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US equity futures are pointing to a modestly lower open as investors grapple with renewed Middle East tensions. Following yesterday’s hotter-than-expected December Consumer Price Index data, this morning’s focus will be on the December Producer Price Index (PPI) as well as the start of big bank earnings with results due from JPMorgan (JPM), Bank of America (BAC), and Citigroup (C). Bank earnings and what they say about lending activity, consumer spending, and mortgage activity will offer another view on the vector and velocity of the economy.
Much like yesterday’s CPI report, the headline PPI for December is expected to rebound to +1.3% from November’s 0.9% print. Core PPI for the last month of 2023 is expected to dip to 1.9% YoY from 2.0% the month before, but the market will be watching for a hotter print just like we saw the December core-CPI. Given the leading relationship between the PPI and CPI data, final December prints above consensus expectations will be another blow to market rate cut expectations that still call for six rate cuts this year even after yesterday’s CPI report.
So far, the Fed’s not convinced. Federal Reserve Bank of Cleveland President Loretta Mester said it was premature to consider cutting interest rates as soon as the US central bank’s March meeting, emphasizing that fresh inflation data suggests policymakers have more work to do. Chicago Fed President Austin Goolsbee also chimed in saying he thinks the Fed needs to see more data to confirm any rate cut plans. Those comments set the stage for Minneapolis Fed President Neel Kashkari, who speaks shortly after today’s market open.
Oil prices are moving higher this morning following escalating tensions in the Middle East. The US and its allies launched joint military strikes against Houthi rebels in Yemen aimed at halting their campaign of attacks on shipping traffic in the Red Sea. In response, Houthi rebels have said they remained undeterred from launching more attacks in the region. Also trading up on these developments are shipping stocks, including Nordic American Tankers (NAT), Global Ship Lease (GSL), ZIM Integrated Shipping (ZIM), and Golden Ocean Group (NDAC).
And we are starting to see the fallout of Red Sea shipping issues. Citing a lack of components due to shifts in transport routes because of attacks on vessels in the Red Sea, Tesla (TSLA) shared it will suspend most car production at its factory near Berlin from January 29 to February 11. The odds that Tesla is the only company impacted by this is extremely low, and that means we are likely to hear other companies talk about the pinch it’s having on their business as the December quarter earnings season heats up. This poses a risk to 1H 2024 earnings guidance as well as further inflation progress expected by the market.