Morning Bid: Record S&P500 eyes 5,000, China deflated

Infused with another strong earnings season and calmer bond markets, a record high S&P500 (.SPX), now looks to vault the 5,000 point hurdle for the first time – just as China’s worrying deflation deepens into its Lunar New Year break.

With U.S. economic growth above 3%, unemployment below 4% and aggregate annual profit growth above 8%, the S&P500 has raced up 21% since late October.

Excluding China’s ailing market, the MSCI World index of developed economy stocks (.MIWO00000PUS), hit a record on Thursday too – having breached the January 2022 high earlier this week. MSCI’s all-country index (.MIWD00000PUS), is at two-year highs.

Even though scrambled regulatory controls and personnel shifts this week managed to buoy mainland China shares (.CSI300), from 5-year lows – clocking their best week in more than a year before closing for the week starting Friday – the underlying economic woes were also in view.

China’s consumer prices fell at their steepest pace in more than 14 years in January while producer prices also dropped, ramping up pressure on policymakers to do more to revive an economy low on confidence and facing deflationary risks.

The consumer price index fell 0.8% in the year through January after a 0.3% drop in December and more than the 0.5% forecast by economists.

What’s more, Hong Kong’s Hang Seng (.HSI), relapsed – losing 1.3% and dragged down by a 6.1% decline in Alibaba (9988.HK), after the internet giant missed quarterly revenue estimates.

Back on Wall St, the latest stock market surge was aided by a calming of the recently restive bond market, with decent demand for a record $54 billion of 10-year Treasury notes on Wednesday helping to calm the horses.

Some $25 billion of 30-year bonds go under the hammer later today.

Helped additionally by still subdued crude oil prices, which are tracking year-on-year declines of more than 5%, 10-year yields were steady at 4.10%.

Weekly jobless numbers out later will be watched closely – not least because last week’s surge in unemployment claims flew in the face of the blowout January payrolls report that disturbed market thinking on Federal Reserve interest rate cuts this year.

The stream of Fed officials speaking this week showed policymakers still very much in ‘wait and see’ mode and in no particular rush to ease just yet.

But Fed Governor Adriana Kugler, in her first public comments since starting the job last September, indicated it was all to play for yet.

“March, May, June – every meeting from now until the end of the year and moving forward will be live,” she said.

For now, Fed futures are 80% priced for a quarter point rate cut by May – with a one-in-five chance of a move as soon as March – and 120 basis points of easing seen over the year.

Wall St stock futures and the dollar index (.DXY), were steady into Thursday’s open.

The worrying wobble in regional bank stocks this week is one reason for caution – and perhaps a reason some still see a March Fed rate cut as an outside possibility.

But New York Community Bancorp (NYCB.N), shares rebounded in late trading on Wednesday to close up 6.7%, shaking off an early decline of more than 13%. The lender’s newly appointed executive chairman, Alessandro DiNello, vowed to cut its exposure in the troubled commercial real estate sector, where it took loan write-offs.

Walt Disney shares (DIS.N), also jumped nearly 7% in after-hours trading after an earnings beat and as CEO Bob Iger hit back at activist investors with a slew of announcements, including a big investment in “Fortnite” maker Epic Games and plans to launch an ESPN streaming service in 2025.

Iger revealed the plans after Disney’s board of directors authorized a $3 billion share repurchase program for the current fiscal year, and declared a dividend of 45 cents a share, a 50% increase from the dividend paid in January.

A reminder of Red Sea shipping problems was evident in Europe, however, with Maersk (MAERSKb.CO), shares down 12.7% after the shipping giant missed fourth-quarter expectations and flagged that its 2024 earnings will come below last year’s levels amid an oversupply of container vessels.

Key diary items that may provide direction to U.S. markets later on Thursday:

* U.S. weekly jobless claims

* Richmond Federal Reserve President Thomas Barkin speaks; European Central Bank chief economist Philip Lane and ECB policymakers Pierre Wunsch and Frank Elderson speak; Bank of England policymakers Catherine Mann and Swati Dhingra speak

* U.S. Treasury sells $25 billion of 30-year bonds

* U.S. corporate earnings: Expedia, Motorola Solutions, Conocophilips, Duke Energy, T Rowe Price, Intercontinental Exchange, Mowhawk, Tapestry, Hershey, Ralph Lauren, Zimmer Biomet, Verisign, S&P Global, Borgwarner, Philip Morris, DTE Energy, First Energy, Interpublic, Regency Centers, Dexcom, Mettler-Toledo, Healthpeak Properties, Illumina, Baxter, Kimco Realty, Kenvue, Kellanova, TransDigm, Masco

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