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Futures Reverse Gains As Nail-biting Volatility Enters February
by Tyler Durden
Tuesday, Feb 01, 2022 - 07:50 AM
World stocks began the new month on firmer ground, after a volatile January, as reassuring comments from Federal Reserve officials helped to calm rate-hike jitters even though US futures failed to extend recent gains. After closing out January with a furious two-day, dip-buying meltup thanks to a flood of inbound month-end rebalancing, US index futures briefly traded through Monday’s highs, backed by decent rally in European equities where financials outperformed, boosted by solid UBS earnings, before dipping lower as the volatility seen in past days lingered. At 7:00am ET, emini S&P futures traded 0.23%, or 10.5 points lower, Nasdaq futures were also red, some 31 points or 0.15% lower, and Dow futures dropped 0.2% as investors weighed cautious rate-hike commentary from Fed officials and awaited earnings from firms including Alphabet and General Motors. Treasuries climbed and the dollar weakened. Oil fell, but held close to seven-year highs.
Videogame makers were in focus after Sony said it will buy Bungie, the developer behind the popular Destiny and Halo game franchises, for $3.6 billion. In another busy day ahead for earnings, AMD rose in premarket trading amid expectations its results Tuesday will show market-share gains. Other notable premarket movers:
UPS (UPS US) rose 7.3% premarket as the postal firm benefited from higher prices and rising holiday deliveries to post profit that beat analyst estimates.
Spire (SPIR US) shares gain as much as 27% in premarket trading after the satellite-imaging and data company released preliminary 4Q numbers ahead of analysts’ targets and guided toward higher 2022 revenue.
Harley-Davidson (HOG US) shares have valuation support at current levels, while the market appears to be pricing in an overly negative outlook, Morgan Stanley writes, upgrading stock to equal-weight. Shares up 0.8% premarket.
Knightscope (KSCP US) declines 14% in premarket trading, set to come down from a high reached on Monday as retail investors piled into the security-camera and robotics company, tripping two trading halts along the way.
Earnings season has provided a healthy breadth of beats so far: of the 182 companies in the S&P 500 that have reported earnings so far this season, more than 82% have beaten or met,
“Investors continue to buy the dips almost everywhere this week, with market sentiment boosted by a strong earning season so far where most companies have beaten expectations,” says Pierre Veyret, technical analyst at ActivTrades. “Technically speaking, most indices have registered solid rebounds over major support zones and are now challenging key resistance levels.”
In a jawboning fest on monday, four Fed officials said they’ll back interest-rate increases at a pace that doesn’t disrupt the economy, calming markets unnerved by previous hawkish messages from the central bank. Investors are now debating whether the rally that pared the worst monthly rout in the S&P 500 since March 2020 will continue. They are also focusing on earnings releases to gauge the strength of the economic recovery.
“Good news is that some Fed officials are finally out trying to soothe investors’ nerves saying that they still want to avoid unnecessarily disrupting the U.S. economy,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “But what will really make the difference is the quantitative tightening and given the steep rise in Fed’s balance sheet since March 2020, even halting the growth would be an abrupt change.”
In Europe, the Stoxx Europe 600 Index rose 1%, led by financial services and basic-resource stocks. UBS shares surged 6% after the lender beat estimates. Telecoms were the only industry group in red. European tech stocks rallied again, with the Stoxx Tech Index rising as much as 2.1%, among the top-performing sectoral gauge in Europe. Sector added to 3.5% gain Monday, lifted higher by overnight rally in the U.S., with the Nasdaq 100 Index +3.4%. Semiconductor makers and pandemic winners lead gains, with BE Semi +4.5%, Deliveroo +3%, ASMI +2.8%, ASML +2.6% and Just Eat Takeaway.com +2.8%. Here are some of the biggest European movers today:
UBS shares gained as much as 7.5% in early European trading, the biggest intraday gain since April 2020, after the Swiss lender posted largely better-than-expected results and analysts cheered the new financial targets.
HeidelbergCement shares rise as much as 4.7% after the company reported preliminary 4Q revenue that Stifel analyst Tobias Woerner says was “reassuring.”
Faurecia shares rise as much as 4.4% as the shares resume trading after being suspended all of Monday ahead of the closing of the Hella acquisition. The deal is a key milestone that allows the French auto parts firm to start implementing synergies, says Citi analyst Gabriel Adler (buy).
Ubisoft shares rise as much as 3.7% in positive readacross after Sony said it will buy U.S. video game developer Bungie for $3.6b. The acquisition indicates the sector is consolidating, says Citi (buy).
Hexagon shares soar as much as 23%, the most since 2009, after it signs deal with a commercial truck maker to provide battery packs for electric heavy-duty vehicles.
Shares in U.K. clothing retailer Joules plunge as much as 34%, to the lowest since April 2020, after reporting that revenue and profit before tax for the 9 weeks to Jan. 30 fell short of the board’s expectations.
Saipem falls as much as 15%, extending Monday’s 30% plunge, as brokers including Mediobanca downgrade the oil drilling specialist after it warned on 2021 earnings and said it would hold discussions with creditors and shareholders for financing.
Earlier in the session, Asian stocks rose as the latest remarks from Federal Reserve officials helped ease fears of aggressive U.S. monetary tightening. The MSCI Asia Pacific Index added as much as 0.5%, with the information-technology and financial sectors providing the biggest boosts. Japan’s Keyence and Murata Manufacturing contributed most to the advance, with both releasing quarterly earnings results after market closed in Tokyo. Equity gauges in New Zealand and India led gains, with many markets in the rest of Asia shut for holidays. China, Hong Kong, South Korea, Singapore and Taiwan were among bourses closed for the Lunar New Year break. “Now that markets are finding calm, buying is kicking into individual stocks of companies that have reported solid earnings or are expected to,” said Shogo Maekawa, a strategist at JP Morgan Asset Management in Tokyo. Asian shares may extend gains if U.S. data this week on employment and ISM manufacturing don’t rattle the market, Maekawa added. Fed officials said they want to avoid unnecessarily disrupting the economy as they prepare to start raising rates, mitigating market concern over a 50 basis-point move in March. “You always want to go gradually,” Kansas City Fed President Esther George told the Economic Club of Indiana. Asia’s stock benchmark fell 4.4% in January, its biggest such drop since July, hit by concern that faster-than-expected U.S. rate hikes will cool the global economic recovery.
Japanese stocks pared large morning gains, with the Topix finishing little changed, as automakers slid. Chemical and machinery makers also dragged on the Topix, which wiped out a gain of as much as 1.3%. The Nikkei closed 0.3% higher, paring a 1.5% advance, with TDK and Shionogi the biggest boosts. Both gauges had risen about 3% over the previous two sessions. “There’s a lot of tussle between buyers and sellers due to month-end and month-start trading,” said Hiroshi Namioka, chief strategist at T&D Asset Management. “Shares of companies with robust earnings are being bought, but those without any specific leads to go on seem to be exposed to selling pressure.”
Indian stocks rose after the annual federal budget pledged to step up spending in a bid to support a business recovery in Asia’s third-largest economy. The S&P BSE Sensex climbed 1.5%, its biggest advance in a month, to 58,862.57 in Mumbai. The NSE Nifty 50 Index rose 1.4%. Fifteen of the 19 sector indexes compiled by BSE Ltd. rose, led by a gauge of metal stocks that jumped the most in six months. Finance Minister Nirmala Sitharaman’s strong push for infrastructure-led growth and investment centered around sectors like railways, roadways, logistics and energy will benefit most metal companies, according to Priyesh Ruparelia, a vice president at ICRA Ltd. A measure of capital goods companies also jumped the most in a year. The nation plans to boost capital spending by 35% to 7.5 trillion rupees ($100 billion) in the next financial year that starts in April in a bid to sustain a recovery in growth disrupted by the pandemic. “With growth-oriented focus intact in the budget, we expect economic and capital market buoyancy to remain,” said Vijay Chandok, managing director at ICICI Securities Ltd.
Waves of volatility have swept across markets after the Fed signaled swifter monetary-policy tightening to curb inflation than many had expected. Investors need to “get used to this up and down volatility” as there’ll likely be more of it, Nancy Davis, chief investment officer at Quadratic Capital Management, said on Bloomberg Television.
In rates, Treasuries bull flattened as spreads unwound a portion of Monday’s steepening move with yields richer by up to 3.5bp across long-end of the curve. US Treasury yields were richer by 2bp to 3.5bp across the curve with 2s10s, 5s30s spreads both flatter by almost 1bp each; 10-year yields around 1.75%, with bunds lagging by 1.5bp and gilts outperforming by 1bp in the sector. In European bonds, focus remains on the front-end of the curve as rate hike premium continues to build -- German 2-year yields are cheaper by almost 4bp on the day, trading above the European Central Bank’s deposit rate for the first time since 2015. Gilts outperform in early London session. IG dollar issuance slate includes Kommuninvest $1b 2Y SOFR; two companies priced $1.8b Monday as sales activity continues to drop off in volatile backdrop.
In FX, Bloomberg Dollar Spot index falls 0.3%. NOK, CHF and SEK outperform in G-10, CAD and euro lag. The Bloomberg Dollar Spot Index slumped as the greenback weakened against all of its Group-of-10 peers. Gains were led by the Swiss franc, which advanced a second day as it rebounded after adverse month-end flows; Scandinavian currencies were also among the top gainers amid supportive risk sentiment. The euro headed for a third day of gains, boosted by an unwind of the latest rally for downside exposure through options; the common currency rose by as much as 0.3% to 1.1269, raising questions on whether its latest weakness was more down to month-end flows rather than hawkish Fed bets. French inflation rose 3.3% from a year earlier in January, a sharper gain than the 2.9% economists estimated following December’s 3.4% advance. The pound rallied against a broadly weaker dollar, with domestic focus remaining on the Bank of England’s meeting this week. Figures showed U.K. house prices registered their strongest start to the year since 2005, before mortgage data due later Tuesday. The Aussie reversed an earlier loss after the RBA said it’s ready to be patient on interest rates even as it ceased its bond-purchase program. Overnight- indexed swaps continued to price in four rate hikes by the central bank this year. The Kiwi also advanced, in part on purchases against Aussie post RBA. Japan’s bonds extended a decline to a fourth day amid growing speculation that the central bank will step in to slow a rise in yields. The yen gained for third day.
Crypto markets were varied in which Bitcoin traded sideways around 38.5k and Ethereum gained over 2%.
In commodities, crude futures fade a sharp drop. WTI finds support near $87 before recovering back on to a $88-handle. Brent trades flat near $89.20. Most base metals trade in the green; LME nickel rises 1.3%, outperforming peers, LME lead and tin lags. Spot gold rises roughly $10 to trade near $1,807/oz
U.S. economic data slate includes January Markit manufacturing PMI (9:45am), ISM manufacturing, December construction spending and JOLTS job openings (10am); while AMD, Alphabet, Electronic Arts, Exxon, General Motors, Gilead, PayPal, Stanley Black & Decker, Starbucks and UPS are among companies reporting results.
Market Snapshot
S&P 500 futures down 0.3% to 4,490.00
STOXX Europe 600 up 0.8% to 472.72
MXAP up 0.4% to 185.38
MXAPJ up 0.3% to 606.58
Nikkei up 0.3% to 27,078.48
Topix little changed at 1,896.06
Hang Seng Index up 1.1% to 23,802.26
Shanghai Composite down 1.0% to 3,361.44
Sensex up 1.3% to 58,793.71
Australia S&P/ASX 200 up 0.5% to 7,006.04
Kospi up 1.9% to 2,663.34
Brent Futures down 0.9% to $88.45/bbl
Gold spot up 0.5% to $1,805.93
U.S. Dollar Index down 0.16% to 96.38
German 10Y yield little changed at -0.01%
Euro up 0.2% to $1.1258
Brent Futures down 0.9% to $88.45/bbl
Top Overnight News from Bloomberg
Money markets are wagering on the BOE raising rates five times by 25 basis points and a move of that magnitude from the ECB by December. That spurred a renewed selloff in bonds across the continent on Monday, and challenges ECB policy makers including President Christine Lagarde who have pushed back against the idea of raising borrowing costs this year
Euro-area manufacturers are taking a more aggressive approach to price setting -- another signal that inflation won’t slow quickly after stronger- than-expected readings from the region’s biggest economies. Output prices rose at the second-fastest rate on record in January, according to a survey of purchasing managers by IHS Markit released Tuesday. While there were some signs of supply- chain problems easing, robust demand allowed firms to pass on higher costs to customers
German joblessness fell at a much faster pace than anticipated in January as the economy comes to terms with coronavirus curbs to contain surging infections. Unemployment in Europe’s largest economy declined by 48,000, pushing the jobless rate down to 5.1%. Economists had forecast a drop of just 6,000
A more detailed look at global markets courtesy of Newsquawk
Asian stocks were positive but with upside limited amid mass holiday closures for the Lunar New Year. ASX 200 (+0.5%) rose above 7,000 with the index further underpinned as the RBA stuck to a dovish tone. Nikkei 225 (+0.3%) was kept afloat after lower unemployment although retraced gains as JPY strengthened. Nifty 50 (+1.4%) outperformed as focus in India centred on earnings and the budget announcement.
Top Asian News
Europe Is Losing Nuclear Power Just When It Really Needs Energy
Winners and Losers in India’s Budget Aiming to Bolster Growth
Widespread Bullying, Harassment Detailed in Rio Tinto Report
India Plans Record Borrowing to Fund Modi’s Growth Ambitions
European bourses are firmer taking impetus from the holiday-thinned APAC handover and Monday's US close; albeit, benchmarks are off best levels, Euro Stoxx 50 +1.0%. Sectors are all in the green though Telecom lags while Basic Resources, Banks and Tech do well amid base metals, UBS (+7.0%) earnings and the NQ/NXPI read-across respectively. Stateside, US futures are relatively contained but have moved directionally with European peers, the NQ remains the current modest outperformer.
Top European News
U.K. Mortgage Approvals Rise to 71k in Dec. Vs. Est. 66k
Slovenia Mulls Law on Swiss-Franc Loans Slammed by Lenders, ECB
Europe Is Losing Nuclear Power Just When It Really Needs Energy
Putin Meets Orban Amid Diplomatic Flurry: Ukraine Update
In FX, DXY sheds more Fed rate hike premium and month end rebalancing momentum. Franc rebounds firmly as yields recede and SNB President Jordan sets sights on keeping track of inflation. Sterling underpinned by risk appetite and firm UK macro releases. Kiwi turns table on Aussie after encouraging NZ trade data and RBA pledges patience on tightening after confirming removal of QE. Rouble on front foot ahead of call between Russia’s Foreign Minister Lavrov and US Secretary of State Blinken, but Lira lurching after Turkey’s manufacturing PMI slows to the brink of stagnation. BoJ is under less pressure to shift yield target than market thinks, sources cited by Reuters say. Sources say the central bank has many tools to combat rising yields; BoJ currently prefers market operations.
In commodities, WTI and Brent are pivoting the mid-point of ~USD 1.50/bbl ranges that have seen a test of yesterday's trough for Brent at worst thus far. Total OPEC+ production was lower by 824k/BPD than the required production in December, via JTC cited by Energy Intel's Bakr; overall compliance in December was 122%. Goldman Sachs, on OPEC+, sees growing potential for a faster ramp-up, given the pace of the recent rally and likely pressures from importing nations. Spot gold/silver are firmer picking up from the pressure seen in recent sessions. Though, gold remains near the USD 1800/oz mark and as such the 200-, 100- & 50-DMAs.
US Event Calendar
9:45am: Jan. Markit US Manufacturing PMI, est. 55.0, prior 55.0
10am: Dec. JOLTs Job Openings, est. 10.3m, prior 10.6m
10am: Dec. Construction Spending MoM, est. 0.6%, prior 0.4%
10am: Jan. ISM Manufacturing, est. 57.5, prior 58.7, revised 58.8
10am: Jan. ISM Employment, est. 53.0, prior 54.2, revised 53.9
10am: Jan. ISM New Orders, est. 58.0, prior 60.4, revised 61.0
10am: Jan. ISM Prices Paid, est. 67.0, prior 68.2
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Neurotic Futures Tumble Despite Record Apple Quarter
by Tyler Durden
Friday, Jan 28, 2022 - 08:07 AM
If you thought that yesterday's blowout, record earnings from Apple would be enough to put in at least a brief bottom to stocks and stop the ongoing collapse in risk assets, we have some bad news for you: after staging a feeble bounce overnight, S&P futures erased earlier gains as traders ignored the solid results from Apple and instead focused on the risk of higher interest rates hurting economic growth. Contracts in S&P 500 dropped as negative sentiment continued to prevail, while Nasdaq 100 futures erased earlier gains after strong Apple earnings. As of 730am, Emini futures were down 48 points or 1.12% to 4,269, Dow futures were down 335 points or 0.99% and Nasdaq futs were down 77 or 0.6%. The dollar was set for a fifth straight day of gains, the longest streak since November, 19Y TSY yields were up 3bps to 1.83%, gold and bitcoin both dropped.
