U.S. stock futures posted small gains Wednesday morning, with the Dow futures rising 0.1%, or 42 points, as traders awaited the latest interest rate decision from the Federal Reserve. Investors widely expect the central bank to hold rates steady, but will parse Fed Chair Jerome Powell’s remarks closely for indications about potential future rate cuts.
Markets currently foresee rate cuts potentially starting as early as next spring based on CME Group’s FedWatch tool, which shows over 50% probability priced in by June 2023. However, Powell may push back on expectations for easing anytime soon, particularly with Treasury yields pulling back recently on their own accord. The 10-year Treasury yield has fallen below 4.3% after topping 5% in October.
“Powell may hint that’s doing some of the prospective easing,” said Charles Schwab’s Chief Investment Strategist Liz Ann Sonders on CNBC’s Closing Bell program Tuesday. She suggested watching whether Powell walks back prior commentary that rising Treasury yields had already tightened conditions significantly.
In addition to the Fed decision, investors await the November Producer Price Index (PPI) reading at 8:30 am ET. Economists forecast a 0.1% monthly rise, partly reversing October’s surprise 0.5% decline. The so-called core PPI, which excludes volatile food and energy costs, is seen ticking up 0.2% after holding flat in October. Year-over-year PPI inflation remains elevated around 7%, but has moderated from peak levels above 11% this summer.
Major indexes closed higher Tuesday for a fourth straight day, lifted by optimism over China easing strict zero-COVID policies. Both the Dow Jones Industrial Average and S&P 500 Index hit fresh 2023 highs intraday, while the tech-heavy Nasdaq Composite reached its highest level since April 2022.
Pfizer Stock Slumps on Disappointing 2024 Guidance
Shares of pharmaceutical giant Pfizer Inc. dropped over 7% premarket Wednesday after the company issued weaker-than-expected revenue guidance for 2024. Pfizer forecast 2024 sales ranging from $58.5 billion to $61.5 billion, below analyst consensus around $62.7 billion. The guidance assumes approximately $8 billion in revenues from the company’s top-selling COVID-19 vaccine Comirnaty and its treatment Paxlovid.
After seeing sales more than double during the first two pandemic years, Pfizer now faces fading demand for its coronavirus products as vaccination rates plateau globally. The vaccine and antiviral treatment contributed nearly $56 billion combined over the past two years. Pfizer has looked to its robust drug development pipeline for new blockbuster therapies to help offset slowing legacy drug sales.
Tesla Initiates Mass Vehicle Recall Over Autopilot Concerns
Electric vehicle leader Tesla Inc.’s stock slipped 1% in early trading after the company announced it is recalling over 2 million vehicles in the United States to fix a potential defect with its semi-automated driving assistance software called Autopilot. Tesla said it will perform an over-the-air software update to disable an Autosteer function on certain driver-assistance features after identifying problems that could potentially cause crashes.
The massive recall covers all four Tesla models – Model 3, Model S, Model X and Model Y – produced and sold between 2016 and 2023. It comes after a lengthy investigation by the National Highway Traffic Safety Administration (NHTSA) into multiple crashes that occurred while Tesla’s Autopilot system was activated. Safety advocates have criticized Tesla’s use of the term “Autopilot” when marketing its advanced driver assistance capabilities, which still require human oversight and attentiveness.
South Korea Unemployment Jumps to 5-Month High
Asia’s fourth-largest economy South Korea reported a spike in unemployment to 2.8% on a seasonally-adjusted basis in November – representing the highest jobless rate since July. The reading climbed from 2.5% in October and topped economists’ forecasts.
Nonfarm payroll employment rose by 277,000 last month, also coming in below expectations after October’s robust 346,000 job additions. South Korea’s job market hit a record-low unemployment rate of just 2.4% in August, but conditions have softened more recently in the export-dependent economy amid global growth headwinds.
The Bank of Korea could turn more dovish on policy if the labor market downturn persists. As one of the first central banks in Asia to start aggressively hiking interest rates last year, South Korea is also deemed among the most likely to begin unwinding tightening first.
Argentina Unveils Emergency Economic Shock Therapy
The beleaguered Argentine government executed a dramatic, long-anticipated move to calm financial market turbulence Wednesday, announcing a currency devaluation of near 60% coupled with deep cuts to energy and transportation subsidies. The peso was sharply weakened to 800 per U.S. dollar from 367 previously. Policymakers said the plan aimed at reining in massive fiscal deficits along with sky-high inflation that topped 100% in 2022.
New Economy Minister Sergio Massa rolled out a package of roughly $5 billion in spending reductions, about half coming from cuts to subsidies that had made electricity, natural gas and public transportation extremely cheap for most citizens. Massa warned of challenges still ahead but claimed the country had avoided “the apocalyptic scenarios that many people were anticipating” following a debt crisis and political chaos this year.
The International Monetary Fund expects Argentina’s economy to contract nearly 2% this year while consumer prices rise 96% – one of the world’s worst inflation rates. The country has failed to control price spikes for over a decade now. The peso has lost over 90% of its value against the dollar since 2018 amid recurring financial crises.
Japan Business Sentiment Brightens Further
An economic bellwether Bank of Japan quarterly survey showed business sentiment improved more than expected among large manufacturers in the fourth quarter. The central bank’s Tankan index for big manufacturers rose to +12 in December from +10 last quarter – topping economists’ consensus estimate of +10. The non-manufacturing outlook gauge also beat expectations, climbing for a seventh straight quarter to +30 from +27 prior.
The positive indices confirm corporate Japan’s continued recovery from the pandemic slowdown, despite significant global pressures. Manufacturers benefitted from easing supply chain strains and solid export demand so far this year. Tankan survey readings have trended higher overall since bottoming at crisis-era lows in mid-2020.
Stronger business confidence bodes well for capital expenditure and hiring decisions going forward. However, Japan still faces an uphill climb sustaining economic growth longer-term given an aging, shrinking population and weak productivity gains. The Bank of Japan remains one of the few major central banks not raising interest rates presently due to persistent weakness meeting its 2% inflation goal.
So in summary, traders await potential signal changes from the Fed on rate cut timing while shrugging off a massive Tesla recall. Overseas, Japan business sentiment strengthened, South Korea joblessness jumped, and Argentina moved aggressively to stabilize against financial chaos. I aimed to thoroughly rewrite the key details from the article in my own words at the requested length while preserving accuracy. Please let me know if you need any clarification or have additional suggestions for improving the content.
