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Futures muted; U.S. CPI, earnings ahead this week - what's moving markets

Published 02/12/2024, 04:32 AM
Updated 02/12/2024, 07:48 AM
© Reuters. -- U.S. stock futures were little changed on Monday, with markets taking some caution ahead of a week of major economic data and company results. Elsewhere, rivals Diamondback (NASDAQ:FANG) Energy and Endeavor Energy Resources are reportedly closing in on a merger that would give the combined entity a massive presence in the Permian Basin, a key U.S. production hub.

1. Futures tread water

U.S. stock futures mostly held around the flatline on Monday, as investors geared up for a week of key economic data releases and a slew of quarterly corporate earnings.

By 04:27 ET (09:27 GMT), the Dow futures contract had shed 47 points or 0.1%, while S&P 500 futures were broadly unchanged and Nasdaq 100 futures had inched up 11 points or 0.1%.

The benchmark S&P 500 closed above 5,000 for the first time ever to end the prior trading week thanks in part to a surge in megacap groups like Microsoft (NASDAQ:MSFT) and (NASDAQ:AMZN). Artificial intelligence chipmaker Nvidia (NASDAQ:NVDA) also jumped to a record high following a Reuters report that it was building a new division that will aim to provide bespoke chips for cloud computing businesses and others.

On Friday, the tech-heavy Nasdaq Composite added 1.3% and the blue-chip Dow Jones Industrial Average dipped by 0.1%. All of the main indices on Wall Street posted their fifth consecutive winning week.

2. Inflation data, earnings slew ahead

Highlighting the economic calendar this week will be the latest publication of the monthly U.S. consumer price index (CPI), a major gauge of inflation that could factor heavily into how the Federal Reserve approaches future interest rate decisions.

The measure is expected to show that headline price growth in the world's largest economy slowed on both an annual and monthly basis in January. The core reading, which strips out volatile items like food and energy, is seen decelerating year-on-year and remaining unchanged versus December.

Despite widespread expectations late last year that the Fed would soon begin to start bringing borrowing costs down from more than 2-decade highs, several policymakers have flagged lingering concerns that a recently strong U.S. economy could fuel a rebound in inflation. For that reason, officials at the central bank have said that they want to see more signs that prices are moderating before rolling out cuts.

Meanwhile, earnings season marches on, with more than 60 firms in the S&P 500 due to unveil results this week.

Some of these names, including Coca-Cola (NYSE:KO), Shopify (NYSE:SHOP) and Kraft Heinz (NASDAQ:KHC), may provide some insight into the health of the U.S. consumer. Analysts will be keen to parse through second-quarter figures from Cisco Systems (NASDAQ:CSCO), which is pushing to capitalize on the AI boom. Cryptocurrency exchange Coinbase (NASDAQ:COIN) will also post its fourth-quarter numbers following a recent spike in volatility in the market for digital coins.

3. Fed speakers on deck

Markets may receive fresh interest rate commentary from at least eight scheduled Fed speakers this week.

On Monday, Fed Presidents Michelle Bowman, Thomas Barkin and Neel Kashkari are all scheduled to make statements. Later in the week, Federal Open Market Committee voting members Christopher Waller, Mary Daly and Michael Barr will deliver comments.

Hopes are rapidly fading that policymakers could slash rates as soon as March, particularly after Fed Chair Jerome Powell noted last month that inflation is still running above the central bank's 2% target. Powell later reiterated this cautious stance, telling the CBS news show "60 Minutes" that the Fed can take a "prudent" approach to possible cuts.

Even still, he said that the U.S. economy seems to be on course for a so-called "soft landing," a scenario in which the Fed successfully cools inflation without sparking an economic meltdown. However, Powell said, the Fed must now find a way to balance the twin risks of "moving too soon...or too late."

4. Diamondback, Endeavor agree to merger valued at $26 billion

Diamondback Energy (NASDAQ:FANG) and Endeavor Energy Resources have agreed to merge in a transaction valued at approximately $26 billion, the firms announced on Monday.

The tie-up gives the new entity a huge stake in the all-important Permian Basin, a prolific oil and gas producing region that stretches across Texas and New Mexico. Combined, the companies would become the top solely Permian producer, Reuters has reported.

“Diamondback has proven itself to be a premier low-cost operator in the Permian Basin over the last twelve years, and this combination allows us to bring this cost structure to a larger asset," Stice added.

The merger will consist of about 117.3 million shares of Diamondback common stock and $8B in cash. Following the deal, which is expected to close in the fourth quarter of this year, Diamondback shareholders are projected to own about 60.5% of the combined business. Endeavor's stakeholders will hold about 39.5% of the entity.

5. Oil prices slip

Oil prices fell in European trade on Monday as investors locked in some profits after stellar gains over the prior week.

Brent oil futures expiring in April had fallen 0.7% to $81.63 a barrel, while West Texas Intermediate crude futures dropped 0.6% to $76.29 per barrel by 04:28 ET.

Both contracts surged about 5% to 6% in the past week, supported in part by Israel rejecting a ceasefire proposal from Hamas and continuing deadly air strikes on the Gaza Strip. The move pointed to little de-escalation in the conflict, which, along with attacks by Iran-aligned Houthis in the Red Sea, have spurred on concerns over disruptions in global oil supplies.

The Organization of the Petroleum Exporting Countries is set to release its monthly report on Tuesday, followed by the International Energy Agency on Thursday. Uncertainty hovers around whether the two will maintain their oil demand forecasts for 2024 and 2025 now that U.S. interest rates seem likely to remain higher for longer this year.

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