Markets have been whiplashed by volatility this week as the Federal Reserve signaled aggressive tightening, adding to investor concerns about geopolitical tensions and an uneven earnings season. Also sapping sentiment on Friday were weak data on the German economy and euro-area confidence. Meanwhile, geopolitical tensions were still on the agenda with a potential conflict in Ukraine not yet defused.
“Market expectations for four to five rate hikes this year will not derail growth or the equity rally,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “We expect an eventual relaxation of tensions between Russia and Ukraine,” he added. Expected data on Friday include personal income and spending data, as well as University of Michigan Sentiment, while Caterpillar, Chevron, Colgate-Palmolive, VF Corp and Weyerhaeuser are among companies reporting earnings.
Money markets are now pricing in nearly five Fed hikes this year after a hawkish stance from Chair Jerome Powell. That’s up from three expected as recently as December.
“Tighter liquidity and weaker growth mean higher volatility,” Barclays Plc strategists led by Emmanuel Cau wrote in a note. The “current growth scare looks like a classic mid-cycle phase to us, while a lot of hawkishness is priced in.”
In premarket trading, Apple shares rose 4.5% as analysts rose their targets to some of the most bullish on the Street, after the iPhone maker reported EPS and revenue for the fiscal first quarter that beat the average analyst estimates. Watch Apple’s U.S. suppliers after the iPhone maker posted record quarterly sales that beat analyst estimates, a sign it was able to work through the supply-chain crunch. Peers in Asia rose, while European suppliers are active in early trading. Tesla shares also rise as much as 2% in premarket, set to rebound from yesterday’s 12% slump following a disappointing set of earnings and outlook. Other notable premarket movers:
Visa (V US) shares gain 5% premarket after company reported adjusted earnings per share for the first quarter that beat the average analyst estimate.
Cryptocurrency-exposed stocks gain as Bitcoin and other digital tokens rise. Riot Blockchain (RIOT US) +3.7%, Marathon Digital (MARA US) +3.3%, Bit Digital (BTBT US) +1.6%, Coinbase (COIN US) +0.5%.
Robinhood (HOOD US) shares tumbled 14% in premarket after the online brokerage’s fourth-quarter revenue and first-quarter outlook missed estimates. Some analysts cut their price targets.
Atlassian (TEAM US) shares jump 10% in extended trading on Thursday, after the software company reported second-quarter results that beat expectations and gave a third-quarter revenue forecast that was ahead of the analyst consensus.
U.S. Steel (X US) shares fall as much as 2.4% aftermarket following the steelmaker’s earnings release, which showed adjusted earnings per share results missed the average analyst estimate.
The U.S. stock market is priced “quite aggressively” versus other developed nations as well as emerging markets, and valuations in the latter can be a tailwind rather than a headwind as in the U.S., Feifei Li, partner and CIO of equity strategies at Research Affiliates, said on Bloomberg Television.
European equity indexes are again under pressure, rounding off a miserable week, and set for the worst monthly decline since October 2020 as corporate earnings failed to lift the mood except in the retail sector. The Euro Stoxx 50 dropped over 1.5%, DAX underperforming at the margin. Autos, tech and banks are the weakest Stoxx 600 sectors; only retailers are in the green. Hennes & Mauritz shares climbed on a profit beat, while technology stocks continued to underperform. Here are some of the biggest European movers today:
LVMH shares rise as much as 5.8% after analysts praised the French conglomerate’s full-year results, with several noting improved performance at even minor brands such as Celine.
Signify gains as much as 15% after saying it expects to grow in 2022 even as the supply chain problems that caused its “worst ever” quarter continue.
H&M climbs as much as 7.4% after posting a strong margin in 4Q which impressed analysts. Analysts also lauded the Swedish retailer’s buyback announcement and target to double sales by 2030.
Stora Enso rises as much as 6.2% on 4Q earnings with the CEO noting paper capacity closures have helped boost its pricing power, contributing to a turnaround in the unprofitable business.
SCA gains as much as 5.5% in Stockholm, the most since May 2020, after reporting better-than-expected Ebitda earnings and announcing a SEK3.25/share dividend -- higher than analysts had estimated.
AutoStore rises as much as 18% after a German court halts Ocado’s case against the company. Ocado drops as much as 8.1%.
Henkel slides as much as 10% after the company’s forecast for organic revenue growth of 2% to 4% in 2022 was seen as cautious.
Wartsila falls as much as 9% after posting 4Q earnings that analysts say showed strong order intake overshadowed by lagging margins.
Alstom drops as much as 7.3% after Exane BNP Paribas downgrades to neutral, citing risk that the company might resort to raising equity financing to forestall a possible credit-rating cut.
Earlier in the session, Asian stocks rose after slumping to their lowest since November 2020, with Japan and Australia leading the rebound as turbulence over the highly anticipated U.S. monetary tightening eased. The MSCI Asia Pacific Index climbed as much as 1% on Friday following a 2.7% slide the day before. Industrials and consumer-discretionary names provided the biggest boosts to the measure. Japan’s Nikkei 225 Stock Average was among the best performers in the region after enduring its worst daily drop in seven months. “It’s undeniable that stock markets last year -- as well as the real economy -- were supported by continued monetary easing, considering which, more share-price correction could be anticipated,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management in Tokyo. Even so, “stocks fell too much yesterday.” The Asian benchmark is down almost 5% this week, and set to cap its biggest such drop since February last year. Federal Reserve Chair Jerome Powell said the central bank was ready to raise interest rates in March and didn’t rule out moving at every meeting to tackle inflation, triggering a broad selloff in global equities Thursday. Japan’s Topix and Australia’s S&P/ASX 200 gained after slipping into technical correction earlier this week. South Korea’s Kospi also added almost 2% after sliding into a bear market Thursday. Meanwhile, Chinese shares extended a rout of nearly $1.2 trillion this month.
Japanese equities rose, trimming their worst weekly loss in two months, as some observers saw the selloff on concerns over higher U.S. interest rates as having gone too far. Electronics and auto makers were the biggest boosts to the Topix, which rose 1.9%, paring its weekly decline to 2.6%. Fast Retailing and Shin-Etsu Chemical were the largest contributors to a 2.1% rise in the Nikkei 225. The yen was little changed after weakening 1.3% against the dollar over the previous two sessions. “Looking at the technical indicators like RSI, you can see that Japanese equities have been oversold,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities. “Shares have fallen too much considering the not-bad corporate earnings and also when compared with U.S. equities.” U.S. futures rallied in Asian trading hours, after a volatile cash session that ended in losses as investors continued to reprice assets on the Fed’s pivot to tighter policy. Apple provided a post-market lift with record quarterly sales that sailed past Wall Street estimates.
In Australia, the S&P/ASX 200 index rose 2.2% to 6,988.10 at the close in Sydney, bouncing back after slipping into a technical correction on Thursday. The benchmark gained for its first session in five as miners and banks rallied, trimming its weekly slide to 2.6%. Champion Iron was a top performer after its 3Q results. Newcrest was one of the worst performers after its 2Q production report, and as gold extended declines. In New Zealand, the S&P/NZX 50 index fell 1.6% to 11,852.15.
India’s benchmark index edged lower on Friday to extend its decline to a second consecutive week as investors grapple with volatility created by the U.S. Federal Reserve’s rate-hike plan. The S&P BSE Sensex fell 0.1% to 57,200.23 in Mumbai on Friday, erasing gains of as much as 1.4% earlier in the session. The NSE Nifty 50 Index ended flat. For the week, the key gauges ended with declines of 3.1% and 2.9%, respectively. All but five of the 19 sector sub-indexes compiled by BSE Ltd. climbed on Friday, led by a measure of health-care companies. BSE’s mid- and small-sized companies’ indexes outperformed the benchmark by rising 1% and 1.1%. “Selling pressure has now cooled off, markets will now focus on local triggers such as expectations from the budget,” said Prashant Tapse, an analyst with Mumbai-based Mehta Equities. Investors will also monitor corporate-earnings reports for the December quarter to gauge demand and inflation outlook. Of the 21 Nifty 50 companies that have announced results so far, 12 either met or exceeded expectations, eight missed, while one can’t be compared. Kotak Mahindra Bank continued the strong earnings run by lenders, reporting fiscal third-quarter profit ahead of the consensus view, while Dr. Reddy’s Laboratories missed the consensus estimate. ICICI Bank contributed the most to the Sensex’s decline, falling 1.6%. Out of 30 shares in the Sensex index, 14 rose and 16 fell.
In rates, bonds trade poorly again with gilts and USTs bear steepening, cheapening 3-3.5bps across the back end. Treasuries are weaker, same as most European bond markets, with stock markets under pressure globally and S&P 500 futures lower but inside weekly range. Treasury yields are cheaper by 4bp-5bp from intermediate to long-end sectors, 10-year around 1.84%, inside weekly range; though front-end outperforms, 2-year yield reaches YTD high 1.22%, steepening 2s10s by ~1bp. Gilts underperformed as traders price in a more aggressive path of rate hikes from the BOE. Treasury curve is steeper for first day in four, lifting spreads from multimonth lows. Globally in 10-year sector, gilts lag Treasuries by 0.5bp while bunds outperform slightly. Bunds bear flatten with 5s30s near 52bps after two block trades but subsequently recover above 54bps. IG dollar issuance slate empty so far; Procter & Gamble priced a $1.85b two-tranche offering Thursday, the first since Wednesday’s Fed meeting.
In FX, Bloomberg Dollar Spot pushes to best levels for the week. Scandies and commodity currencies suffer the most. The Bloomberg Dollar Spot Index was set for a fifth straight day of gains, the longest streak since November, and near its strongest level in 17 months as the greenback was steady or higher against all of its Group-of-10 peers. The euro steadied near a European session low of $1.1121 while risk-sensitive Australian and Scandinavian currencies led the decline. Sweden’s krona sank, despite data showing the Nordic nation’s economy grew more than expected in the final quarter of 2021, fueling speculation that the central bank could soon start to take its foot off the stimulus pedal. Australia’s dollar dropped to the lowest level in 18 months as the Reserve Bank of Australia lags behind many of its peers in signaling monetary tightening. Treasuries sold off, led by the belly; Bunds also traded lower, yet outperformed Treasuries, and Germany’s 5s30s curve flattened to 52bps after two futures blocks traded. Italian government bonds underperformed with the nation’s parliament voting twice on Friday to elect a new president, as the lack of progress after four days of inconclusive ballots adds to pressure to end a process that’s left the country in limbo.
In commodities, Crude futures hold a narrow range, just shy of Asia’s best levels. WTI trades either side of $87, Brent just shy of a $90-handle. Spot gold drops near Thursday’s lows, close to $1,791/oz. Base metals are under pressure; LME copper underperforms peers, dropping over 1.5%.
Crypto markets were rangebound in which Bitcoin traded both sides of the 37,000 level. Russia's government drafted a roadmap for cryptocurrency regulation, according to RBC.
To the day ahead now, and data releases include Germany’s Q4 GDP, US personal income and personal spending for December, as well as the Q4 employment cost index and the University of Michigan’s final consumer sentiment index for January. Earnings releases include Chevron and Caterpillar.
Market Snapshot
S&P 500 futures up 0.1% to 4,323.75
STOXX Europe 600 down 1.0% to 465.51
MXAP up 0.5% to 182.48
MXAPJ little changed at 597.31
Nikkei up 2.1% to 26,717.34
Topix up 1.9% to 1,876.89
Hang Seng Index down 1.1% to 23,550.08
Shanghai Composite down 1.0% to 3,361.44
Sensex down 0.1% to 57,197.94
Australia S&P/ASX 200 up 2.2% to 6,988.14
Kospi up 1.9% to 2,663.34
Brent Futures up 0.4% to $89.71/bbl
Gold spot down 0.3% to $1,792.52
U.S. Dollar Index up 0.13% to 97.38
German 10Y yield little changed at -0.05%
Euro down 0.1% to $1.1132
Top Overnight News from Bloomberg
The euro-area economy kicked off 2022 on a weak footing, with pandemic restrictions taking a toll on confidence and growing fears that Germany may be on the brink of a recession for the second time since the crisis began. A sentiment gauge by the European Commission fell to 112.7 in January, the lowest in nine months, driven by declines in most sectors and among consumers. Employment expectations dropped for a second month
Germany’s economy shrank 0.7% in the fourth quarter with consumers spooked by another wave of Covid-19 infections and factories reeling from supply-chain problems.
Governor Haruhiko Kuroda said the Bank of Japan won’t be switching its bond yield target until inflation rises high enough to warrant exit talks
Seven straight jumps in the so- called “fear gauge” for the S&P 500 is a signal that it may be time to wager against volatility, if history is any guide. Only 10 times in the past two decades has the Cboe Volatility Index - - better known as the VIX -- risen for that many trading sessions in a row
A more detailed look at global markets courtesy of Newsquawk
Asian stocks eventually traded mixed although China lagged ahead of holiday closures next week. ASX 200 (+2.2%) was lifted back up from correction territory. Nikkei 225 (+2.1%) gained on a weaker currency and with corporate results driving the biggest movers. KOSPI (+1.9%) was boosted by earnings including from the world's second-largest memory chipmaker SK Hynix. Hang Seng (-1.1%%) and Shanghai Comp. (-0.9%) lagged with a non-committal tone in the mainland ahead of the Lunar New Year holiday closures and with Hong Kong pressured by losses in blue chip tech and health care
Top Asian News
Asia Stocks Rise, Still Head for Worst Week Since February
Kuroda Hints No Chance of Switching Yield Target Until Exit
China Fintech PingPong Said to Mull $1 Billion Hong Kong IPO
Biogen Sells Bioepis Stake for $2.3 Billion to Samsung Biologics
European bourses have conformed to the downbeat APAC handover with losses in the region extending following the cash open, Euro Stoxx 50 -1.7%. Sectors were mixed with Tech and Banking names the laggards while Personal/Household Goods and Retail outperformer following LVMH and H&M respectively; since then, performance has deteriorated though the above skew remains intact. US futures are moving in tandem with European-peers; however, magnitudes are more contained as the ES is only modestly negative and NQ continues to cling onto positive territory following Apple earnings. Apple Inc (AAPL) Q1 2022 (USD): EPS 2.10 (exp. 1.89), Revenue 123.95bln (exp. 118.66bln), iPhone: 71.63 bln (exp. 68.34bln), iPad: 7.25bln (exp. 8.18bln), Mac: 10.85bln (exp. 9.51bln), Services: 19.52bln (exp. 18.61 bln), according to Businesswire. +3.5% in the pre-market, trimming from gains in excess of 5.0% earlier
Top European News
German Economy Contracted Amid Tighter Virus Curbs, Supply Snags
H&M CEO Sets Target to Double Retailer’s Sales by 2030
Telia Sells Tower Stake for $582 Million, Cuts Costs
U.K. ‘Partygate’ Probe May Be Watered Down at Police Request
In FX, buck bull run continues as DXY takes out another July 2020 high to leave just 97.500 in front of key Fib resistance. Aussie feels the heat of Greenback strength more than others amidst risk-off positioning and caution ahead of next week’s RBA policy meeting. Kiwi also lagging and Loonie losing crude support after the BoC’s hawkish hold midweek. Euro and Yen reliant on some hefty option expiry interest to provide protection from Dollar domination. BoJ Governor Kurdoa if times come to debate the exit of policy, then targeting shorter maturity JGBs could become an option; at this stage its premature to raise yield target or take steps to steepen yield curve.
In commodities, WTI and Brent are consolidating somewhat after yesterday's choppy price action, but remain towards the lowend
of a circa. USD 1.00/bbl range. Focus remains firmly on geopols as Russia is set to speak with French and German officials on Friday, though rhetoric, remains relatively familiar. Spot gold and silver are pressured as the yellow metal loses the 100-DMA, and drops to circa. USD 1780/oz as the USD rallies, and ahead of inflation data while LME copper follows the equity downside.
US Event Calendar
8:30am: 4Q Employment Cost Index, est. 1.2%, prior 1.3%
8:30am: Dec. Personal Income, est. 0.5%, prior 0.4%
Dec. PCE Core Deflator YoY, est. 4.8%, prior 4.7%; PCE Core Deflator MoM, est. 0.5%, prior 0.5%
Dec. PCE Deflator YoY, est. 5.8%, prior 5.7%; PCE Deflator MoM, est. 0.4%, prior 0.6%
8:30am: Dec. Personal Spending, est. -0.6%, prior 0.6%; Real Personal Spending, est. -1.1%, prior 0%
10am: Jan. U. of Mich. Sentiment, est. 68.8, prior 68.8
Current Conditions, est. 73.2, prior 73.2; Expectations, est. 65.9, prior 65.9
1 Yr Inflation, est. 4.9%, prior 4.9%; U. of Mich. 5-10 Yr Inflation, prior 3.1%
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Have a Nice Weekend
Irregularities in the Pension Fund (Window Scene)
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Futures Swing Wildly In Overnight Rollercoaster Session Before Settling Flat
by Tyler Durden
Thursday, Jan 27, 2022 - 07:52 AM
After a rollercoaster overnight session, which saw S&P futures tumble as much as 2%, dropping as low as 4,260 following Powell's hawkish comments, futures have recovered and briefly traded in the green while European stocks are still red though trading near session highs as traders spooked by the Fed's comments started digging for bargains. At 7:20am ET (incredibly illiquid) emini S&P futures were flat at 4,341, Dow futures were up 0.1% or 36 points and Nasdaq futures swung the most and after dropping as much as 2.2% turned green some 0.5% higher or 75 points after Bill Ackman revealed late on Wednesday he had purchased 3.1 million Netflix shares.
