North American Morning Briefing: Stock Futures Struggle After Fed-Fueled Rally

OPENING CALL

Stock futures stuttered Friday, as the Federal Reserve's rate cut continued to be absorbed and as traders noted recent better news on the economy and position for what's next.

TD Securities said market pricing for 2024 cuts might decline if labor market data continues to show relative stability after some better-than-expected jobless claims data Thursday.

Santander said, "The labor market has cooled noticeably in recent months, as the pace of new hiring has tailed off substantially and the unemployment rate has risen. However, by all indications, layoffs remain historically low, a point that Chairman Powell underscored in his press conference."

Investors will also see option contracts tied to more than $5 trillion in tradable stocks expire on Friday in the latest quarterly "triple witching" event.

Bond yields traded just shy of two-week highs.

Premarket Movers

FedEx cut its outlook after posting lower quarterly profit and revenue. Its stock fell 13%; shares of rival UPS also fell.

Ford and General Motors fell after Mercedes-Benz trimmed its forecasts and its stock fell, leading European auto stocks with it.

Nike shares climbed 6% after it said that John Donahoe would retire as chief executive next month, capping a five-year tenure marked by a series of missteps.

Trump Media & Technology Group: An agreement barring Donald Trump from selling shares expires Friday. The presidential candidate has said he doesn't intent to do so. Shares were up 3%.

Postmarket Movers

Alliance Entertainment Holding swung to a profit in the despite a drop in revenue. Shares rose 42%.

Arq started an underwritten public offering of its common stock. Shares fell 9.7%.

Watch For:

Canada retail trade for July; Speeches by ECB's Lagarde and IMF 's Georgieva; Fed's Harker

Today's Headlines/Must Reads:

- Americans Are Desperate for Relief. The Rate Cut Is a Glimmer of Hope

- How Five Wall Street Investors Will Trade Falling Interest Rates

- The Price War in Weight-Loss Drugs Is Here

- Trump Hitches His Campaign to the Crypto Crowd

MARKET WRAPS

Forex:

The dollar edged lower in the wake of the Fed's rate cut but declines have been limited as the difference between rate-cut expectations for the U.S. and elsewhere have narrowed, UniCredit Research said.

"Specifically, markets now expect the Fed to cut rates just roughly 30 basis points and 45 basis points more than the European Central Bank by December 2024 and July 2025, respectively, while investors were expecting much stronger rate cuts from the Fed than the ECB before this week's [Fed] decision."

Sterling rose to a two-and-a-half-year high against the dollar and hits a two-year high versus the euro after stronger-than-expected U.K. retail sales data .

The data "lend some support to our view that the recent stagnation in the economy isn't the start of a renewed downturn," Capital Economics said.

Bonds:

Candriam said a recent rally in Treasurys and outperformance compared with other markets leaves valuations looking more challenged, prompting it to take profits.

Supply and demand factors will also be a headwind in the short term.

Specifically, rates look relatively expensive compared to eurozone rates, based on markets' pricing of where the low points in U.S. and eurozone interest rates will be and "what we would see as a fair difference for them," it added.

As an increasing number of central banks around the globe start cutting interest rates, bonds should be ever more appealing for long-term investors , Societe Generale Research said.

"We see value in fixed income for investors with a sufficiently long horizon."

Energy:

Oil prices slipped and market participants are focusing on bearish macroeconomic narratives around mainland China and the U.S.--with both markets seeing a slowdown in economic activity--rather than the OPEC+ decision to extend voluntary cuts to December, BMI said.

The number of short positions held by managed money in Brent futures is higher than long positions for the first time since records began in 2011, which could prime the market for a bout of short-covering.

However, investors currently look reluctant to respond to bullish price drivers, notably shrugging off a large-scale attack on Hezbollah in Lebanon it added.

Metals:

Gold futures rose, and were hovering just below the $2,635.10 a troy ounce record after surging in response to the Fed rate cut.

Prices should be well supported in the coming months due to a weaker dollar and lower bond yields, as well as a backdrop of elevated geopolitical tensions, BMI said.

Phillip Nova said gold was likely to remain supported by uncertainties in the Middle East and expectations for further Fed rate cuts.

It sees resistance at $2,610-$2,620 and support at $2,550 -$2,560.

While some profit-taking could be around the corner that doesn't change the bullish outlook of gold in the long run, it added.

TODAY'S TOP HEADLINES

Novo Nordisk's Wegovy Gets EU Backing to Treat Obesity-Related Heart Failure

Novo Nordisk said European regulators support the use of its blockbuster weight-loss drug Wegovy to help reduce heart failure in obese patients.

