MARKET WRAPS
Watch For:
Flash Manufacturing PMI for February; Flash Services PMI for February; Existing Home Sales for January; Canada Consumer Price Index for January; Canada Retail Trade for December; Earnings From Home Depot, Walmart, Palo Alto Networks
Today's Top Headlines/Must Reads:
- U.S., Allies to Boost Efforts to Stop Russia Skirting Sanctions
- In China, Worries About a Weakened Russia Prompt a Rethink
- Eurozone PMI Ahead of Forecast
- Tencent in Talks to Sell Meta's Quest 2 VR Headset in China
- Lithium Industry Looks to Australia for Refining, Not Just Mining
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Opening Call:
Investors are returning from the three-day weekend in a downbeat mood as rising bond yields and geopolitical tensions weigh on sentiment.
The mood in the market was cautious as benchmark bond yields neared their highs of the year on expectations recent robust economic data will encourage the Federal Reserve to keep borrowing costs higher for longer.
"So far, risky assets have digested the rates repricing well - while the broad 'risk-on' rally has slowed to a crawl, the higher terminal rates have not moved through assets like a wrecking ball as some had assumed," SPI Asset Management said.
"But there remains a heightened degree of caution due to the steep rise in U.S. yields and rate volatility, an environment where the U.S. dollar tends to benefit," SPI added.
BTIG reiterated the caution, saying that the latest rally had nevertheless begun to fade.
"After a few weeks of chopping around, the SPX looks to have broken its short-term uptrend just as momentum has begun to roll over, similar to breaks we saw in April, August, and December of 2022," BTIG said.
Stocks to Watch
Amazon was down 1.3% in premarket trading. Stock-heavy compensation plan means employees to receive 15-50% below projected pay targets, WSJ reported . Amazon shares have declined 36% over the past 12 months.
Apellis Pharmaceuticals said Friday the FDA approved syfovre to treat geographic atrophy secondary to age-related macular degeneration. Shares rose 10% in after-hours trading.
JD shares fell nearly 8% premarket after a report in the South China Morning Post that the ecommerce giant would launch a $1.5 billion subsidy program to compete with rival PDD Holdings. PDD stock fell 5%.
Meta will be rolling out a monthly Twitter-like subscription tier for Facebook and Instagram. Shares rose 1.8% in premarket trading.
Tesla has been weighing a takeover of the battery-metals miner Sigma Lithium, among other mining options, according to Bloomberg. Shares of Sigma Lithium soared 26% in after-hours trading Friday.
PMI Data
Purchasing managers index data for Europe and the U.S. could add to positive newsflow in early 2023, but any improvement shouldn't be overinterpreted, Deutsche Bank said.
"There has no doubt been big improvements from gas-price falls and loosening of financial conditions but we're yet to see anything close to the full lag of monetary policy filter through to the U.S. and Europe," DB said.
"We have to be careful not to over interpret an improvement back to where we might normally be at this stage of a cycle and not confuse it with a sustainable soft landing."
Forex:
The dollar rose as a deterioration in risk sentiment drove investors towards safe haven assets, but the currency's gains will be limited, ING said.
The dollar's rally could start to lose some steam later this week as the Fed's restrictive policy signals and strong economic data have likely been absorbed, while a further rise in Fed rate expectations looks "increasingly harder," ING added.
"We struggle to see the DXY dollar index extend the recent rally to 105.00 and we could instead witness the start of a decline again towards 102.50-103.00 in the coming days."
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Sterling rose after the latest U.K. PMI survey exceeded expectations.
The composite PMI rose to 53.0 in February from 48.5 in January, above the 49.0 reading expected in a WSJ survey of analysts.
The "resilience of the economy and the stickiness of the survey's inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively," S&P said.
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The euro stayed weaker against the dollar after February's eurozone purchasing managers' index survey showed services activity improved but manufacturing activity contracted further.
The services PMI rose to 53.0 in February from 50.8 in January but the manufacturing PMI fell to 48.5 from 48.8. Analysts in a WSJ survey had expected manufacturing PMI at 49.2 and services PMI at 50.9.
The data showed inflationary pressures eased but elevated prices in the services sector will concern European Central Bank policymakers, S&P said.
Energy:
Oil prices edged lower in Europe as investors monitored the outlook of U.S. interest rates, China's reopening, and Russian crude output.