The yield curve shrank to the flattest since 2020 after the meeting. Two-year Treasuries extended declines, though longer-dated ones rebounded. The dollar extended gains. Oil fluctuated as calm reigned for crypto. Expectations of Fed tightening sent the policy-sensitive U.S. two-year yield to 1.208%, levels last reached in February 2020. The benchmark 10-year yield slipped slightly to 1.835% having hit a high of 1.88% on Wednesday. The spread between the 10 and two-year bond yields fell to its narrowest since late 2020 as investors priced in a faster pace of rate rises in the medium-term. This in turn helped the dollar to its highest since June 2020 and sent the euro to its lowest in 19-months. The single currency dropped 0.5% to $1.1182 .
In U.S. premarket trading, Tesla fell after signaling supply chain troubles, while Intel slid as it warned on profit margins. Qualtrics International on the other hand, jumped after posting a better-than-expected revenue forecast. Netflix gained as much as 4.8% after hedge fund founder Bill Ackman said he has acquired more than 3.1 million shares in the online video streaming giant. Meanwhile, Teradyne plunged 18% in premarket after the chip-testing firm’s first-quarter earnings forecast fell short of estimates due to to supply constraints and a drop in demand stemming from a slow transition at one of its customers. Other notable premarket movers:
DouYu (DOYU US) shares jump 10% in U.S. premarket trading after Reuters reports that Tencent plans to take the live game streaming company private, citing people with knowledge of the matter.
Teradyne (TER US) shares plunge 18% in U.S. premarket trading after the chip-testing firm’s 1Q earnings forecast fell short of estimates due to to supply constraints and a drop in demand stemming from a slow transition at one of its customers.
Levi Strauss (LEVI US) shares surge 8.3% in premarket trading after the jeans maker gave an outlook for full-year net revenue that exceeded estimates. Analysts say momentum appears to have carried through to the start of 2022.
Qualtrics (XM US) shares gain 11% in U.S. premarket trading after the software company gave a revenue forecast for 1Q that beat estimates. Analysts were positive on the company’s organic billings growth and said guidance is strong.
U.S. stocks have swung violently this week as investors worried about the fallout from an increasingly hawkish Federal Reserve on a broader economic recovery and company earnings. Overvalued technology-related stocks have been hit particularly hard since higher interest rates mean a bigger discount for the present value of their future profits, hurting growth stocks with the highest valuations and boosting cheap or so-called value shares.
“The hawkish tone last night from the Fed has led to a renewed rotation into value names but given the magnitude of some of the moves we have now seen in growth stocks year-to-date, we believe the opportunity set is again getting more exciting for growth investors,” said Marcus Morris-Eyton, portfolio manager at Allianz Global Investors. “We expect the market to gradually return to fundamentals now the Fed meeting has passed, and the earnings season moves into full swing.”
Investors expect the speed at which the Fed tightens policy to be the major determinant of risk sentiment in the coming months, although the U.S. central bank has said how quickly it hikes will depend on economic data and especially inflation.
"Powell (is) not committing to the size or the frequency of rate hikes and also the timing of the balance sheet reduction. I think that buys him a bit of wiggle room as to how quickly and with what velocity he wants to normalise monetary policy in the U.S." said David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco.
European equities slump at the open but most indexes gradually fade losses. Euro Stoxx 50 is only down 0.6%, having traded off as much as 1.8%. Spain’s IBEX outperforms, turning an initial 1.5% drop into a gain of as much as 0.8%. Banks and autos are the best performers.
Weeks of fretting over the Fed’s plan to combat inflation with higher interest rates is coming to fruition as Asian stock markets tumble into bear markets and technical corrections: Bear Markets Show Pain Across AsiaEquities as Fed Hikes Near; China Stocks Enter Bear Market as Yuan Tumbles Most in 7 Months. Bonds tumbled across Asia after Fed Chair Jerome Powell’s latest hawkish pivot, with Australian and New Zealand benchmark yields spiking to fresh highs: Fed Fallout Sends Sovereign Yields Soaring to Highs Across Asia
China high-yield dollar bonds fell 1-3 cents on the dollar , according to credit traders, after the market notched its longest winning streak since July: China Junk Dollar Bonds Set for First Drop in More Than a Week. Chinese authorities are considering a proposal to dismantle China Evergrande Group by selling the bulk of its assets: China Weighs Dismantling Evergrande to Contain Debt Crisis. The People’s Bank of China’s newfound autonomy may prove to be an unlikely source of support for the recovery: China Rushes to Deliver Stimulus as Fed Pulls Back in New Era.
Investors globally have dumped riskier assets in 2022 and sought safety as they brace for the end of nearly two years of exceptionally cheap and plentiful cash.
"What cheap money has done is provide a safety blanket from bad news," said Jane Foley, an analyst at Rabobank. "But as this comfort blanket is pulled away, investors will be more exposed and I suspect this will create a more volatile environment for asset prices."
In rates, after extending post-FOMC drop late Wednesday, Treasuries began clawing their way back during Asia session and European morning led by long-end tenors, further flattening the curve. Ten-year Treasury yields slipped three basis points to 1.83% after surging to near a two-year high in the previous session, while the 2-year yield rose by 4bps to 1.19%. Yields are richer by ~5bp across 30-year sector, flattening 5s30s spread by ~3bp to tightest since March 2020; 2s10s spread is flatter by ~6bp and lowest since November 2020; the 10-year yield ~1.83% has retraced about half Wednesday’s surge to 1.876%. The ED market has boosted rate hike expectations to nearly 5 by December.
Treasury auction cycle concludes with $53b 7-year note sale at 1pm ET, following strong demand for 2- and 5-year sales earlier this week. Fed- dated OIS price in ~30bp of rate hikes for March meeting and 117bp by December after Wednesday’s post-FOMC front-end selloff. The hawkish central-bank pricing spills over into Europe: ECB-dated OIS briefly factor in a 20bps move and BOE OIS ~120bps of tightening by year end. Bunds and gilts drop, curves bear-flattening playing catch up to USTs, which bull-flatten away from their post-FOMC extremes. FOMC-dated OIS rates briefly factor in a full five hikes this year. Peripheral spreads tighten, short-end Italy and Spain outperform.
In FX, Bloomberg dollar spot trades close to session highs, adding 0.3%. The Bloomberg Dollar Spot Index rose for a fourth consecutive day as the greenback strengthened against all of its Group-of-10 peers. Hedging costs in major currencies remain relatively low, even as realized steepens and key risk events are captured by the front- end. The euro fell below $1.12 for the first time since November as traders increase bets on higher borrowing costs, with money markets now expecting five Federal Reserve interest-rate increases this year. Bunds extended a decline, sending the German 10-year yield to a one-week high as money markets bet on a faster pace of ECB policy tightening. The Canadian dollar and Norwegian krone held up best against the greenback as oil prices consolidated near a seven-year high and the pound was also among the better-performing G-10 currencies as markets rushed to price in another four interest-rate rises from the Bank of England. Other risk sensitive currencies, led by the New Zealand dollar, were the worst performers. Government bonds dropped in Australia and New Zealand, while the Australian dollar fell to a seven-week low and the New Zealand dollar slid for a sixth consecutive day to touch $0.6596, the lowest since November 2020. New Zealand’s debt auctions drew strong demand even after local data showed inflation quickened to the highest in more than three decades.
In commodities, crude futures drift back into the green. WTI adds 0.2%, rising back above $87; Brent reclaims $90. U.S. officials say they are in talks with major energy-producing countries and companies worldwide over a possible diversion of supplies to Europe if Russia invades Ukraine, although the White House said it faces challenges finding alternative sources of energy supplies. Spot gold trades off worst levels after finding support near $1,810/oz. Most base metals are in the green with LME tin up over 1%. Crypto markets declined amid broad weakness in risk assets during APAC hours; in-fitting with broader performance, crypto has staged a modest recovery during the European session. Bitcoin was last trading at $36,500.
Looking at the day ahead now, data releases include the US GDP reading for Q4, along with the weekly initial jobless claims, December’s pending home sales, durable goods orders, core capital goods orders, and January’s Kansas City Fed manufacturing index. Central bank speakers include the ECB’s Scicluna, whilst earnings releases include Apple, Visa, Mastercard, Comcast, Danaher and McDonald’s.
Market Snapshot
S&P 500 futures up 0.2% to 4,351.25
STOXX Europe 600 down 0.4% to 465.34
MXAP down 2.4% to 182.01
MXAPJ down 2.1% to 598.93
Nikkei down 3.1% to 26,170.30
Topix down 2.6% to 1,842.44
Hang Seng Index down 2.0% to 23,807.00
Shanghai Composite down 1.8% to 3,394.25
Sensex down 1.2% to 57,180.21
Australia S&P/ASX 200 down 1.8% to 6,838.28
Kospi down 3.5% to 2,614.49
German 10Y yield little changed at -0.03%
Euro down 0.4% to $1.1198
Brent Futures down 0.3% to $89.72/bbl
Gold spot down 0.3% to $1,814.46
U.S. Dollar Index up 0.35% to 96.81
Top Overnight News from Bloomberg
Spain’s labor market continued to improve in the fourth quarter, with the unemployment rate falling to the lowest since 2008, according to figures released by the nation’s statistics office, INE
Norway’s $1.3 trillion sovereign wealth fund, the world’s biggest, returned 14.5% in 2021, equivalent to about $176 billion, after stocks rose.
Turkey’s central bank raised its inflation projections after a collapse in the currency pushed consumer price growth to its highest in President Recep Tayyip Erdogan’s 19-year rule
A more detailed look at global markets courtesy of Newsquawk
In Asia, APAC markets sold off with risk appetite hit as the region digested the hawkish FOMC meeting. Nikkei 225 (-3.1%) suffered losses of more than 3% and with the index down more than 10% from January highs. KOSPI (-3.5%) was mired by another North Korean launch and with Samsung Electronics dwindling post- earnings. Hang Seng (-1.9%) and declined amid a slowdown in Chinese Industrial Profits andShanghai Comp. (-1.7%) with the CSI 300 Index slipping into bear market territory after falling 20% from its February 2021 peak, while developers are hit including Evergrande as investors will have to wait six months for an initial restructuring plan.
Top Asian News
China Fintech PingPong Is Said to Weigh $1 Billion Hong Kong IPO
Tencent Plans to Take U.S.-Listed DouYu Private: Reuters
China Stocks Enter Bear Market as Yuan Tumbles Most in 7 Months
Japan’s 10-Year Bond Yield Closes at Highest Level Since 2018
In Europe, major bourses in Europe are nursing the post-Fed pressure with the complex now mixed, Stoxx 600 -0.1%. In Europe, with lagging post-Intel (-3.1% pre-market) in-spite of strong numbers givensectors are mixed Tech soft guidance, with European comparables pressured post respective earnings this morning. While Financials outperform post-Fed.
Top European News
Deutsche Bank Plans to Boost Dividend After Three-Year Drought
Dutch Government Said to Resume Sale of Majority ABN Amro Stake
European Gas Fluctuates With Ukraine Tensions and Mild Weather
U.S., Other ‘Populist’ Nations Mishandled Pandemic, Study Says
In FX, hawkish Fed Powell overshadows official FOMC policy message to give a fresh boost.Greenback Franc, and underperform as Fed gets set to widen the gap between policy stances of SNB, BoJ andYen Euro ECB. Kiwi fails to benefit much from hot NZ CPI and Aussie via a poll predicting RBA tightening in November amidst the Buck’s latest bill run. Rand stands firm awaiting a SARB hike and regains some poise on technical grounds rather than anyRouble real improvement in Russian relations with the US or western nations. CBRT Minutes: the policy stance will be set taking into account the source/permanence of risks, expects the disinflation process to start on the back of measures taken. Will develop tools to support the increase of TRY assets.
In commodities, crude benchmarks have trimmed post-Fed downside in tandem with the equity recovery, as focus remains as Russia receives the US' written response.very much on geopolitics WTI and have recaptured USD 87.00/bbl and USD 90.00/bbl respectively, and are now holding nearBrent session highs. Spot gold lies near the post-Fed trough and as such the 200- & 50-DMAs are back in view at USD 1805/oz and USD 1803/oz respectively. China Gold Association said 2021 gold consumption increased 36.5% Y/Y to 1,220.9 tons and gold output rose 10.0% Y/Y to 329.0 tons, according to Bloomberg
US Event Calendar
8:30am: 4Q GDP Annualized QoQ, est. 5.5%, prior 2.3%
8:30am: 4Q GDP Price Index, est. 6.0%, prior 6.0%
8:30am: 4Q Personal Consumption, est. 3.4%, prior 2.0%
8:30am: 4Q PCE Core QoQ, est. 4.9%, prior 4.6%
8:30am: Dec. Durable Goods Orders, est. -0.6%, prior 2.6%
8:30am: Dec. -Less Transportation, est. 0.3%, prior 0.9%
8:30am: Dec. Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.3%
8:30am: Dec. Cap Goods Orders Nondef Ex Air, est. 0.4%, prior 0%
8:30am: Jan. Initial Jobless Claims, est. 265,000, prior 286,000
8:30am: Jan. Continuing Claims, est. 1.65m, prior 1.64m
10am: Dec. Pending Home Sales YoY, est. -4.0%, prior 0.2%; MoM est. -0.4%, prior -2.2%
11am: Jan. Kansas City Fed Manf. Activity, est. 20, prior 24
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Have a Great Day
Melvin capital trader talks
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Futures Surge After Microsoft Reversal With All Eyes On Fed
Wednesday, Jan 26, 2022 - 08:09 AM
Yesterday, after Microsoft stock initially slumped despite beating across the board as the skeptical market latched on to even the smallest weakness to hammer the stock, dragging down both the Nasdaq and S&P futures close to session lows, we said that the reaction was premature and would reverse, as the earnings release did not include guidance and would promptly reverse once the company revealed its cloud guidance in its conference call a little over an hour later. Well, that's precisely what happened and after first tumbling as much as 5% after hours, the 2nd largest US company (MSFT has $2.2 trillion in market cap) reversed all losses and is now trading solidly in the green, sparking broader tech momentum, lifting the Nasdaq as much as 2.1% this morning and (briefly) helping traders forget that today at 2pm the Fed is expected to unveil a March rate hike and balance sheet runoff a few months later.
Indeed, contracts on the Nasdaq 100 led broad-based gains - which would have been gaping losses had MSFT failed to reverse late on Tuesday - as U.S. stock futures rallied, with investors bracing for the Federal Reserve’s decision and preparing for a slew of earnings from companies including Tesla, Intel and Boeing. Nasdaq 100 futures jumped as much as 2.1% while S&P 500 and Dow Jones futures also rallied. The VIX fell from a one-year high, snapping six days of gains. Elsewhere, the Stoxx Europe 600 rose 2% in the biggest jump in seven weeks. 10Y TSY yields rose to 1.79% with the Fed’s policy announcement in the limelight; the dollar was slightly higher, as was Bitcoin while Brent oil traded just shy of $90 on its way to triple digits.
Of course, the big event today is the Fed policy statement at 2pm ET and press conference 2:30pm, which are expected to ratify expectations for rate increases beginning in March
Short-term interest rate futures price in just 1bp of rate-hike premium for January meeting but fully price in 25bp for March
Commentary on shrinking the central bank’s balance sheet is also anticipated
We will have a detailed post on what to expect from the Fed shortly.
“We expect inflation to remain high and interest rates to rise more than investors are expecting today,” said Norbert Frey, head of portfolio management at Fuerst Fugger Privatbank. “A rising interest rate environment is leading to a revaluation of all business models and we think 2022 can be a year of value stocks.”
While equities have had had a rocky start to 2022 as bond yields rose with investors anticipate tighter policy from the Fed, while Russia-U.S. tension added to investor concerns. Now, strategists from Goldman Sachs Group Inc. to Citigroup Inc. are saying it’s time to buy the dip.
“Any further significant weakness at the index level should be seen as a buying opportunity, in our view,” Goldman strategists including Peter Oppenheimer wrote in a note on Wednesday.
