US stocks falter after rally, assess economic outlook

Bloomberg

US equity futures faltered, struggling to hold the momentum that propelled the S&P 500 to its best daily gain in three weeks, as investors assessed whether the world’s biggest economy can skirt worst-case recession scenarios.
Futures contracts on the S&P 500 and the Nasdaq 100 index flat-lined after Wednesday’s 1.5% boost for the underlying indexes as US consumer confidence reached eight-month high and a further decline in inflation expectations. The figures came a day after sport-wear maker Nike and delivery firm Fedex, often seen as a bellwether for the economy, posted forecast-topping estimates, showing consumers are still making discretionary purchases.
However, the mood was dampened by memory chipmaker Micron, whose gloomy outlook knocked its shares in US premarket trading and weighed on other chip firms. European semiconductor shares also fell, erasing earlier gains on the Stoxx 600 gauge, though it remains set to break a two-week losing spell.
The S&P 500’s large decline this month contrasts with an average 1.5% December gain since 1950, providing side-lined global investors with plenty of “dry powder” to put to work, according to SEB.
“The resilience of the US economy thus continues to impress, and the probability is turned up a mini step for a soft landing,” Stockholm-based analysts at the firm told clients. On the other hand, war, inflation, and monetary policy tightening are pressuring companies’ large order books and profitability, they added.
Meanwhile, bond traders continued testing the Bank of Japan’s new 0.5% yield limit, and the central bank conducted an additional debt-purchase operation, pushing yields down to about 0.385%. However, 10-year borrowing costs are on course for their biggest weekly jump since 2015.
Yields on Treasuries and euro zone bonds slipped but concerns remain that Japanese investors could now be persuaded to bring home some of the trillions of dollars they have stashed in foreign stocks and bonds. That could further lift global borrowing costs and drag on already cooling economic growth.
On currency markets, the yen resumed its rise while the dollar slipped against a group of currency peers, headed for a third month of losses.
Incremental shifts in capital flows and interest rate was key for the greenback, Jefferies analyst Brad Bechtel noted, adding “the Fed is close to done hiking, which means that real rates in the US are done rising and will moderate a bit, taking pressure off of the dollar.”
Earlier in Asia, Japanese shares snapped a three-day losing streak while Hong Kong gained almost 3%. While a surge of Covid-19 infections in Shanghai and Beijing have stoked concerns for economic growth, a fresh slew of comments from Chinese regulators indicated support is forthcoming for economy and property developers.
Beijing also plans to cut quarantine requirements for overseas travellers in January, people familiar with the matter told Bloomberg.
Oil prices were poised to end an extraordinarily volatile year modestly higher. West Texas Intermediate crude futures held above $78 a barrel, extending their gain into a fourth day, benefiting from a decline in US inventories and the consumer confidence uptick. Growth-sensitive copper prices also rose for the fourth straight day.
S&P 500 futures were little changed as of 5:25 am New York time and Nasdaq 100 futures were little changed.
While futures on the Dow Jones Industrial Average were little changed, the Stoxx Europe 600 was little changed. The MSCI World index rose 0.2%.
While the Bloomberg Dollar Spot Index falls 0.2%, the euro rose 0.3% to $1.0641 and the British pound was little changed at $1.2087.