% to a fresh seven-month high into the close of trading, while Tokyo’s Nikkei 225 slumped 1.25% as the yen surged to a seven-month high against the U.S. dollar amid reports of tighter monetary policy next week from the Bank of Japan.
Europe’s Stoxx 600 was marked 0.46% higher in early Frankfurt dealing, while London’s FTSE 100 was up 0.51%.