In U.S. premarket trading, Microsoft Corp rose, with analysts positive on the software maker’s outlook for growth for its Azure cloud-computing services. Shares gained 4.1% in U.S. premarket trading after initially tumbling before the market heard the company's strong cloud guidance, with analysts positive on the software maker’s outlook for growth for its Azure cloud-computing services. Analysts also highlighted the company’s commercial bookings and a supportive IT spending backdrop. Texas Instruments shares also rose 4% after the chipmaker gave a first-quarter forecast that was stronger than expected, with analysts noting the company’s conservatism amid a still supportive demand backdrop. Texas Instruments also reported its fourth-quarter results. Other notable premarket movers:
Cryptocurrency-exposed stocks in Europe and the U.S. are trading higher as Bitcoin kept regaining ground ahead of the Federal Reserve decision. Marathon Digital (MARA US) +6%, (RIOT US) Riot Blockchain +5%, (COIN US) Coinbase +3.4%.
Electric vehicle stocks climb in U.S. premarket trading ahead of Tesla’s fourth-quarter results due Wednesday after the market close. Rivian (RIVN US) +3.5%; Tesla (TSLA US) +4.4%; Nikola (NKLA US) +3.6%.
Moderna’s (MRNA US) stock valuation “makes a lot more sense” after more than halving since Deutsche Bank initiated in October, prompting the broker to upgrade the vaccine maker to hold from sell. Shares gain 4.6% premarket.
Capital One (COF US) reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate. Shares dropped postmarket, with higher expenses “the only wrinkle” in the bank’s quarter, according to Vital Knowledge.
Stride (LRN US) shares gained 7% postmarket Tuesday after the technology-based education company boosted its revenue forecast for the full year. The guidance beat the average
Global stocks have shed about 7% in January, on track for the worst month since the pandemic roiled markets back in 2020. Some strategists are optimistic about the outlook following the declines.
“The growth-policy trade-off may be less favourable, yet we think a lot of bad news is now priced in,” Emmanuel Cau, head of European equity strategy at Barclays Plc, wrote in a note. “Starts of policy normalisation typically bring higher volatility but rarely terminate bull markets, although higher-than-usual P/E multiples mean equities are more rates-sensitive this time.”
In the latest developments involving Russia and Ukraine, president Joe Biden said he would consider personally sanctioning Vladimir Putin if he orders an invasion of Ukraine, escalating efforts to deter the Russian leader from war. In response, Russian Foreign Minister Sergei Lavrov signaled that Moscow will respond to any “aggressive” action by the U.S. and its European allies as Germany and France pursue efforts to broker a peaceful resolution to the tensions over Ukraine.
European equities rally, brushing off geopolitical tensions, with most indexes clawing back roughly 3/4 of Monday’s sharp sell off to rise over 2%. Europe’s Stoxx 600 adds as much as 2% with travel, energy, miners and autos leading what is broad sectoral support. Here are some of the biggest European movers today:
Vestas Wind Systems shares rise as much as 6%, reversing an earlier decline, after guidance for 2022 was met with relief. Handelsbanken analysts said the guidance miss was unsurprising, and the market likely feared it would be worse.
Other European renewables stocks -- which have been hit hard in the recent selloff -- gain after Vestas’ update, rebounding after declines triggered by Siemens Gamesa’s profit warning last week.
Travel and leisure is the best-performing sector among Stoxx 600 groups on Wednesday. Airlines including Lufthansa and IAG lead gains, with the German carrier upgraded to buy at Stifel.
AutoStore advances after being raised to buy at Citi. The upgrade follows a slump of more than 50% amid uncertainty regarding patent litigation and a broader sell-off in tech stocks.
De Longhi rises as much as 8.9%, the most intraday since March 2021, after Equita upgrades to buy from hold, citing recent underperformance and more confidence in the company’s coffee business.
Essity falls the most since Oct. 2020 after the Swedish hygiene products manufacturer reported weaker-than-expected earnings and announced further price hikes in 2022.
Orpea shares continued their descent after its CEO was summoned to the French minister for elderly policy. The French nursing home operator also denied reports it had offered a journalist money to not publish a book critical of the company.
Barry Callebaut shares fell, reversing earlier gains, after reporting 1Q sales. Citi noted “some more caution” on commodities amid waning supply of cocoa beans.
Earlier in the session, stocks in Asia were mixed after slumping across the board in the previous session, as investors awaited the Federal Reserve’s policy decision. The MSCI Asia Pacific Index was down 0.1%, on track to fall for a fourth day, with advances in communication services and financials offsetting losses in technology shares. Benchmarks in China, Hong Kong and Singapore were among the gainers, while Japan’s Topix Index fell deeper into correction territory. Asian equities have tumbled this month amid heightened volatility on the prospect of U.S. monetary-policy tightening, with the Fed expected to telegraph a March interest-rate hike on Wednesday. Worries over rising rates sent a gauge of the region’s tech hardware stocks to its lowest in months on Wednesday, with chipmakers TSMC and Samsung Electronics among the biggest drags. “There’s a lot of noise in the market right now, and I don’t think anyone’s confident that this is the bottom, because we aren’t sure about Fed policy yet,” said Kyle Rodda, analyst at IG Markets. Despite the broader drop in tech shares, Tencent advanced on dip-buying, helping to boost the Hang Seng Tech Index. The CSI 300 Index whipsawed to narrowly avoid entering a bear market
Fixed income takes a back seat. Curves adopt a modest bear steepening theme with gilts underperforming both bunds and USTs by 1-2bps. Eurodollars bear flatten a touch ahead of today’s FOMC meeting. Peripheral and semi-core spreads narrow with Italy, Belgium and France outperforming.
Treasuries are under pressure in early U.S. trade with U.S. stock index futures higher by 1%-2%, European benchmarks by 2%-3%, with travel, energy, miners and autos leading a broad advance. Front-end yields cheaper by more than 2bp with most curve spreads within 1bp of Tuesday’s close; 10-year yields around 1.785%, outperforming gilts by ~1bp. Focal point of U.S. day is Fed policy decision and Chair Powell news conference. Auction cycle pauses for Fed, concluding with 7-year notes Thursday. The stellar 2Y & 5Y auctions are underwater after stopping through (the 5Y produced record-low dealer award), There is no Fed POMO today. IG dollar issuance slate empty so far and expected to remain slim; Treasury auctions resume with $53b 7-year note sale on Thursday, following strong demand for 2- and 5-year notes earlier this week.
In FX, Bloomberg Dollar Spot is little changed but mixed price action across much of G-10. USD/JPY rises through 114, EUR/USD dips back onto a 1.12-handle. Commodity currencies trade well as crude futures drift back toward Monday’s highs.
Bitcoin extended its gains for the week, trading near $38,000.
In commodities, WTI adds 0.6%, regaining a $86-handle after the latest APIR report showed a draw in U.S. stockpiles and investors tracked tensions over Ukraine for signs the conflict may disrupt supplies. Brent climbs to about $89. Spot gold trades a tight range near $1,846/oz. Most base metals are well bid, lead by LME copper and tin; aluminum underperforms.
Looking at the day ahead now, the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference, whilst there’s also a policy decision from the Bank of Canada. On the data side, we’ve got US new home sales for December, along with the preliminary December reading of wholesale inventories. Meanwhile earnings releases include Tesla, Abbott Laboratories, Intel, AT&T and Boeing.
Market Snapshot
S&P 500 futures up 1.2% to 4,399.50
STOXX Europe 600 up 1.8% to 467.79
MXAP down 0.1% to 186.79
MXAPJ little changed at 612.28
Nikkei down 0.4% to 27,011.33
Topix down 0.3% to 1,891.85
Hang Seng Index up 0.2% to 24,289.90
Shanghai Composite up 0.7% to 3,455.67
Sensex up 0.6% to 57,858.15
Australia S&P/ASX 200 down 2.5% to 6,961.63
Kospi down 0.4% to 2,709.24
German 10Y yield little changed at -0.08%
Euro down 0.2% to $1.1284
Brent Futures up 0.8% to $88.92/bbl
Gold spot down 0.1% to $1,846.69
U.S. Dollar Index up 0.15% to 96.09
Top Overnight News from Bloomberg
Federal Reserve policy makers are poised to signal plans for their first interest rate hike since 2018 and discuss shrinking their bloated balance sheet as they seek to restrain the hottest inflation in nearly 40 years
The Treasury market appears more likely to respond in a logical way to Wednesday’s Federal Reserve communications because of indications that the past week’s U.S. stock-market bloodbath cleared out a crowded camp of bets on higher yields
The employment cost index, which Federal Reserve Chair Jerome Powell cited in December as a key reason for the central bank’s pivot to a more aggressive stance on inflation, is seen registering a fourth-quarter gain nearly on par with the record increase in the prior three months
Lithuanian Central Bank Governor Gediminas Simkus warned that Europe’s economy would suffer a significant blow if tensions escalate further between Russia and Ukraine, urging politicians to step up efforts to deter hostilities
OPEC and its allies are expected by delegates to stick to their plan and ratify another modest production increase next week as they try to satisfy rebounding oil demand
A more detailed look at global markets courtesy of Newsquawk
In Asian trading, APAC markets were subdued ahead of the FOMC and holiday-quietened conditions. Nikkei 225 (-0.4%) oscillated around the 27k level after record daily COVID-19 cases. KOSPI (-0.4%) faded opening gains with attention on earnings. Hang Seng (+0.2%) and Shanghai Comp. (+0.7%) were mixed as PBoC liquidity efforts and government support signals were offset as Evergrande default woes resurfaced.
Top Asian News
Foreigners Cash Out of Key Asian Emerging Markets Before Fed
China to Start Three-Year Crackdown on Money Laundering
China Criticizes U.S. Diplomats Seeking Exit Over Covid Rules
China South City Bonds Rally as Consent Given to Extend 2022s
European bourses are firmer in an extension of yesterday's upside, with the Stoxx 600 +2.0% on the session but still lower on the week. US futures are firmer across the board with the NQ, +2.0%, outpacing and benefitting from MSFT post earnings, +4.0% in pre-market. European sectors are all in the green with Travel & Leisure outperforming amid broker action while Oil & Gas is a relatively close second given crude action. EU antitrust decision against Intel (INTC) has been annulled in part by the EU General Court. Microsoft (MSFT) Q2 2022 (USD): EPS 2.48 (exp. 2.31), Revenue 51.73bln (exp. 50.88bln). Co. sees Q3 product revenue between USD 15.6bln-15.8bln and expects Azure revenue growth to increase significantly, while it guides Q3 rev. USD 48.5bln-49.3bln (implied) vs exp. USD 47.7bln. +4.0% in the pre-market.
Top European News
Inflation Outlook No Reason for ECB to Change Track: Simkus
Italy Asks Firms Not to Meet With Putin Amid Ukraine Crisis
Finland ‘Wise’ to Sell Long-Maturity Debt Ahead of ECB Tapering
Europe Travel Stocks Gain on Airlines Boost; Lufthansa Upgraded
In FX, Loonie loving risk recovery and WTI revival in run up to likely BoC hike. Aussie rebounds in absence of those away for a national holiday. Greenback stands firm awaiting something hawkish from the Fed. Kiwi hovering ahead of NZ CPI. -Pound pensive before Partygate findings are published. Rouble unable to benefit from Brent bounce as Russia begins big drills in Black Sea to keep geopolitical tensions elevated.
In commodities, WTI and Brent March futures have continued grinding higher despite quiet news flow as focus remains on geopolitics and the benchmarks also benefit from equity action. At best, WTI and Brent have surpassed USD 86.00/bbl and USD 89.00/bbl respectively thus far. Spot Gold remains contained amid relatively rangebound USD action while Silver is buoyed ahead of USD 24.00 /oz and touted resistance marks. US Private Energy Inventory Data (bbls): Crude -0.9mln (exp. -0.7mln), Gasoline +2.4mln (exp. +2.5mln),
Distillates -2.2mln (exp. -1.3mln), Cushing -1.0mln. Qatar's Emir is to meet US President Biden on Monday to discuss Afghanistan and contingency plans to supply natural gas to Europe in the event of a Russian invasion of Ukraine. Qatar Emir and US President Biden are to discuss additional Qatari gas supplies to Europe in the case of a Russian-Ukraine conflict at next week's discussions, via Reuters sources; Qatar has little spare gas for Europe as most gas is pre-sold.
Geopolitics
US State Department said the US hasn't seen the de-escalation that is necessary if diplomacy and dialogue with Russia is to prove successful, while US Department of Defense Spokesman Kirby said the US will not rule out adding further troops to the already 8,500 on alert.
Ukraine Foreign Ministers says the proposals the US will send to Russia do not raise Ukraine's objections; subsequently, Moscow says received some answers to security guarantee proposals, but not in written form - awaiting further details.
Ukrainian President Zelensky said the situation in the east is under control and they are working to establish that the meeting of Presidents of Ukraine, Russia, Germany, and France takes place as soon as possible.
Russian navy has commenced large-scale training in the Black Sea, according to Ifax.
UK Foreign Minister Truss, when question if they would sanction Russia's Putin, says they are not ruling anything out.
Ukraine envoy to Japan said that they are fully committed to a diplomatic solution to the current tensions with Russia, while the envoy also stated that a full-scale war is very difficult to expect although they may see more localised conflict.
US Event Calendar
7am: Jan. MBA Mortgage Applications, prior 2.3%
8:30am: Dec. Advance Goods Trade Balance, est. -$96b, prior -$97.8b, revised -$98b
8:30am: Dec. Retail Inventories MoM, est. 1.5%, prior 2.0%; Wholesale Inventories MoM, est. 1.2%, prior 1.4%
10am: Dec. New Home Sales MoM, est. 2.1%, prior 12.4%; New Home Sales, est. 760,000, prior 744,000
2pm: FOMC Rate Decision
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Have a Great Day
“Hero’s Journey” Starring Melissa McCarthy
About this author
https://en.wikipedia.org/wiki/Zero_Hedge
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Apparently it's Happy Friday on "Morning Markets"
Morning Markets
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Markets Are "Sea Of Red" Amid "Total Meltdown In Anything Tech And Pandemic Winners"
Friday, Jan 21, 2022 - 08:03 AM
Futures, yields, oil, dollar, cryptos - everything is lower on this $3.1 trillion option expiration day...
... as US traders relocate from their bedroom to their basement on the last day of the week, discovering a sea of red in most assets and a "total meltdown" in others. Emini S&P futures are down 0.5% or 22 points to 4,452 which by the way is well off the session lows which saw the S&P plunge as low as 4,429. Nasdaq futures are down 0.8% or 122 and Dow futures are lower by 95 points or 0.25%, while European stocks touched the lowest level in a month weighed by miners, travel and leisure and automakers. 10Y TSY yields are at 1.778%, rising from 1.76% at the session lows, but down from Thuesday's close around 1.80%.
Cryptocurrencies crashed with Bitcoin trading below $38,000, the level that Mike Novogratz said is where he would be buying. Presumably he isn't doing so. Ether, the second largest cryptocurrency by market cap, extends its decline to trade at around $2,750, in its longest daily losing streak since late July. Meanwhile, oil extends declines, with Brent falling 1.7% to below $87, while WTI falls over 2% to below $84 a barrel. Spot gold -0.4% to $1,832/oz, while the dollar also slips 0.1%.
“Risk appetite is widely down, and the cautious trading mood reflects the global uncertainty investors are now facing,” said Pierre Veyret, technical analyst at ActivTrades. “Sentiment is being driven down by monetary policies, uneven corporate results, a bigger Omicron impact on economies as well as rising geopolitical tensions between the USA and Russia over Ukraine.”
Meanwhile, a report that Washington is allowing some Baltic states to send U.S.-made weapons to Ukraine stoked concerns about a standoff with Russia.
“The 2022 outlook for risky assets is likely to be more challenging as central bank accommodation is withdrawn,” said Mohit Kumar, managing director at Jefferies International. “We would wait for more clarity from the Fed before shifting our cautious stance on equities.”
Besides the huge negative gamma overhang (much of which will fade by EOD as trillions in options expire) and the prospect of rising interest rates weighing on investor sentiment, corporate earnings aren’t helping the mood with disappointing earnings from PPG Industry and CSX, while Netflix plunged 21% in premarket trading as analysts cut their ratings and slash price targets after the streaming company’s first-quarter subscriber outlook missed estimates, prompting worries over slowing growth. Alibaba Group dropped in U.S. premarket trading as market participants weigh the stock impact of a report that China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal. Expected data on Friday include Leading Index, while Huntington Bancshares, IHS Markit, Schlumberger are among companies reporting earnings. Here are all notable premarket movers:
Peloton (PTON US) shares rise 8.6% in U.S. premarket trading, set to rebound following Thursday’s 24% tumble in the wake of a CNBC report saying the company is temporarily halting production of bikes and treadmills over slow demand, which CEO John Foley later disputed in a memo to staff.
Apple’s (AAPL US) price target and estimates are raised at Wells Fargo ahead of the tech giant’s results next Thursday. The shares edge 0.1% lower in U.S. premarket trading.
Alibaba (BABA US) drops as much as 1.5% in U.S. premarket trading as market participants weigh the stock impact of FT report saying China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal.
PPG (PPG US) fell 3% postmarket after the chemicals maker forecast adjusted earnings per share for the first quarter that missed the average analyst estimate and cited “significantly higher operating costs.”