Investors continue to hope that China's reopening will drive oil demand higher later this year. A jump in Russian oil exports in recent weeks has kept a lid on prices, however.
"Despite early reopening and a brighter forward macro-outlook, traders remain wary due to the surge in Russian oil exports," SPI Asset Management said.
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Fears of an energy crisis sparked by Russia's invasion of Ukraine appear to be outweighing the moral obligation to reduce carbon emissions, allowing investments in fossil-fuel projects in Africa such as Uganda's 900-mile crude oil export pipeline to remain on track, Oxford Economics Africa said.
TotalEnergies' $10 billion oil project in Uganda remains on track, with the country expected to start shipping as much as 230,000 barrels of crude oil a day to global markets in 2025.
Oxford Economics noted that fears of an energy crisis have "provided a window for many companies to invest in new oil-and-gas projects in Africa without receiving heavy pushback from climate-change activists."
Read Energy Companies Are Neglecting Easy Solutions to Methane Emissions, IEA Says
Metals:
Base metals were mixed in early London trading, with gold lower, as contrasting political messages coming from China and the U.S. added to market uncertainty.
"From the macro perspective, the uncertainty comes from the political issues," Marex said.
China is also looking to boost private investment in real estate, including residential, commercial, and infrastructure projects, it added.
TODAY'S TOP HEADLINES
Tencent in Talks to Sell Meta's Quest 2 VR Headset in China
Tencent Holdings Ltd. is in talks to sell Facebook parent Meta Platforms Inc.'s popular virtual-reality headset in China, home to the world's biggest pool of internet users.
Tencent, China's biggest videogame company, has proposed to Meta that it become the exclusive seller of Meta's Quest 2 headsets in China, people familiar with the discussion said. Tencent has also sought to publish Chinese versions of existing videogames for the device, they said.
Lithium Industry Looks to Australia for Refining, Not Just Mining
Lithium companies are looking to refine the crucial battery metal in Australia, where much of it is mined, in an effort to reduce shipping waste and develop new supply chains that bypass China.
The market for lithium-used in the production of electric batteries-is tight and likely to get tighter. Demand this year is expected to be 910,000 metric tons of lithium carbonate equivalent, or LCE, exceeding the 900,000 tons in supply. Benchmark Mineral Intelligence, which tracks the global battery supply chain, estimates that by 2030 around 2.7 million tons of LCE will be required annually, outstripping supply by 300,000 tons.
Amazon Corporate Workers Face Pay Reduction After Shares Slip
The steep decline in Amazon.com Inc.'s stock over the past year is roiling the technology company's stock-heavy compensation plan, resulting in employee pay coming in significantly lower than target compensation, according to people familiar with the matter.
Amazon pays its corporate employees a large chunk of their annual salaries in restricted stock units, and a prolonged slump in the company's shares is causing pay for 2023 to be between 15% and 50% lower than the projected targets Amazon gave to employees, some of the people said.
HSBC Posts Higher Profit After Rise in Global Interest Rates
Global banking giant HSBC Holdings PLC reported a sharp rise in fourth-quarter profit as it benefited from higher interest rates and continued to sharpen its focus on Asia and the Middle East.
The British lender's profit more than doubled in the final three months of 2022 from a year earlier to $4.6 billion, HSBC said Tuesday. That exceeded analyst expectations. For the full year, HSBC's profit rose nearly 18% to hit its highest level in almost a decade.
Walmart Stock Could Rally After Earnings. Why Caution Remains.
Keep an eye out for Walmart stock when the market opens on Tuesday, analysts say. The retail giant is poised to deliver another strong quarter, fueled in part by a strong holiday season, and shares may be set for a rally.
Analysts expect Walmart (ticker: WMT) to deliver fourth-quarter adjusted earnings of $1.52 a share on $159.7 billion in sales.
Tesla Crashes Into Firetruck in Fatal Accident
A Tesla driver in California died early Saturday morning after crashing into a firetruck on an interstate highway, an accident that comes as U.S. regulators are scrutinizing Tesla vehicle crashes with stationary emergency vehicles.
The Tesla crashed into a Contra Costa County Fire Protection District truck, which was parked across two lanes to block traffic while police officers assisted with towing a vehicle, said a spokeswoman for the fire-protection district. The accident occurred on Interstate 680 at around 4 a.m.
LG Chem Buys Stake in North Carolina Lithium Miner
(MORE TO FOLLOW) Dow Jones Newswires
02-21-23 0625ET
