Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Jan. 18, 2024. The Bottom Line segment of today’s podcast starts at (5:08) for listeners who want to skip ahead.
State of Play
Stocks dropped yesterday after hotter-than-anticipated retail sales. Overnight we had Taiwan Semiconductor Manufacturing (TSM 0.00%↑) report earnings that beat top- and bottom-line estimates. As we look at our board of indicators at 0630, this appears to have helped sentiment especially for tech:
Stock index futures are pointing to gains led by the Nasdaq, which is up 0.6%. S&P 500 futures are up 0.3%;
Commodities aren’t doing much. WTI crude oil is up 0.8% to trade around $73/barrel. Copper is unchanged;
Bonds are seeing a few bids after selling off yesterday. The 2-year yield is down 3 basis points to 4.33% whilst the 10-year is down 2bps to 4.09% (yields move inversely to prices).
Earnings
TSM’s earnings beat was nice especially as it reflects a rebound in growth for the global chip market. As you might imagine, AI chips are driving this trend.
We also just got earnings from Birkenstock (BIRK 0.00%↑) after its first quarter as a public company. The market appears to have liked what it heard as the stock is moving higher in the pre-market. Isn’t it a bit sacrilegious for Birkenstock to even be capitalist, much less publicly traded?
We’re also due to hear from Fastenal (FAST 0.00%↑) before the open at 0930. After the close this afternoon, PPG Industries (PPG 0.00%↑), JB Hunt (JBHT 0.00%↑), and regional banks report.
Economic Data
The US Census Bureau’s New Residential Construction report is due at 0830. This contains two parts: building permits and housing starts. The former are more forward-looking but the latter are more closely followed because starting construction is a far bigger permit than just issuing the building permit.
Economists expect 1.48 million building permits, which would be a small increase over the 1.47 million seen last month. Housing starts are expected to drop to 1.43 million from 1.56 million.
Seeing how it’s Thursday we’re also due to get initial jobless claims at 0830. The expectation here is for 207,000 new claims, a small increase over the 202,000 recorded last week and right in line with the four-week average of 208,000.
The Bottom Line©️
How much will TSM earnings juice the sentiment for tech? TSM itself is moving higher but the broader Nasdaq so far is a bit muted. If nothing else this is a welcome distraction from all this Fed talk. Weirdly futures traders have increased bets of an interest rate cut in March, to 60% from 54% a day ago. This would also explain why the bond market didn’t react more strongly. It seems that Wall Street is still convinced rate cuts are coming — if not in March, then certain May where the chances of an additional rate cut are now 50%.
Is Wall Street in denial over this Fed pivot? Certainly wouldn’t be the first time. One would think the economic data needs to soften considerably (and inflation continue to come down) for the Fed to be in a position where they can cut rates. But maybe that’s just old-fashioned thinking…
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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TSMC Earnings Beat, Housing Starts