CSX (CSX US) shares dropped over 3.8% in postmarket trading as fourth-quarter profit and revenue beat was overshadowed by a miss in operating ratio, a measure of the railroad’s efficiency.
In Europe, stocks dropped to the lowest level in a month echoing Asia’s slump. Euro Stoxx 600 drops as much as 1.7% with most European cash indexes ~1% in the red. Cyclical sectors such as basic resources, autos and travel led the declines, along with tech, while defensive stocks such as food, personal care and utilities outperformed. European e-commerce stocks fall on Friday, with Markets.com chief market analyst Neil Wilson noting the “total meltdown in anything tech and pandemic winners.” There’s a “huge momentum unwind” and “no one wants to touch them now,” with investors looking for defensive cash flows and value, Wilson writes in emailed comments: Naked Wines -6%, Home24 -5.4%, Global Fashion Group -5.2%, THG -3.5%, Moonpig -3.3%, Asos -3.2%, Made.com -2.9%, Allegro 2.6%, AO World -2.5%, Zalando -2.4%, Westwing -2.1%.
Earlier in the session, Asian equities resumed declines after a one-day reprieve, as global inflation concerns and the impact on borrowing costs weighed on technology stocks. The MSCI Asia Pacific Index fell as much as 1.4%, dragged down by shares of chipmakers TSMC and Samsung, as the global tech selloff deepened. The regional benchmark was headed for a weekly drop of more than 1.7%, its steepest since late November. Read more: A Year’s Worth of Nasdaq Tumult Gets Jammed Into Three Weeks Benchmarks fell across Asia, with Australia’s main gauge sliding more than 2% and Japan’s Topix narrowly missing a technical correction. Elevated energy costs and rising prices of other goods amid supply-chain bottlenecks have added to worries about faster-than-expected monetary-policy tightening. “A world shaped by supply constraints will bring more macro volatility,” BlackRock Investment Institute strategists including Elga Bartsch wrote in a note. “Monetary policy cannot stabilize both inflation and growth: it has to choose between them.” Toyota also ranked among the biggest drags on the regional benchmark after the auto giant announced more production halts on rising Covid-19 cases. Alibaba dropped after a Financial Times report said China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal
Indian stocks completed their biggest weekly decline since November, as concerns about policy moves by the U.S. Federal Reserve and a rally in crude oil prices dented investors’ appetite for riskier emerging market assets. The S&P BSE Sensex dropped 0.7% to 59,037.18 in Mumbai, extending this week’s losses this to 3.6%. The NSE Nifty 50 Index also fell 0.8% on Friday. Technology stocks were hammered for a fourth consecutive session, with the sector gauge ending with the worst weekly performance since April 2020. Infosys Ltd., down 2.1%, was the biggest drag on the key indexes. All but one of 19 sub-indexes fell, led by a gauge of realty stocks. As the Federal Reserve looks at tackling higher inflation, investors are grappling with the prospect of reduced stimulus that had driven flows into emerging markets and bolstered riskier assets. “The likely Fed action and crude surge have been negative for sentiment after the market had a strong start to the year, and we expect this downward pressure to continue,” said A. K. Prabhakar, head of research at IDBI Capital Ltd. “In earnings, tech results have been strong, but attrition is high, while for others, higher raw material costs are a drag.” Of the 13 Nifty 50 companies that have announced results so far, six have either met or exceeded expectations, six have missed and one can’t be compared. Reliance Industries Ltd., the nation’s most-valuable company, is scheduled to announce results in the day
Australia's S&P/ASX 200 index slumped 2.3% to close at 7,175.80, its lowest level since June 1, following U.S. shares lower after the tech-heavy Nasdaq 100 slipped into a correction. The Australian benchmark shed 3% this week amid anxiety over interest rates and the outlook for corporate earnings, capping its worst weekly performance since October 2020. Paladin Energy was the worst performer on Friday, plunging 11%, and Whitehaven fell after trimming its full-year managed ROM coal production forecast. In New Zealand, the S&P/NZX 50 index fell 1.2% to 12,348.00. The gauge lost 3.5% this week in its biggest such loss in 11 months
In rates, demand for havens pushed the 10-year U.S. Treasury yield below 1.80%. Treasury futures are off session highs reached during Asia trading hours, hold modest gains from belly to long end, trimming yields by ~1bp vs Thursday’s closing levels. 10-year TSY yield around 1.775% is ~2bp richer on the day after dropping as low as 1.763% during Asia session; German 10- year outperforms by 1.2bp with Estoxx50 down 1.7%. IG dollar issuance slate empty so far; three-deal docket Thursday consisted entirely of banks for combined $5.4bn. Bunds bull flatten, richer by ~3bps at the long end; gilts bull steepen with the belly outperforming.
In FX, Bloomberg Dollar Spot dips 0.2% into the red. SEK and CHF are the best performers in G-10; NZD, AUD and GBP lag, with cable near session low of 1.3562, one tick above the 21-DMA at 1.3561. The Bloomberg dollar index slipped as the greenback traded mixed versus its Group-of-10 peers. The pound lagged most of its Group-of-10 peers, extending declines after data showed U.K. retail sales plummeted in December. BOE’s Mann to speak later. Sweden’s krona is the best G-10 performer as it retraces about half of yesterday’s deep losses that took it to an 18- month low against the greenback in the U.S. session after a triggering stop-losses and options barriers. Australian and New Zealand dollars weakened amid risk-off price action in stocks and commodities. The yen strengthened on haven demand; BOJ minutes of its December meeting showed one board member noting that policy adjustment now would be too early.
In commodities, crude futures are deep in the red, but off worst levels, after a surprise climb in U.S. crude stockpiles. The White House also said it can work to accelerate the release of strategic reserves. WTI regained a $84-handle, Brent trades back above $87. Spot gold drops ~$5 before finding support near $1,830/oz. Base metals are mostly in the green and up on the week. LME lead and tin outperform.
Looking at the day ahead, data releases included UK retail sales for December, which missed badly, and the US Conference Board’s leading index for December. Central bank speakers include ECB President Lagarde and the BoE’s Mann.
Market Snapshot
S&P 500 futures down 0.2% to 4,467.50
STOXX Europe 600 down 1.3% to 476.89
MXAP down 0.9% to 191.91
MXAPJ down 1.0% to 630.82
Nikkei down 0.9% to 27,522.26
Topix down 0.6% to 1,927.18
Hang Seng Index little changed at 24,965.55
Shanghai Composite down 0.9% to 3,522.57
Sensex down 0.8% to 58,998.67
Australia S&P/ASX 200 down 2.3% to 7,175.81
Kospi down 1.0% to 2,834.29
Brent Futures down 1.9% to $86.66/bbl
Gold spot down 0.3% to $1,832.94
U.S. Dollar Index down 0.14% to 95.60
German 10Y yield little changed at -0.05%
Euro up 0.3% to $1.1344
Brent Futures down 2.0% to $86.63/bbl
Top Overnight News from Bloomberg
Federal Reserve officials will signal next week they’ll raise interest rates in March for the first time in more than three years and shrink their balance sheet soon after, economists surveyed by Bloomberg said
The European Union is ripping up the green investing playbook with plans to allow some gas and nuclear projects to be called sustainable. The bloc is poised to include these kinds of power generation with conditions in its rulebook for sustainable activities, or taxonomy. That’s divided the fund community, as some worry their holdings will no longer be in line with the rules, while others think it’s a necessary compromise.
China is quietly urging banks to increase lending after a slow start to the year, ramping up efforts to combat the weakest economic expansion since early 2020
Italy’s papal-style vote for a new president each seven years is the culmination of Rome’s political intrigues and power games. For the first time, the process is attracting international interest as Prime Minister Mario Draghi is touted as a top contender for the job. Voting will start on Jan. 24 at 3 p.m. local time, and it is expected to last a few days
Iron ore futures climbed to the highest intraday level since October as China made it clear that it will take action to stabilize the economy, bolstering the demand outlook for the raw material
A more detailed look at global markets courtesy of Newsquawk
Asia Pacific
APAC markets traded lower amid wide-spread risk aversion after late Wall Street selling . ASX 200 (-2.3%) underperformed as miners led the broad downturn.
Nikkei 225 (-0.9%) dropped more than 500 points intraday on currency strength but finished off lows
Hang Seng (U/C) and Shanghai Comp. (-0.9%) downside was somewhat cushioned on subsequently confirmed reports of further PBoC action.
US equity futures traded with losses across the board: NQ underperformed post-Netflix earnings.
Top Asian News
Rising Cases Spark Covid Superspreader Fears in Hong Kong
Alibaba Drops in U.S. Premarket on Corruption Report Speculation
Playtech Sinks as Former F1 Boss Jordan Pulls Possible Offer
Coal Soars to $300 a Ton as Asia Scrambles for Power Plant Fuel
Europe
Major European bourses are pressured Euro Stoxx 50 -1.3%; Stoxx 600 -1 5%. as the Wall St rally faded and reverberated through APAC trade . Although, the Stoxx 600 remains -0.5% on the week.
US futures have been lifting off overnight lows, though the NO continues to lag post-Netflix.
European sectors are all in the red. but defensives are faring slightly better than cyclicals
Top European News
U.K. Retail Sales Drop as Omicron Keeps Shoppers Away
Lotus Explores Electric-Car Battery Tie-Up With Britishvolt
Amazon’s Alexa Voice Assistant Reportedly Suffers Europe Outages
Greece Is Great Place to Be in Rough January for Europe Stocks
FX
Franc finally evades SNB clutches to rally and outshine other safe-haven currencies.
Pound discounted after dire UK retail sales data and deterioration in consumer sentiment.
Buck betwixt and between as USTs rebound, but risk aversion gathers momentum.
Kiwi and Aussie lag due to unfavorable market conditions and their high beta characteristics but Yuan continues to rally as PBoC adds SLFs to the list of official rates being cut to support the Chinese economy Click here for a detailed summary.
Fixed Income
USTs extend rebound from post-20 year auction highs on amidst more pronounced risk-off positioning.
Bunds play catch up with Treasuries as demand for safe-havens picks up
Gilts also correct higher and pay some heed to downbeat UK fundamental
Commodities
WTI and Brent March contacts remain pressured by the broader risk tone, with focus on geopolitics
Morgan Stanley has increased its Q3 Brent price forecast to USD 100/bbl vs prev. viev; of around USD 90/bbl.
Spot gold looks heavy as traders booked some profits from yesterdays rally, while the yellow metal found support around the USD 1 830/oz.
LME copper re-tested USD 10k/t to the upside but failed to mount the level
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Other good stuff on our MMGYS sister board
‘The Enigma.’: Giant 555.55-carat black diamond heads to auction
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=167582155
What A FULL-ON DEBT MARKET IMPLOSION Will Look Like For Gold, Silver, Crude, And MORE. Mannarino
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=167582124
Gareth Soloway reveals top stock picks for 2022, downgrades Bitcoin target to "sub-$20k"
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=167582076
Apparently it's Happy Friday
"Apparently" This Kid is Awesome, Steals the Show During Interview
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Natalia shows off her Muff on "Morning Markets"
Morning Markets
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Futures Recover From Wednesday Rout As Yields, VIX Stabilize
Thursday, Jan 20, 2022 - 07:51 AM
Whereas the stock plunge on Tuesday could be blamed on surging rates, the repeat tumble on Wednesday took place as Treasury yields dropped sharply, so with markets at a loss how to read rate signals, so far this morning S&P e-mini futures have rebounded by 23 points ot 0.5% from yesterday's low just above 4,500 - a key support level according to JPMorgan - as volatility eased and global bond yields appear to have stabilize for now, and hours after China's latest easing measure when Beijing lowered mortgage lending benchmark rates on Thursday as monetary authorities step up efforts to prop up the slowing economy. 10Y Treasuries rose from session lows, last trading at 1.84%, European stocks fluctuated as the dollar index was little changed and crude oil slipped after a three-day rally as gold held around a two-month high.
China's cut to the one-year and five-year loan prime rates (LPR) which lowered the one-year LPR by 10 basis points to 3.70% from 3.80% - the second consecutive monthly cut - and the five-year LPR by 5 basis points to 4.60% from 4.65%, its first cut since April 2020....
... followed surprise cuts by China's central bank on Monday to its short- and medium-term lending rates, and came days after the central bank's vice governor flagged more moves ahead. China's central bank "should hurry up, make our operations forward-looking, move ahead of the market curve, and respond to the general concerns of the market in a timely manner," People's Bank of China Vice Governor Liu Guoqiang said on Tuesday, heightening market expectations for more stimulus.
So as China goes all-in on easing the economy again, western markets are enjoying some of the benefits from the stabilization and seeking a bottom in the recent rout which has pushed the Nasdaq to the worst annual start since 2008.
“There is a certain will to buy a dip in U.S. indices, yet the aggressive hawkish Federal Reserve pricing doesn’t allow the appetite to get restored,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “Strong earnings are the only hope for the equity bulls in the short-run.” Investors awaited data including unemployment claims and Netflix earnings.
The dominant theme for markets remains prospective Fed rate hikes and the possible reduction of its holdings in Treasuries starting later in 2022. The withdrawal of outsized stimulus threatens to inject more volatility across a range of assets.
“The focus of the rates market is still very much on the Fed and the anticipated dual-pronged attack of interest rate rises and balance sheet reduction, all of which we would expect to keep uncertainty levels elevated and volatility bubbling along over the coming weeks/months,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note.
In premarket trading, automakers and energy companies held declines as crude oil slipped from a seven-year high. Alcoa rose 2.3% after the aluminum producer predicted rising demand and warned that any conflict between Russia and Ukraine could deepen the existing supply constraints for the metal. Other notable premarket movers:
Ford (F US) drops 2.4% in premarket trading after Jefferies downgrades the automaker to hold from buy with limited scope seen for positive surprises.
Advanced Micro Devices (AMD US) and NXP Semiconductors (NXPI US) both cut to neutral from overweight at Piper Sandler in note, with downside risks seen for both stocks. AMD slips 1.3% in premarket, NXPI unchanged.
Casper Sleep (CSPR US) shares jump 12% in U.S. premarket trading, after the mattress retailer said that stockholders approved its merger with Durational.
Silvergate Capital (SI US) gains 0.8% in premarket following Goldman Sachs analyst William Nance’s upgrade to buy from neutral.
American Homes (AMH US) is down 4.9% in premarket after launching a stock sale via BofA, JPMorgan, Citi, Morgan Stanley.
KemPharm (KMPH US) gained 4.6% postmarket after the biopharma company said it’s decided to make KP1077, a treatment for idiopathic hypersomnia, its next lead development candidate.
Investors now await U.S. data including unemployment claims and Netflix earnings after the close. The reporting season so far has been a little bit rocky, and investors need to monitor commentary from companies about price and wage pressures, Rebecca Felton, RiverFront Investment Group senior market strategist, said on Bloomberg Television.
“We do believe stocks can continue to go higher even as the Fed changes policy,” she said, adding corporate profits will still likely beat estimates.
In Europe, gains in the travel and media industries outweighed declines for carmakers and energy companies pushing pulling the Stoxx 600 Index up 0.15% after dropping as much as 0.5%. French semiconductor company Soitec sank 16%, the most in almost two years, after the executive committee at the French semiconductor company released a letter criticizing the board for an “incomprehensible” choice of new chief executive. Alstom SA fell after sales missed estimates. Citigroup has asked London staff to come into the office at least three days a week after the U.K. government ended a work-from-home requirement, with Goldman also telling staff to return.
European Central Bank President Christine Lagarde said the ECB has “every reason” not to respond as forcefully as the Fed to soaring consumer prices. The central bank has come under pressure to act, but officials say an interest-rate increase is highly unlikely this year since the current bout of inflation is driven by supply shocks and a spike in energy costs.
Stocks in Asia climbed, ending a five-day slump, as sentiment was boosted by a decline in Treasury yields from recent highs and a cut in China’s lending rates. The MSCI Asia Pacific Index rose as much as 1.1%, driven by consumer-discretionary and communication-services shares. Hong Kong’s Hang Seng Index had its best day since July 2020, leading regional benchmarks, and China stocks rose after banks cut borrowing costs, a move set to benefit struggling property developers. The 10-year U.S. Treasury yield fell to 1.84%, as traders appeared calmer about the Federal Reserve’s next policy move. Prospects of faster-than-expected tightening hammered Asian equities this week, driving the MSCI Asia Pacific Index into negative territory for the year. “Equity adjustments to higher inflation are driven by higher input costs, interest rates, and higher selling prices,” DBS Bank Strategist Joanne Goh wrote in a note. “Consumer staples goods, which have lower pricing power, would be most affected by rising material costs.” Tencent and Alibaba were among the biggest contributors to the regional measure’s gain Thursday, as China’s internet regulator denied reports of drafting deals-related rules.