The Danish pharmaceutical giant said late Thursday that the European Medicines Agency backing came after the regulator also recently approved Wegovy's use to lower the risk of heart attacks and strokes in overweight or obese adults without diabetes, supporting claims that the drug yields extra health benefits beyond weight loss.

KKR Secures About a Third of Fuji Soft, Dousing Hopes of Bidding War

Expectations of a bidding war for Fuji Soft have dimmed after KKR said two key stakeholders agreed to tender their shares, sending the Japanese software developer's stock sharply lower.

KKR said late Thursday that two major shareholders, 3D Investment Partners and Farallon, who together own 32.68% of Fuji Soft, had agreed to the private-equity firm's offer and would only withdraw their tenders with KKR's consent.

Warren Buffett's Berkshire Hathaway Sells More Bank of America Stock. Here's How Much It Has Left.

Berkshire Hathaway resumed sales of Bank of America stock in recent days, unloading about $900 million worth of shares and dropping its stake in the big bank to $34 billion, or 10.8% of the shares outstanding.

Berkshire sold 22.3 million shares of Bank of America on Tuesday, Wednesday, and Thursday at prices averaging $39.58 to $40.78, according to a Form 4 filing with the Securities and Exchange Commission late Thursday. Berkshire now owns 836 million shares.

Move Over, Oil Producers. These Energy Stocks Are Taking the Lead.

There's a vibe shift taking place in energy, and it's changing the kinds of companies investors like. Oil producers and refiners, which have led energy stocks higher since the pandemic, have fallen out of favor. Pipelines, which had been laggards, are on the rise and look poised to gain more.

There are a few reasons for the change in sentiment. The first is that the outlook has worsened for oil and refined products like gasoline. Crude oil prices have fallen in recent months as global demand for gasoline and diesel has declined and China's economy has decelerated.

China Leaves Benchmark Lending Rates Unchanged, Defying Expectations

China unexpectedly kept its benchmark lending rates unchanged, shrugging off expectations for a cut following the U.S. Federal Reserve's larger-than-expected interest-rate reduction earlier this week.

Economic activity in China weakened across the board in August, strengthening the case for further easing to prevent the world's second-largest economy from slipping into a low-growth, deflationary scenario.

BOJ Governor Strikes Cautious Note Over Global Economic Outlook

TOKYO-Bank of Japan Gov. Kazuo Ueda struck a cautious note about the global economic outlook, causing the yen to weaken sharply.

"With the outlook becoming increasingly uncertain, we would like to take some more time to see how the outlook settles," Ueda said at a news conference on Friday.

Trump Floats Long-Shot Proposal for 10% Cap on Credit-Card Rates

Former President Donald Trump said he wants to impose a temporary 10% cap on credit-card interest rates. While the idea was met with cheers at a rally this week, it is a long shot and could have unintended consequences if it became a reality.

Trump's proposal comes as more Americans are struggling to pay their credit-card bills. The average interest rate on cards was 21.5% as of May 2024, according to data from the Federal Reserve, around the highest levels in at least a decade.

House Republicans Defy Trump's Call for Brinkmanship on Shutdown

WASHINGTON-House Republicans signaled Thursday they have no appetite for a government-shutdown battle right ahead of the November election, ignoring exhortations from former President Donald Trump to hold the line on an election-security bill opposed by Democrats.

GOP leaders are discussing a bill that would keep federal agencies funded until mid-December, an idea in line with what Democrats have said they would support. The new proposal under discussions being led by House Speaker Mike Johnson (R., La.) could get a vote early next week and then head to the Democratic-run Senate. It leaves out any election-related provisions, which Democrats had called a poison pill.

Write to clare.kinloch@wsj.com

TODAY IN CANADA

Earnings:

Nothing major scheduled.

Economic Indicators (ET):

0830 Jul Retail trade

0830 Aug Industrial product and raw materials price indexes

Stocks to Watch:

None.

Expected Major Events for Friday

05:00/JPN: Aug Convenience Store Sales

05:00/JPN: Aug Steel Production

06:00/GER: Aug PPI

06:00/UK: Aug Public sector finances

06:00/UK: Aug UK monthly retail sales figures

06:45/FRA: Sep Monthly business survey (goods-producing industries)

08:30/UK: 2Q Bank of England statistics on UK banks' external claims

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September 20, 2024 06:30 ET (10:30 GMT)

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