U.S. stocks are choppy as the markets wrestle with the implications of a highly anticipated December consumer price inflation report that showed the headline figure declined but the core rate rose, both in line with expectations. Treasury yields are losing ground, along with the U.S. dollar. Crude oil prices are rising and gold is extending a recent run. Employment figures were also in focus, with jobless claims dipping slightly and coming in better than expected. American Airlines boosted its Q4 guidance, though KB Home missed quarterly expectations. Asia finished mostly higher, and Europe is continuing its strong start to 2023 with the U.S. inflation data in focus.
At 10:48 a.m. ET, the Dow Jones Industrial Average is up 0.2%, the S&P 500 Index is dipping 0.1%, and the Nasdaq Composite is declining 0.3%. WTI crude oil is increasing $1.07 to $78.48 per barrel, and Brent crude oil is advancing $1.10 at $83.77 per barrel. The gold spot price is trading $13.90 higher to $1,892.80 per ounce, and the Dollar Index is falling 0.5% to 102.65.
American Airlines Group Inc. (AAL $16) boosted its Q4 earnings-per-share (EPS) guidance and also raised its revenue outlook. The air carrier noted that total revenue per available seat mile is expected to be up about 24% compared to the same period in 2019 and higher than its previous guidance, and that its debt reduction initiative is well ahead of its goals. Shares are trading solidly higher.
KB Home (KBH $35) reported Q4 EPS of $2.47, below the $2.86 FactSet estimate, with revenues rising 16.0% year-over-year (y/y) to $1.9 billion, slightly south of the Street's forecast of $2.0 billion. The homebuilder said while favorable demographics and a prolonged undersupply of homes gives it confidence in the housing market's long-term outlook, current conditions remain challenging. KBH added that higher mortgage rates and persistent inflation, together with an uncertain economy, have made homebuyers more cautious since the middle of last year. Shares are falling.
The equity markets are digesting today's inflation and employment figures and awaiting tomorrow's start of Q4 earnings season, while grappling with the ultimate impact of aggressive Fed actions to try to combat rising prices. Last week’s December job report added to the uncertainty regarding the Fed’s monetary policy decisions. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Hurts So Good: Jobs Picture Stays Mixed, how there was something for everyone—even those supportive of an economic soft landing—in December's jobs report, but recessionary signals have not subsided.
The Central Bank downshifted in December from a string of four-straight 75-basis point (bp) rate hikes to a 50-bp increase. However, the deceleration remained unusually aggressive, and the Fed signaled that restrictive policy will likely have to remain in place for longer and at a potentially higher "terminal rate" than expected.
December consumer price inflation in line with forecasts, jobless claims dip
The Consumer Price Index (CPI) (chart) ticked 0.1% lower month-over-month (m/m) in December, matching the Bloomberg consensus estimate, and versus November's unrevised 0.1% increase. The core rate, which strips out food and energy, rose 0.3% m/m, in line with expectations and versus November's unadjusted 0.2% rise. Compared to last year, prices were 6.5% higher for the headline rate, matching estimates and from the prior month's unrevised 7.1% rise. The core rate was up 5.7% y/y, in line with projections, and versus November's unadjusted 6.0% rise.
Weekly initial jobless claims (chart) came in at a level of 205,000 for the week ended January 7, below estimates of 215,000 and compared to the prior week's upwardly revised 206,000 level. The four-week moving average decreased by 1,750 to 212,500, and continuing claims for the week ended December 31 fell by 63,000 to 1,634,000, south of estimates calling for 1,710,000. The four-week moving average of continuing claims declined by 8,750 to 1,679,500.
Inflation has driven aggressive monetary policy tightening by the Fed, along with a continued tight labor market. Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article, Fixed Income Outlook: Bonds Are Back, how we see opportunities in 2023 for the bond market to provide attractive yields at lower risk than we've seen for several years.
Treasury rates are lower following the inflation and employment data, as the yield on the 2-year note is down 5 bps to 4.17%, the yield on the 10-year note is decreasing 3 bps to 3.47%, and the 30-year bond rate is dipping 1 bp to 3.67%.
Europe higher as U.S. data eyed
Stocks in Europe are higher in late-day action as the markets digest today's key December U.S. inflation report that showed a deceleration that was in line with estimates. Also, the markets are awaiting tomorrow's start of Q4 earnings season in the U.S., which will begin with some heavyweights out of the Financials sector. Equities have been positive to start 2023 despite uncertainty regarding the ultimate impact on the economy and financial conditions of recent global monetary policy decisions to aggressively tighten policies to combat inflation. Optimism has increased that Europe may be able to avoid a recession even as monetary policies tighten, aided by eased energy crisis concerns, as well as the implications of China's reopening.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses his Top Global Risks of 2023, highlighting our top five risks that may define the global markets, considering that a new year almost always brings surprises of one form or another. The euro is rising versus the U.S. dollar, and the British pound is ticking higher, while bond yields in the Eurozone and U.K. are decreasing.
The U.K. FTSE 100 Index and Italy's FTSE MIB Index are up 1.0%, France's CAC-40 Index and Germany's DAX Index are rising 0.9%, Spain's IBEX 35 Index is advancing 1.4%, and Switzerland's Swiss Market Index is trading 0.6% higher.
Asia mostly higher ahead of U.S. data, and following China inflation reports
Stocks in Asia finished mostly to the upside, with the global markets remaining cautious ahead of today's key December consumer price inflation data and Friday's start to Q4 earnings season in the U.S. Recent reopening announcements out of China has continued to buoy sentiment. Hong Kong and mainland China have begun to allow quarantine-free travel after keeping borders restricted for almost three years. This led to wide market support as of late, and took the MSCI Asia Pacific—Asia-Pacific’s benchmark index—into a technical bull market. These loosening actions came despite a recent surge in COVID cases in China. In his article, Global Outlook: Recovery and Risk, Schwab's Jeffrey Kleintop notes how markets may continue to see volatility in 2023 as they navigate between global economic growth and inflation fears, with central banks' decreasing rate hikes and China's reopening.
Investors also digested December inflation readings out of China, which showed producer prices continued to fall, more than expected, though its consumer price inflation accelerated as expected. Elsewhere, Australia's exports came in flat for November after dipping in October, and imports declined, resulting in an unexpected widening of its trade surplus. Just as markets in India closed, the country announced that its industrial production rebounded much more than expected for November, and its consumer price inflation surprisingly cooled for last month.
Japan's Nikkei 225 Index finished little changed, with the yen rebounding versus the U.S. dollar late in the session. China's Shanghai Composite Index ticked 0.1% higher, and the Hong Kong Hang Seng Index gained 0.4%. South Korea's Kospi Index advanced 0.2%, Australia's S&P/ASX 200 Index rallied 1.2%, and India's S&P BSE Sensex 30 Index bucked the trend, declining 0.3%.
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