Japanese equities closed higher, after a volatile morning session following Wednesday’s selloff, as the market remained wary over Covid-19 infections and U.S. interest-rate hikes. Electronics makers and service providers were the biggest boosts to the Topix, which rose 1%. The benchmark swung between a gain of as much as 1.4% and loss of 0.6% Thursday. Fast Retailing and Sony were the largest contributors to a 1.1% rise in the Nikkei 225, which similarly fluctuated. “Speculation over U.S. rate hikes, inflation concerns spurred by rising oil prices and worry over corporate earnings are things weighing on sentiment,” said Takashi Ito, an equity market strategist at Nomura Securities. Still, “the drop in U.S. equities has softened, and the current situation isn’t likely to develop into any prolonged global stock rout.” Stocks rose in Hong Kong and China after Chinese lenders lowered borrowing costs for a second straight month. U.S. shares fell overnight, with the Nasdaq Composite entering a correction, as investors assessed outlooks for earnings growth amid the potential for monetary policy tightening.
Australian stocks also edged higher, with the S&P/ASX 200 index rising 0.1% to close at 7,342.40, recovering from an earlier loss of as much as 0.5% as miners surged. Northern Star was the top performer after it maintained its full-year gold production forecast and issued a 2Q update. Kelsian Group was the worst performer, falling for a third day. Investors also assessed jobs data. Australia’s unemployment rate tumbled to a 13-year low in December, potentially setting the stage for the Reserve Bank to scrap its bond-buying program and bring forward interest-rate increases. In New Zealand, the S&P/NZX 50 index fell 0.9% to 12,497.10, notching its lowest close since June.
In rates, Treasuries trade near day’s highs as U.S. trading begins after erasing Asia-session losses, with futures near top of Wednesday’s range. The Treasury curve bull-flattened and the U.S. notes outperformed German and U.K. benchmarks with yields richer by 2bp to 3bp across the curve, spreads within 1bp of Wednesday’s closing levels; 10-year yield near 1.84% outperforms bunds and gilts by 2bp and 1bp. Peripheral spreads tighten at the margin. Bank issuance expected to continue following Wednesday’s jumbo Goldman Sachs deal, which saw swap spreads tighten, adding support for Treasuries. Treasury sells $16b 10-year TIPS new issue at 1pm ET.
In FX, the Bloomberg Dollar Spot Index was little changed as most Group-of-10 peers consolidated while AUD topped the G-10 after Australia’s unemployment rate tumbled to a 13-year low. The Australian dollar touched its strongest level this week after the December jobless rate fell to a 13-year low, beating expectations. Short-end yields climbed amid bets on an early end to RBA’s bond buying. The euro traded in a narrow range around $1.1350; euro-dollar one-week implied volatility, which now captures the next Federal Reserve meeting, rises by as much as 118 basis points to touch 6.16%, the highest since Jan. 7; the relative premium rises above parity for the first time since mid-December and stands around 72 basis points as of 7am London. The pound edged higher against the dollar as Wednesday’s comments from Bank of England Governor Andrew Bailey failed to derail market positioning for monetary tightening and sterling resilience. Money markets are close to fully pricing a 25bps hike next month. Norway’s krone was little changed even as the central bank said it’s on track to raise borrowing costs in March, citing a continued upswing in the oil-rich economy and signaling less worry over the resurgent virus. The yen steadied after Wednesday’s advance as traders sought clarity on the direction of the greenback. Benchmark 10-year JGB yields were little changed.
In commodities, crude futures are in the red; March WTI off 0.5% near $85.30, Brent back below $88. Spot gold holds a narrow range close to the top of Wednesday’s sharp rally near $1,840/oz. Base metals trade well, lead by LME nickel.
Looking at the day ahead, data releases from the US include the weekly initial jobless claims, December’s existing home sales, and the Philadelphia Fed’s business outlook for January. Meanwhile in Europe, there’s Germany’s PPI for December and the final Euro Area CPI reading for December. From central banks, the ECB will be publishing the minutes from their December meeting. Finally, earnings releases include Netflix, Union Pacific and American Airlines Group.
Market Snapshot
S&P 500 futures up 0.4% to 4,540.75
STOXX Europe 600 down 0.2% to 480.02
MXAP up 1.1% to 193.34
MXAPJ up 1.2% to 636.48
Nikkei up 1.1% to 27,772.93
Topix up 1.0% to 1,938.53
Hang Seng Index up 3.4% to 24,952.35
Shanghai Composite little changed at 3,555.06
Sensex down 1.1% to 59,457.79
Australia S&P/ASX 200 up 0.1% to 7,342.39
Kospi up 0.7% to 2,862.68
Brent Futures down 0.8% to $87.76/bbl
Gold spot down 0.1% to $1,839.41
U.S. Dollar Index little changed at 95.52
German 10Y yield little changed at -0.02%
Euro little changed at $1.1349
Brent Futures down 0.7% to $87.80/bbl
Top Overnight News from Bloomberg
The European Central Bank has “every reason” not to respond as forcefully as the Federal Reserve to soaring consumer prices, according to President Christine Lagarde
Britain’s acute cost-of- living crunch will hit in April, instantly stretching household and company budgets and penalizing the poorest households, many of which have already been most impacted by Covid-19
President Joe Biden said he thinks Vladimir Putin doesn’t want a full- blown war but will “move in” on Ukraine after amassing 100,000 troops on its border, part of an extraordinarily blunt assessment of Russian intentions and the West’s likely response
A record-breaking rally in Chinese property bonds petered out on Thursday amid growing investor doubt over how much a reported plan to allow developers greater access to funds from presold homes will benefit distressed firms
Near-record food costs risk climbing further as surging oil prices boost the appeal of turning more agricultural commodities into biofuels
Turkey is set to pause its cycle of interest-rate cuts Thursday after a sliding currency and rising global energy prices pushed consumer inflation to its highest level since the beginning of President Recep Tayyip Erdogan’s rule
A more detailed look at global markets courtesy of Newsquawk
GEOPOLITICS
US President Biden said he thinks Russian President Putin does not want a full-blown war but thinks Putin will test the West. Furthermore, Biden added that Putin has never seen sanctions like the ones he has promised, while he added that Ukraine joining NATO in the new term is not likely. (Newswires)
US senior administration official said no option has been taken off the table in terms of sanctions on Russia and the US is prepared to look at sanctions on the largest financial institutions in Russia if there is a Ukraine invasion. Furthermore, the official stated that any move by Russian military to acquire land in Ukraine will merit a severe economic response and the White House also warned that if any Russian military move across the Ukrainian border, it will be met with a swift, severe and united response from US and its allies, while it added that any Russian aggression short of military action will be met with a decisive, reciprocal and united response. (Newswires)
Russia's Kremlin notes there have been some positive signals on NATO's willingness to discuss some security issues with Russia but they are not fundamentally important to Russia; doesn't rule out a conversation between President Putin and US President Biden at some stage. (Newswires)
Chinese military said a US warship entered waters near the Paracel Islands without permission, while Chinese forces followed the US ship and warned it to leave. Furthermore, China's military demanded that the US immediately stop such provocations or it will bear serious consequences of unforeseen events. (Newswires)
Russia, Iran, and China will hold joint naval drills on Friday, according to ISNA. (Newswires)
North Korea's Politburo meeting on Wednesday which was presided over by leader Kim, called for reconsidering trust building measures due to US hostile policy and ordered to examine a restart of all temporarily suspended activities.
APAC TRADE
Asian equity markets eventually traded mostly higher but with price action choppy after US bourses waned.
ASX 200 (+0.1%) lacked firm direction.
Nikkei 225 (+1.1%) was choppy on FX fluctuations and positive domestic trade data.
Hang Seng (+3.4%) and Shanghai Comp. (U/C) benefited from PBoC LPR action in APAC hours.
Top Asian News
Asia Stocks Snap Rout as China Cuts Lending Rates, Yields Slip
Fintech Giant Kakao Pay’s Top Execs Quit After Investor Revolt
BHP Holders Set to Back Single Listing as Miner Mulls M&A
Bank Indonesia Sends First Hints of Policy Normalization
European Trade
Major bourses in Europe are softer, Euro Stoxx 50 -0.2%, in an indecisive morning as initial post-PBoC upside fizzled out with catalysts/drivers minimal.
US equity futures are firmer, ES +0.4%, picking back up from yesterday's pressure with the NQ +0.7% outperforms amid a pull-back in yields
European sectors are mixed with Travel & Leisure modestly outperforming while Oil & Gas and Banking benchmarks lagging given crude and yield action respectively.
Top European News
Valneva Soars After Vaccine Update; Bryan Garnier Says Buy Stock
Turkey May Spend $3.8 Billion to Boost State Banks’ Capital
Unilever CEO Misses Out on Advil Just as He May Need It
Asia Stocks Snap Rout as China Cuts Lending Rates, Yields Slip
FX
Dollar drifts alongside Treasury yields after solid 20 year auction and ahead of jobless claims, Philly Fed and existing home sales.
Aussie rules G10 roost as upbeat jobs data leads to more hawkish and aggressive RBA rate and QE expectations.
Pound retains post UK inflation momentum but wary about further political upheaval, Norwegian Crown slips as Norges Bank sticks to tightening in March script and USD/TRY moves lower on an unchanged CBRT decision which emphasises the aim of prioritising the TRY.
However, Yuan remains firm after PBoC sets near 4 year high CNY midpoint fix and trims Chinese LPRs.
Commodities
WTI and Brent front month futures are choppy intraday; WTI & Brent pivot USD 85.50/bbl and USD 88/bbl respectively.
Spot gold and silver trade horizontally, but retain the gains derived in yesterday's session.
LME copper remains supported and is nearing USD 10k/t to the upside once more.
Kiruk-Ceyhan oil pipeline (150k BPD) has now returned to full capacity, according to Reuters citing a KRG source. (Newswires)
US Event Calendar
8:30am: Jan. Initial Jobless Claims, est. 225,000, prior 230,000; Continuing Claims, est. 1.56m, prior 1.56m
8:30am: Jan. Philadelphia Fed Business Outl, est. 19.0, prior 15.4
10am: Dec. Existing Home Sales MoM, est. -0.5%, prior 1.9%; Home Resales with Condos, est. 6.42m, prior 6.46m
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More Ghost Town news from the MMGYS sister board
Silver Price Prediction 2022: David Morgan
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Doug Casey - We Are Facing An Economic Disaster
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=167565004
Have a Great Day everybody
Stay Safe
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Amtrak Snow-mo Collision on "Morning Markets"
Morning Markets
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Futures Rebound Strongly From Overnight Rout As Yields Stabilize
Wednesday, Jan 19, 2022 - 07:34 AM
After what earlier looked like another assured overnight rout, especially after 10Y yields hit 1.90% and Brent rose as high as $89/bbl, US equity futures reversed earlier losses to trade higher as earnings optimism outweighed concerns over soaring bond yields and a 50bps March rate hike. As of 7:00am ET, emini S&P futures were up 14 points ot 0.3% to 4,585, Nasdaq futures were up 65 points or 0.44% and Dow futures were also in the green by 89 points or 0.25%. The dollar slumped after several days of sharp gains, the 10Y yield traded at 1.8826%, down from the session's highest levels, and Brent was at $88.23.
The prospect of accelerated policy tightening as well as concerns over the omicron variant and inflation hurting companies’ profits have whipsawed equities this year. The surge in Treasury yields has fueled a rotation out of expensive technology and growth shares and into cheaper parts of the market. Meanwhile, the 10Y yield has continued its aggressive push higher overnight, and hit a fresh 2 year high, rising just above 1.90% for the first time since Jan 2020, before retracing some of the move. Britain’s inflation rate surged unexpectedly to the highest since 1992 and Germany’s 10-year yield turned positive for the first time since 2019.
The surge in yields has routed high duration tech names - the Nasdaq 100 plunged 2.6% yesterday to the lowest level since mid-October. “The 2-year Treasury has moved too aggressively in pricing in Fed tightening, in our view, and we expect the yield curve to steepen,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “This steepening should further improve the positive backdrop for financial services companies,” he said.
SoFi Technologies, the financial firm led by former Twitter executive Anthony Noto, extended its gains in U.S. premarket session after the Office of the Comptroller of the Currency granted it a U.S. banking charter.
“We are in late stage of the cycle, where equities will post lower returns due to weaker growth and higher rates, but we expect the ongoing correction to be short,” Luca Paolini, chief strategist at Pictet Asset Management, said by email. He’s forecasting the S&P 500 index and U.S. 10-year yields at 2% by the end of the year.
Most European equities are in the green, recovering after a soggy start. Euro Stoxx 50 is up 0.5%, rallying ~1% from opening levels. Consumer products and services and retail names are the best performers after Richemont and Burberry Group Plc beat expectations; utilities and insurance names are the weakest. Shares in Switzerland's Richemont are leading the STOXX 600 and up a whopping 7% after the world's second-largest luxury group reported string demand for jewellery and watches.That had a positive effect across the sector and France's heavyweights, LVMH, Kering and Hermes are up and lifting the Paris CAC 40 benchmark above the floatation mark.The UK's Burberry is another strong performer, rising close to 5% as the luxury brand said annual profit would beat market expectations. The retail sector was also on a roll, rising over 2% with Spain's Inditex leading the pack after Goldman Sachs upgraded the stock due to resilient earnings and cashflow. Marks & Spencer, Zalando and Kingfisher were all rising over 2%.
Earlier in the session, risk aversion deepened in stock markets across Asia on Wednesday as bond yields remained elevated, with investors trying to gauge the timing and scope of the Federal Reserve’s anticipated interest-rate hikes. The MSCI Asia Pacific Index slid as much as 1.5%, heading for a five-day slump, as tech and consumer-discretionary stocks furthered recent declines. Sony Group and Toyota Motor were among the biggest drags on the gauge. Energy shares climbed, even as the oil rally eased in Asia. Quantitative tightening may exert capital-outflows pressure on Asia, “which may theoretically lead to compression in asset valuations,” Nomura strategists including Chetan Seth wrote in a note. Given that valuations are currently modest, Asian stocks will not face as significant a de-rating as they did when the Fed tightened in 2017-2018, they added. Higher yields have damped investor appetite for global equities, particularly hitting richly valued tech shares. Asian firms are also weighed down by concerns over China’s economy. Still, the yield spike isn’t all bad for stocks, as “the sum total of expected rate hikes remains low,” BlackRock Investment Institute strategists wrote in a note. Japan’s stock benchmarks were the worst performers in Asia on Wednesday, with the Topix a whisker away from technical correction as Tokyo and other parts of the nation prepare to come under a state of quasi-emergency for three weeks starting Friday. Hong Kong-listed tech stocks capitulated ahead of a Reuters report in the late afternoon about China slapping new curbs on investment deals for the industry’s largest firms. Equity losses were relatively limited in mainland China, where the central bank pledged to use more monetary-policy tools.
Japanese equities fell and the yen strengthened amid extended global risk-off trading on concerns over expected Federal Reserve monetary tightening. Electronics and auto makers were the biggest drags on the Topix, which was down 3% as of 2:37 p.m. in Tokyo, with all 33 industry groups in the red. Tokyo Electron Ltd was the largest contributor to a 3% loss in the Nikkei 225 Stock Average. Sony Group Corp. dropped more than 12% after rival Microsoft Corp. announced it will acquire Activision Blizzard Inc. The Japanese currency gained 0.3% against the dollar. After initial enthusiasm following the Bank of Japan’s decision to maintain policy, Japanese stocks swung to a loss Tuesday amid regional concerns after U.S. Treasury yields spiked. U.S. stocks dropped overnight as speculation grew that central banks will have to boost interest rates sooner than earlier anticipated. “There’s market jitters over the possibility of a U.S. rate hike taking place earlier than March,” said Mitsushige Akino, a senior executive officer at Ichiyoshi Asset Management Co. “The level of market uncertainty is high and share price swings are likely to continue into March, until there’s clarity on the Fed’s monetary policy steps.” Meanwhile, the greater Tokyo region and other parts of Japan are set to come under a state of quasi-emergency for three weeks starting Friday as the government tries to rein in a surge in Covid-19. Tokyo will seek to have bars and restaurants close early, national broadcaster NHK said.
In Australia, the S&P/ASX 200 index fell 1% to 7,332.50, closing at its lowest level since Dec. 20. Global stocks dropped as Treasury yields soared on bets that central banks will have to boost interest rates earlier than expected. Yields in Australia and New Zealand also climbed. READ: Kiwi Dollar, Yields Jump on ANZ Rate View: Inside Australia/NZ Megaport was the worst performer on Australia’s benchmark after it reported 2Q sales results. Harvey Norman was among the top performers after it was upgraded at Credit Suisse. In New Zealand, the S&P/NZX 50 index fell 1.6% to 12,612.31, marking its worst session in almost a year
In rates, Treasury yields remained cheaper on the day despite futures rebounding sharply from session lows. Yields higher by 1bp-2bp across the curve and most spreads within a basis point of Tuesday’s close; 10-year 1.885% after topping 1.90% for first time since January 2020, while in Europe, bund yields climbed above zero for the first time since before the pandemic. Treasury coupon sales resume with $20b 20-year bond reopening. $20b 20-year bond reopening at 1pm ET follows small tails for last week’s 10- and 30-year auctions; a $16b 10-year TIPS new issue is slated for Thursday. German 2s10s steepen ~2bps with 10y bund yields turning slightly positive. Gilts bear-flatten, cheapening as much as 8bps across the curve after a hot inflation print; OIS rates price ~24bps of tightening for the Feb. BOE meeting. Cash USTs bear-flatten slightly.
In FX, Bloomberg dollar spot drops 0.25%, slightly extending Asia’s weakness, and the dollar was steady-to-weaker against all of its Group-of-10 peers. The Norwegian krone and Canadian dollar rallied as oil prices continued to rise while New Zealand’s dollar gained and the nation’s short-end yields climbed after ANZ economists said they now expect the RBNZ’s official cash rate to peak at 3% by April 2023, up from a prior projection of 2% in 2H 2022. The pound inched up amid broad dollar weakening while the yield on 10-year Gilts soared through 1.30% following a report showing that Britain’s inflation rate surged unexpectedly to the highest since 1992. The euro inched up following yesterday’s deep loss versus the dollar; the rate on 10-year Bunds rose four basis points to 0.02%, crossing above zero for the first time since May 2019. The yen pared an advance as European stocks rebounded from opening losses. Commodity currencies lead broad gains against the dollar in G-10. ZAR leads in EMFX after Dec. inflation data nears the top of SARB’s target range.
In commodities, crude futures drift back up toward session highs after an early dip. WTI is up over 1% after finding support near $86, Brent regains $88. Spot gold pushes slightly higher, adding $3 near $1,817/oz. LME copper outperforms in a broadly positive base metals complex; tin lags.
Looking at the day ahead, data releases include the UK and Canada’s CPI reading for December, along with US housing start and building permits for December. Central bank speakers include BoE Governor Bailey, Deputy Governor Cunliffe and the ECB’s Holzmann. Finally, earnings releases include UnitedHealth Group, Bank of America, Procter & Gamble, Morgan Stanley, Charles Schwab, US Bancorp and United Airlines.
Market Snapshot
S&P 500 futures down 0.1% to 4,565.50
STOXX Europe 600 little changed at 479.76
MXAP down 1.3% to 191.05
MXAPJ down 0.5% to 628.97
Nikkei down 2.8% to 27,467.23
Topix down 3.0% to 1,919.72
Hang Seng Index little changed at 24,127.85
Shanghai Composite down 0.3% to 3,558.18
Sensex down 1.0% to 60,142.26
Australia S&P/ASX 200 down 1.0% to 7,332.50
Kospi down 0.8% to 2,842.28
Brent Futures up 1.1% to $88.45/bbl
Gold spot up 0.2% to $1,817.04
U.S. Dollar Index down 0.13% to 95.61
German 10Y yield little changed at 0.01%
Euro up 0.2% to $1.1343
Brent Futures up 1.1% to $88.44/bbl
Top Overnight News from Bloomberg
China’s central bank pledged to use more monetary policy tools to spur the economy and drive credit expansion, sending its clearest signal yet of an easing bias to boost market confidence
The European Central Bank’s inflation forecasts aren’t a “blind certitude” and the institution will take action if the price surge proves more persistent, Bank of France Governor Francois Villeroy de Galhau said
A group of rookie Tory MPs gathered on Tuesday to discuss whether there was any appetite to move together against the prime minister, several lawmakers said
Oil held gains above the highest close since 2014 as the International Energy Agency said the market looked tighter than previously thought, with demand proving resilient to omicron. Some in the market now think it’s now a question of when -- not if -- oil hits triple digits
The Cyberspace Administration of China is drafting new guidelines that will require any company with more than 100 million users or over 10 billion yuan ($1.6 billion) in revenue to seek the watchdog’s approval before such deals, Reuters reported. Any internet firm in sectors named on a “negative list” issued last year will also require approval, the news agency said
A more detailed look at global markets courtesy of Newqsuawk
Asian stocks followed suit to the losses on Wall St where all major indices declined led by tech and growth as US yields climbed to two-year highs and with financials also hit following earning releases in which Goldman Sachs and Charles Schwab both missed on their bottom lines. ASX 200 (-1.0%) traded lower in which tech mirrored the underperformance of the sector stateside as Nasdaq 100 futures dipped into correction territory after shedding 10% from its November peak and with BHP failing to benefit from an increase in its quarterly iron ore and petroleum output as the mining giant also reported a decline in coal production and warned of short-term disruptions from next month’s proposed easing of Western Australia border restrictions. However, the energy sector was buoyed by continued advances in oil prices due to the geopolitical risk premium and after an explosion in Turkey forced the shutdown of the Iraq-Turkey crude oil pipeline which is Iraq’s largest crude oil export line. Nikkei 225 (-2.8%) was heavily pressured by recent currency strength and with Japan set for tighter COVID-19 restrictions in key areas including Tokyo, while Toyota and Sony were the notable laggards after the automaker flagged a miss to its output targets due to chip shortages and with Sony impacted by news that rival Microsoft is to acquire video game publisher Activision. Hang Seng (U/C) and Shanghai Comp. (-0.4%) were choppy and initially fared better than their regional peers after the PBoC continued with its liquidity efforts and recently hinted of more easing, but with upside restricted amid reports of further scrutiny by the US on Chinese businesses including an examination into Alibaba's cloud unit to determine if it poses a risk to US national security. Finally, 10yr JGBs were kept afloat amid the broad risk aversion in Tokyo although gains in JGBs were gradual as T-note futures remained pressured by a further rise in yields and following slightly weaker demand at the enhanced liquidity auction for 2yr-20yr JGBs.
Top Asian News
Sunac China Dollar Bonds’ Record Surge Approaches 20 Cents
Hamsters, Wings, Shrimp Ensnared by China’s Covid Zero Zeal
China’s Sinopec Floods LNG Spot Market with Cargoes for 2022
Tokyo to Press Bars to Close Early as Covid Cases Hit Record
Major bourses in Europe are now mostly in positive territory (Euro Stoxx 50 +0.5%; Stoxx 600 +0.3%) as the region recovered from the losses seen at the cash open – which saw the Euro Stoxx 50 and DAX 40 open lower by 0.5% and 0.8% respectively. US equity futures have also nursed earlier losses and now reside in positive territory, with the NQ recuperating from losses of over 1.0% at one stage as the US 10yr cash yield eclipsed 1.90% and the German 10yr yield turned positive for the first time in over three years. Back to cash equities, the CAC (+0.6%) and IBEX (+0.6%) outperform amid their large retail exposure, with the sector bolstered after stellar updates from Richemont (+9.1%) and Burberry (+6.0%) coupled with a broker upgrade for Inditex (+3.5%) at Goldman Sachs; in turn lifting the likes of LVMH (+3.0%) and Kering (+3.3%). Delving deeper into the sectors, the earlier defensive bias has evolved into a more cyclical one, with Basic Resources, Travel & Leisure and Retail at the top of the bunch, whilst Healthcare and Food & Beverages make their way down the ranks. Tech has recovered from its earlier yield-induced underperformance with the aid of a post-earnings ASML (+1.1%) which missed on net sales expectations, but the group announced a 100% Y/Y increase in its dividend, whilst the CEO suggests their production capacity cannot accommodate higher demand. For reference, ASML accounts for around 7.5% of the Euro Stoxx 50. In terms of other individual movers, Leoni (-14.0%) slumped as Co. sites were searched by the German Federal Cartel Office as part of an investigation into various cable manufacturers and other industry-related companies.
Top European News
Richemont, Burberry Signal That Luxury Market Is Thriving
Airbus Gears Up for Growth With Plans to Add 6,000 New Staff
5G Rollout Disrupts Flights Into U.S. From Across the World
Hamsters, Wings, Shrimp Ensnared by China’s Covid Zero Zeal
In FX, sterling remains somewhat caught between stalls after stronger than forecast UK CPI readings that add more weight to expectations and pricing for further BoE policy normalisation, but cautious about carrying too much rate hike premium given the growing prospect of change at the highest level in Government and the rising rebellion against Tory Party leader Boris Johnson. Hence, the post-data pop above 1.3600 in Cable was relatively limited and short-lived, while Eur/Gbp only dipped marginally within a tight 0.8342-23 range before stabilising. However, the Pound is holding off Tuesday’s lows vs the Dollar by virtue of the fact that the Greenback has faded generally and topped a key Fib retracement level at 1.3610 as the index slips back a bit further towards 95.500 having reached 95.832 at best yesterday and consolidating between 95.792-549 ahead of US housing data and the 20 year auction.
NZD/AUD - In contrast to Sterling, the Kiwi has no political inhibitions on the domestic front inhibitions and is outperforming amidst hawkish RBNZ calls from ANZ Bank, as Nzd/Usd bounces from overnight lows towards the psychological 0.6800 mark and the Aud/Nzd cross retreats through 1.0600 again. To recap, ANZ expects a 25 bp hike at every meeting from February to April 2023 that would push the OCR up to 3% from the current 75 bp. Meanwhile, the Aussie is lagging in wake of a fall in Westpac consumer sentiment and in advance of more pivotal jobs data tomorrow, albeit with Aud/Usd also off worst levels within a 0.7177-0.7214 band following a strong rise in iron ore prices.
CAD/CHF/EUR/JPY - All recouping some lost ground against the Buck, and the Loonie still getting a lift from crude as WTI extends its heady rise to probe Usd 87/brl, while the Franc is approaching 0.9150 from sub-0.9175 and remains above 1.0400 vs the Euro even though Eur/Usd has regained enough poise to retest offers/resistance into 1.1350, including the 21 DMA that comes in at 1.1347 today (and incidentally matches Tuesday’s 55 DMA). Elsewhere, the Yen is rather betwixt and between on respective UST/JGB yield and broad risk grounds, as Usd/Jpy pivots 114.50 before Japanese inflation on Thursday. Back to Usd/Cad, Canadian CPI looms and could either compound BoC tightening perceptions or undermine, while the near term technical backdrop is basically flanked by resistance around 1.2550 and support circa 1.2450 beyond the current 1.2525-1.2472 bounds.
In commodities, WTI and Brent front month futures remain elevated following an initial blip lower in early European hours – which at the time emanated from reports that the Iraq-Turkey pipeline will resume oil flows after an explosion yesterday - said to have been an accident as opposed to an attack, which had been feared. The explosion was the cited driver behind yesterday’s rise in crude, with WTI Feb reaching a USD 86.41/bbl high and Brent March a peak of USD 89.05/bbl before waning off best levels. Nonetheless, prices see tailwinds in European trade as equities recovered off lows and following the IEA Monthly Oil Market report which raised its global demand growth forecast and suggested Omicron has had less of an impact than initially expected. Furthermore, the report suggested that OPEC+ effective spare capacity will be just 2.6mln BPD in H2-2022, "held primarily by Saudi Arabia and the UAE." Saudi Arabia has usually kept more than 1.5-2mln BPD of spare capacity on hand for market management, according to the EIA. Elsewhere, spot gold has been driving higher as the Dollar remains near lows, with the yellow metal finding some support around USD 1,810/oz. LME copper meanwhile is on the front-foot and prices have extended on their APAC gains as stocks trim earlier losses, whilst mining giant Antofagasta sees the demand picture for the red metal continuing. Elsewhere, Indonesia has not issued any export permits for tin for 2022, according to a commodity exchange official.
US Event Calendar
7am: Jan. MBA Mortgage Applications, prior 1.4%
8:30am: Dec. Building Permits MoM, est. -0.8%, prior 3.6%, revised 3.9%
8:30am: Dec. Housing Starts MoM, est. -1.7%, prior 11.8%
8:30am: Dec. Building Permits, est. 1.7m, prior 1.71m, revised 1.72m
8:30am: Dec. Housing Starts, est. 1.65m, prior 1.68m
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Have a Blast today
and stay warm...
Amtrak Snow-mo Collision
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Ghost Town Mining Picks
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MINING MOVERS
Company Change% Last Trade
Filo Mining 0.60 4.11 $15.21
Osisko Development 0.47 10.40 $4.99
Solaris Resources 0.44 2.98 $15.22
Ero Copper 0.43 2.68 $16.49
Ivanhoe Mines 0.43 3.69 $12.08
MAG Silver 0.39 2.06 $19.31
Los Andes Copper 0.24 1.97 $12.40
Nova Royalty 0.21 6.02 $3.70
SilverCrest Metals 0.18 1.88 $9.78
Wesdome Gold Mines 0.17 1.58 $10.91
NovaGold Resources 0.16 1.95 $8.35
North Peak Resources 0.16 7.48 $2.30
Gatos Silver 0.14 1.11 $12.72
Amex Exploration 0.14 4.50 $3.25
Phoenix Gold Resources 0.13 20.31 $0.77
HIGH VOLUME
Company Volume Last Trade
Uranium Energy 6,933,941 $3.16
Decade Resources 5,235,516 $0.05
Kinross Gold 4,603,069 $6.87
Denison Mines 3,726,456 $1.56
Jourdan Resources 3,271,746 $0.08
First Quantum Minerals 3,202,903 $34.32
B2Gold 3,076,755 $4.43
Ivanhoe Mines 2,996,726 $12.08
Universal Copper 2,600,449 $0.13
Yamana Gold 2,361,979 $5.13
Josemaria Resources 2,230,027 $1.57
New Gold 2,148,518 $2.04
Alamos Gold 2,091,993 $8.31
Sabre Gold Mines 2,080,613 $0.07
Cameco 2,061,680 $27.02
# PROJECT ACQUISITIONS
Mawson Gold Acquires Option for 85% of the Skelleftea North Gold Project
Platinex Announces Acquisition of the W2 Copper-Nickel-PGE Project
Endeavour Silver to Acquire the Pitarrilla Project, One of the World’s Largest
Cirrus to Consolidate Lordsburg Property in New Mexico from Waterton Global Resource
Gold79 Mines Acquires the Sheep Trail Patented Claims at Its Gold Chain Project
MERGERS / ACQUISITIONS
Calibre Mining Completes Acquisition of Fiore Gold and Operating Pan Gold Mine in Nevada
Elemental Royalties Urges Shareholders to Take No Action
Corvus Gold Securityholders Approve Acquisition By AngloGold Ashanti
Harfang Exploration Inc. and LaSalle Exploration Corp. Announce Merger
Two Leading, Independent Proxy Advisors, ISS and Glass Lewis, Recommend Pretium
NEW / DUAL LISTINGS
Vizsla Silver to Commence Trading on the NYSE American
Banyan Gold Announces Listing on OTCQB Venture Market
Anacortes Mining Announces Listing on OTCQB Under Symbol XYZFF
CopperCorp Resources Inc. Completes Initial Public Offering
Three Valley Copper Begins Trading on the OTCQB Under Ticker Symbol “TVCCF”
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Morning Markets . . . .
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Futures Slide After Disappointing JPMorgan Earnings, Tech Rout Worsens
Friday, Jan 14, 2022 - 08:13 AM
After trading flat for much of the overnight session, S&P futures slumped to session lows shortly after JPM reported earnings that disappointed the market (see our full write up here) and were last trading down 30 points or 0.64%, with Dow futures down 0.3% and Nasdaq futures taking on even more water as the "sell tech" trade was back with a bang. Treasury yields rose 3bps to 1.74% and the dollar reversed an overnight loss. The VIX jumped above 20 and was last seen around 21.
The Nasdaq 100 fell to the lowest in almost three months yesterday as tech came under pressure after Fed Governor Lael Brainard said officials could boost rates as early as March. It looks like the selling will continue today.
“Market sentiment has been shaken by concerns over the prospect of imminent Fed tightening along with record global Covid-19 infection rates, but we don’t expect either of these factors to end the equity rally,” said UBS Wealth Management CIO Mark Haefele in a note. “The fourth-quarter U.S. earnings season, which started this week, could turn investor attention back to strong fundamentals.”
JPMorgan shares dropped in premarket trading after revenues and EPS beat thanks to a $1.8 billion reserve release while FICC trading revenue missed expectations even as its dealmakers posted their best quarter ever and Chief Executive Officer Jamie Dimon gave an upbeat assessment of prospects for growth. Wells Fargo advanced after reporting higher-than-estimated revenue. BlackRock Inc. became the first public asset manager to hit $10 trillion in assets, propelled by a surge in fourth-quarter flows into its exchange-traded funds. Here are some of the other notable pre-movers today:
U.S.-listed casino stocks with operations in Macau rise after the announcement of much-anticipated changes to the local casino law aimed at tightening government oversight on the world’s largest gaming market. Las Vegas Sands (LVS US) +6.6%; Melco Resorts (MLCO US) +5.5%; Wynn Resorts (WYNN US) +5.6%.
Apple (AAPL US) shares are up in U.S. premarket trading after Piper Sandler raises its target for the stock, saying that Apple’s set-up for 2022 is favorable. Broker adds that the tech giant’s venture into health-care and automotive markets are the next catalysts to drive the stock to a $4 trillion market cap and beyond.
NextPlay Technologies (NXTP US) shares jump 19% in U.S. premarket trading after giving an update for fiscal 3Q 2022 late yesterday.
Domino’s Pizza (DPZ US) is cut to equal-weight from overweight at Morgan Stanley, while Chipotle is upgraded to overweight from equal-weight amid a “mixed” view on restaurant stocks into 2022.
Amicus Therapeutics (FOLD US) advanced in postmarket trading after being upgraded to outperform from market perform at SVB Leerink, which cited the potential of a treatment for Pompe disease, should it be approved.
Spirit Realty dropped 4% postmarket after launching a share sale via Morgan Stanley and BofA Securities.
European equities traded poorly and followed the drop in Asia, with most sectors trading lower, weighed down once again by a soft tech sector. Euro Stoxx 50 is down 0.8%, most major indexes dropped over 1% before rising off the lows. Oil & gas is the best Stoxx 600 performer with crude trading well. European technology stocks as well as pandemic winners are leading declines after a U.S. selloff in tech shares resumed Thursday as Federal Reserve officials signaled their intention to combat inflation aggressively. European chipmakers are down in early trading Friday: ASM International -3.5% at 9.17 a.m. CET, Infineon -0.9%, ASML -2.9%, STMicroelectronics -2.3%. Meanwhile, energy and automakers outperformed. Utilities were also in focus as French nuclear energy producer Electricite de France SA (EDF) plunged by a record as the French government confirmed plans to force it to sell more power at a steep discount to protect households from surging wholesale electricity prices, a move that could cost the state-controlled utility 7.7 billion euros ($8.8 billion) at Thursday’s market prices.
There was some good news: a majority of strategists still see the rally in European equities continuing this year. The Stoxx Europe 600 Index will rise about 5.2% to 511 index points by the end of 2022 from Wednesday’s close, according to the average of 19 forecasts in a Bloomberg survey. Equity funds once more led inflows among asset classes in the week through Jan. 12, as investors reduced cash holdings, according to BofA and EPFR Global data.
Earlier in the session, Asian stocks slid as investors offloaded technology shares on growing speculation the Federal Reserve will raise interest rates in March. The MSCI Asia Pacific Index fell as much as 1.3% before paring losses to 0.7% in afternoon trading. Alibaba, Keyence and Sony Group were among the largest contributors to the benchmark’s slide. The Hang Seng Tech Index, which tracks China’s biggest tech firms, closed down 0.5%. Electronics makers also dragged down indexes in Japan and South Korea, with benchmarks in both nations leading the region’s drop. China’s CSI 300 Index closed at its lowest since November 2020. Asian stocks have been whipsawed this year by remarks from Fed officials as investors try to gauge the timing and scope of the anticipated interest rate hikes. The renewed weakness on Friday was triggered by comments from Fed Governor Lael Brainard, who said officials could boost rates as early as March to ensure that price pressures are brought under control. “This kind of hawkishness and a rush for rate hikes is, of course, a minus for share prices,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank in Tokyo. If the Fed were to increase rates in March, “investors will want to make sure the economy remains strong despite the monetary tightening before making their move,” Sera added. With Friday’s moves, Asia’s benchmark is set to pare its weekly gain to about 1.6%, which would still be its best weekly performance since October. In Japan, sentiment worsened as Tokyo raised its Covid alert to the second-highest of four levels as virus cases surged. South Korea’s Kospi was also weighed down as the central bank increased its policy rate for the third time in just five months
In rates, Treasuries pared declines with stock index futures under pressure as U.S. day begins. Yields beyond the 2-year reached session highs inside Thursday’s ranges amid a global government bond selloff. Treasury yields are cheaper by 3bp to 4bp across the curve with 10- year yields around 1.7274%, fading a bigger loss earlier and slightly underperforming bunds and gilts. Asia session featured speculation about tighter global monetary policy. IG dollar issuance slate empty so far and expected to remain light ahead of U.S. holiday weekend with markets closed Monday; four names priced $3.8b Thursday.
In FX, the Bloomberg dollar spot is little changed around worst levels for the week, while NOK, JPY and CAD top the G-10 scoreboard. The yen advanced, and is set for its largest weekly advance in more than a year as speculation about a shift in the Bank of Japan’s policy spurred a further unwinding of dollar longs. The five-year Japanese government bond yield climbed to a six-year high. The volatility term structure in dollar-yen shifted higher Friday and inverted. The euro was little changed around $1.1460 and European sovereign bond yields rose, with the core underperforming the periphery. Norway’s krone and the Canadian dollar advanced as oil prices rose, with Brent trading above $85 per barrel, while the Australian and New Zealand dollars were the worst performers. The pound extended its longest winning streak in nearly two months as the U.K. economy surpassed its pre-pandemic size in November for the first time. Sweden’s krona inched down, shrugging off data showing that the nation’s inflation rate rose to the highest level in 28 years
In commodities, crude futures rally with WTI recovering to Wednesday’s best levels near $83 and Brent putting in fresh highs near $85.40. Spot gold is little changed a brief retest of the week’s highs, trading near $1,823/oz. Base metals are mixed: LME nickel adds about 2% extending its recent surge; copper holds a narrow range in the red
Looking at the day ahead now, data releases include US retail sales, industrial production and capacity utilisation for December, along with the University of Michigan’s preliminary consumer sentiment index for January and the UK’s GDP for November. Central bank speakers include ECB President Lagarde and New York Fed President Williams. Lastly, earnings releases include Citigroup, JPMorgan Chase, Wells Fargo and BlackRock.
Market Snapshot
S&P 500 futures up 0.3% to 4,667.00
STOXX Europe 600 down 0.5% to 483.71
MXAP down 0.8% to 195.28
MXAPJ down 0.5% to 639.13
Nikkei down 1.3% to 28,124.28
Topix down 1.4% to 1,977.66
Hang Seng Index down 0.2% to 24,383.32
Shanghai Composite down 1.0% to 3,521.26
Sensex up 0.1% to 61,320.31
Australia S&P/ASX 200 down 1.1% to 7,393.86
Kospi down 1.4% to 2,921.92
German 10Y yield little changed at -0.08%
Euro up 0.1% to $1.1467
Brent Futures up 0.8% to $85.16/bbl
Gold spot up 0.1% to $1,823.97
U.S. Dollar Index little changed at 94.73
Top Overnight News from Bloomberg
Federal Reserve Governor Christopher Waller said that three interest-rate increases this year was a “good baseline” but there may be fewer or even as many as five moves, depending on inflation
The U.K. and the European Union agreed to intensify post-Brexit negotiations over Northern Ireland, as Foreign Secretary Liz Truss led the British side for the first time in a meeting at her official country residence
Germany’s economy contracted by as much as 1% in the final quarter of 2021 as the emergence of the coronavirus’s omicron strain added to drags on output from supply snarls and the fastest inflation in three decades
Japan’s Government Pension Investment Fund, the world’s largest, may mull investing in Chinese government bonds if the market situation improves, GPIF President Masataka Miyazono says at a press conference in Tokyo
Ukraine said a cyberattack brought down the websites of several government agencies for hours. Authorities didn’t immediately comment on the source of the outage, which comes as tensions with Russia surge over its troop buildup near the border
Russia won’t wait “endlessly” for a security deal with NATO and progress depends on the U.S., Foreign Minister Sergei Lavrov said Friday, keeping up pressure after a week of high-level talks with the West failed to yield noticeable progress
Turkey’s newly appointed finance chief said the country’s inflation will peak months earlier and at a level far lower than predicted by top Wall Street banks
The global pressures driving inflation higher represent a “major change in trends” and will keep price growth high for the foreseeable future, Bank of Russia Governor Elvira Nabiullina said
North Korea appears to have fired two ballistic missiles into waters off its east coast-- in what could be its third rocket-volley test in less than 10 days -- hours after issuing a fresh warning to the Biden administration
A more detailed look at global markets courtesy of Newsquawk
Asian equity markets weakened amid headwinds from the US where all major indices declined led by losses in tech and consumer discretionary amid a slew of hawkish Fed speak, while mixed Chinese trade data added to the cautiousness in the region. ASX 200 (-1.1%) traded lower as tech and consumer stocks mirrored the underperformance of stateside peers and with nearly all industries on the back foot aside from utilities and gold miners. Nikkei 225 (-1.3%) briefly gave up the 28k level amid a firmer currency and source reports that BoJ policy makers are said to debate how soon they can begin signalling a rate hike. In terms of the notable movers, Fast Retailing was the biggest gainer after it reported a record Q1 net, followed by Seven & I Holdings which also benefitted post-earnings, while Hitachi Construction was at the other end of the spectrum after news that parent Hitachi will offload half its majority stake. KOSPI (-1.4%) eventually underperformed after the Bank of Korea hiked rates by 25bps for a third time in the current tightening cycle to 1.25%, as expected. BoK also noted that CPI is to stay in the 3% range for a while and BoK Governor Lee made it clear that rates will continue to be adjusted which has fuelled speculation of similar action at next month’s meeting. Hang Seng (-0.2%) and Shanghai Comp. (-1.0%) were also pressured with participants digesting the latest trade figures which showed weaker than expected Imports although Exports topped estimates. Nonetheless, the downside was somewhat limited amid ongoing expectations for PBoC easing to support the economy as the Fed moves closer towards a rate lift off and with some encouragement after Evergrande averted its first onshore debt default whereby bondholders approved a six-month postponement of bond redemption and coupon payments. Finally, 10yr JGBs retreated beneath the 151.00 level following the source report that suggested debate within the BoJ on how soon a rate increase can be signalled which could occur ahead of the 2% price target, while this coincided with an increase in the 5yr yield to a 6-year high and a weaker than previous 20yr JGB auction.
Top Asian News
Chinese Developer R&F Downgraded to Restricted Default by Fitch
Macau Cuts Casino License Tenure, Caps Float as Controls Tighten
Inflation Irks Asia as Japan Yields Hit Six-Year High, BOK Hikes
China Builders’ Dollar Bonds Slump Further; Logan, KWG Lead
The major cash equity indices in Europe remain subdued but off worst levels (Euro Stoxx 50 -0.7%; Stoxx 600 -0.6%) as the downbeat APAC mood reverberated into the region amid a slew of hawkish Fed speak, while the mixed Chinese trade data added to the concerns of a slowdown ahead of next week’s GDP metrics. Newsflow had overall been quiet during the European session ahead of the start of US earnings season, but geopolitical tensions remain hot on the radar after North Korea fired its third missile of the year (albeit landing outside Japan’s EEZ), whilst Russia closed all communication channels with the EU and exerted some time-pressure on Washington with regards to Moscow’s security demands. Back to trade, a divergence is seen between Europe and the US as the former catches up to the late accelerated sell-off on Wall Street yesterday; US equity futures have been consolidating with mild broad-based gains seen across the ES (+0.2%), YM (+0.2%), NQ (+0.2%) whilst the RTY (Unch) narrowly lags. Delving into Europe, the UK’s FTSE 100 (-0.1%) is cushioned by gains across its Oil & Gas and Financial sectors as crude oil prices and yields clamber off intraday lows, whilst the SMI (-0.3%) sees some losses countered by its heavyweight healthcare sector. Sectors in Europe are mostly in the red with a slight defensive tilt, although Oil & Gas stands as the top gainer and the only sector in the green. The downside meanwhile sees Tech following a similar sectorial underperformance seen on Wall Street and APAC overnight. In terms of individual movers, DAX-heavyweight SAP (-0.3%) conforms to the losses across tech after initially rising as a result of upgraded guidance and the announcement of a share buyback programme of up to EUR 1bln. The most notable mover of the day has been EDF (-17.5%) as the Co. withdrew guidance after noting the impact of new French price cap measures is forecast to be around EUR 8.4bln on FY22 EBITDA.
Top European News
EDF Slumps by Most on Record on Hit From Price Cap
U.K. Economy Surpasses Pre-Pandemic Size With November Surge
German Recovery Lags Rest of Europe on Supply Snarls, Inflation
HSBC Markets Chief Georges Elhedery To Take Six-Month Sabbatical
In FX, another lower low off a lower high does not bode well for the index and Buck more broadly, but some technicians will be encouraged by the fact that chart supports in the form of a Fib retracement and 100 DMA have only been breached briefly. Meanwhile, Friday may provide the Greenback with a prop via pre-weekend position squaring and US data could lend a hand if upbeat or better than expected at the very least. For now, the DXY is restrained between 94.887-626 confines, with the upside capped by a major trendline that falls just below 95.000 around 94.980, and the Dollar also hampered by pressure emanating outside the basket from the likes of the Yuan, crude oil and other commodities.
CAD/JPY/GBP - The Loonie has reclaimed 1.2500+ status in line with a rebound in WTI towards Usd 83/brl, but still faces stiff trendline resistance vs its US counterpart at 1.2451 and probably conscious that several multi-billion option expiries roll off either side of the 1.2500 level today. Conversely, the Yen has cleared the psychological 114.00 hurdle with some fundamental impetus coming from hawkish BoJ source reports contending that policy-setters are contemplating how soon the Bank can telegraph a rate hike that is likely to be delivered prior to inflation reaching its 2% target. Elsewhere, Sterling remains elevated above 1.3700, though unable to scale 1.3750 even with tailwinds from stronger than forecast UK GDP and IP or a narrower than feared trade gap amidst ongoing political uncertainty.
CHF/EUR/NZD/AUD - All narrowly divergent and contained against their US rival, with the Franc straddling 0.9100 and Euro holding within a 1.1483-51 range and immersed in hefty option expiry interest spanning 1.1395 to 1.1485 (see 7.01GMT post on the Headline Feed for details). On the flip-side, the Aussie and Kiwi have both lost a bit more momentum after probing 0.7300 and approaching 0.6900 respectively yesterday, and Aud/Usd appears to have shrugged off robust housing finance data in the run up to China’s trade balance revealing sub-consensus imports.
SCANDI/EM - Firmer than anticipated Swedish CPI and CPIF metrics have not offered the Sek much support, as the stripped down core ex-energy print was in line and bang on the Riksbank’s own projection. However, the Huf has been underpinned by hot Hungarian inflation and the Cnh/Cny in wake of the aforementioned Chinese trade data showing a record surplus for December and 2021 overall. In Turkey, the Try is flattish following the latest CBRT survey that predicts a weaker year-end Lira from current levels, but above record lows and still well above target CPI, while in Russia the Rub is benefiting from Brent’s rise above Usd 85.50/brl (in keeping with the Nok) against the backdrop of geopolitical and diplomatic strains as the country’s Foreign Minister declares that all lines of communication with the EU have ended.
In commodities, WTI and Brent front-month futures have been on an upward trajectory since the Wall Street close, with the former now above USD 83/bbl (vs 81.58/bbl low) and the latter north of USD 85.50/bbl (vs 83.99/bbl low) in European hours. Overall market sentiment has been a non-committal one amid a lack of fresh macro catalysts, however, geopolitical updates have been abundant: namely with Russia’s punchy rhetoric surrounding its security demand from NATO and Washington, whilst North Korea fired what is said to be ballistic missiles which landed just outside Japan’s Exclusive Economic Zone (EEZ). On the demand side of the equation, eyes remain on China’s economic and COVID situations, with the import figures indicating China's annual crude oil imports drop for the first time in 20 years, whilst the nation grounded further flights between the US due to its zero-COVID policy. On the supply side, reports suggested that China will release oil stockpiles in the run-up to the Lunar New Year (dubbed as the largest human migration). The release is part of a coordinated plan with the US and other major consumers, according to the reports, which cited sources suggesting China will likely ramp up its releases if prices top USD 85/bbl. Turning to metals, spot gold is trading sideways and prices waned after again hitting the resistance zone around USD 1,830/oz flagged earlier this week. LME copper meanwhile remains under USD 10,000/t – subdued by the sharp slowdown in Chinese imports suggesting weaker demand, albeit annual imports of copper concentrate hit a historic high in 2021. The trade data also indicated a fall in iron ore imports as a factor of the steel production curbs imposed last year to tackle pollution and high iron ore prices.
US Event Calendar
8:30am: Dec. Import Price Index YoY, est. 10.8%, prior 11.7%; MoM, est. 0.2%, prior 0.7%
Export Price Index YoY, est. 16.0%, prior 18.2%; MoM, est. 0.3%, prior 1.0%
8:30am: Dec. Retail Sales Advance MoM, est. -0.1%, prior 0.3%
Dec. Retail Sales Ex Auto MoM, est. 0.1%, prior 0.3%
Dec. Retail Sales Ex Auto and Gas, est. -0.2%, prior 0.2%
Dec. Retail Sales Control Group, est. 0%, prior -0.1%
9:15am: Dec. Industrial Production MoM, est. 0.2%, prior 0.5%
Capacity Utilization, est. 77.0%, prior 76.8%
Manufacturing (SIC) Production, est. 0.3%, prior 0.7%
10am: Nov. Business Inventories, est. 1.3%, prior 1.2%
10am: Jan. U. of Mich. Sentiment, est. 70.0, prior 70.6; Expectations, est. 67.0, prior 68.3; Current Conditions, est. 73.8, prior 74.2
U. of Mich. 1 Yr Inflation, est. 4.8%, prior 4.8%; 5-10 Yr Inflation, prior 2.9%
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