MARKET WRAPS
Watch For:
Housing Starts for December; Canada CPI for December; earnings from Bank of America, Morgan Stanley, Procter & Gamble, UnitedHealth.
Opening Call:
Stocks were poised for muted opening moves following Tuesday's selloff, and government-bond yields extended their advance, as investors prepare for central banks globally to raise interest rates.
Investors have stepped up bets that the Federal Reserve and other major central banks will tighten monetary policy in the coming months, withdrawing a pillar of support for markets. Mounting expectations of interest-rate rises follow evidence that the drivers of inflation have broadened beyond the supply-chain shock that fueled price gains for much of 2021.
Recent volatility is "really all about inflation and how aggressive central banks are going to be to counteract it," said Brian O'Reilly, head of market strategy at Mediolanum Asset Management, adding that inflation could also curtail economic growth by knocking consumption. "Certainly, the market is nervous at the moment."
Companies due to report earnings before the opening bell in New York include Morgan Stanley, Bank of America and U.S. Bancorp, and household names UnitedHealth Group and Procter & Gamble. United Airlines and Alcoa are set to post results after markets close.
In the U.K., data out Wednesday showed consumer prices rising at 5.4% in December, the fastest rate since March 1992-shortly before the country was compelled to leave the European Exchange Rate Mechanism on 'Black Wednesday.' The pace of price growth was far above the 2% target set by the Bank of England, which in December became the first major central bank to raise rates since the start of the pandemic.
Investors will get a glimpse of the health of the U.S. housing market at 8:30 a.m. ET. Construction of new homes is forecast to have slowed in December as builders contended with shortages of materials and workers.
Stocks to Watch:
JB Hunt CFO John Kuhlow, on an earnings call, said labor-related issues remain the main pain points but the company is committed to investing in employees, noting that in December it paid out a special bonus of nearly $11 million to frontline workers. COO Nicholas Hobbs said the truck and trailer market, along with the driver market, remain extremely tight.
Kuhlow said that in 2021, the company targeted about $1 billion in net capex, which it missed by about $130 million, attributing the difference largely to supply-chain delays that continue to affect its ability to take delivery of equipment.
Forex:
Firm energy prices are contributing to ramped-up monetary policy tightening expectations including for the Fed and this should lift the dollar, ING said. Energy prices rise as crude supply increases in December failed to live up to what was agreed by OPEC+, ING analysts said.
Higher energy prices may linger and delay any easing of inflation, they said. "This environment is seeing the scale of expected tightening cycles increase around the world, including in the U.S.
"The market now expects the Fed's terminal rate, the level at which rates stop rising, will reach 1.80%, compared to last week's bets of 1.60%, the analysts say. ING expects the DXY dollar index to rise to around 96.40-96.50, from 95.6140 currently.
Bonds:
High inflation rates and monetary policy turnaround by the Fed and other major central banks are pushing bond yields higher almost everywhere in the world, said Christian Kopf, head of fixed income portfolio management at Union Investment.
"The eurozone is no exception," he said, after the 10-year German Bund yield turned positive for the first time since May 2019. "But here [in the eurozone] the rise in yields has been flatter and slower than in other parts of the world," he said.
He expects the rise to remain flatter and slower because inflation in the eurozone is still relatively moderate, especially compared with the U.S., and also because the European Central Bank is much more cautious than its counterparts in tightening monetary policy.
The 10-year German Bund yield turns positive on Wednesday for the first time since May 2019, driven in particular by the trend in the U.S. Treasury market, Elmar Voelker, senior fixed-income analyst at LBBW, said.
"It had already become apparent that a rebound of the 10-year Bund yield above zero would not be too long in coming," he said. Downward pressure on bond prices and corresponding upward pressure on yields is currently coming primarily from the U.S. where there are increasing signs that the Fed is likely to herald the turnaround in key interest rates in just a few weeks, Voelker added.
Commodities:
Oil prices extended gains after the International Energy Agency, in its monthly report, raised its forecasts for global oil demand growth in 2021 and 2022. Prices had been tracking lower ahead of the report's release and had fallen as low as $87.63 a barrel.
The IEA said that 2022 should be the year that oil demand returns to pre-pandemic levels. Its latest forecast reaffirmed the view that the Omicron variant of Covid-19 had a minimal impact on demand.
The agency noted that the variant's rapid spread but limited severity could prove positive for demand by increasing global resistance to the virus without provoking strict lockdowns.
The tightness in the global oil market looks set to ease this year, with supply likely outstripping demand, thanks largely to increased non-OPEC production, Wood Mackenzie said. It expects global supply in 2022 to grow by 4.8 million barrels a day, slightly outpacing demand growth.
"A shortage of supply is not anticipated for this year," the energy consulting firm says. Aside from north American output, production in Russia, Brazil and the North Sea is also set to grow, it said. That said, oil-production activity may be capped amid producers' ongoing focus on paying down debts and returning funds to investors rather than investing in new projects, Wood Mackenzie said.
Gold prices rose after U.K. inflation data showed prices rose at the fastest rate in 30 years in December. Gains are likely capped by expectations that high inflation will be followed by policy tightening from global central banks, said Rupert Rowling, an analyst at Kinesis Money.
"A high inflation environment should prove positive for gold... However, with central banks across the world expected to increase interest rates to tackle inflationary pressures, this presents a headwind," he said.
Base metals prices also rose supported by a weaker dollar.
Divisions within the Democratic Republic of Congo's ruling party will add headwinds to policymaking in the world's No.1 producer of cobalt, a key ingredient in electric vehicle batteries, said Fitch Solutions.
This week's resignation of the first vice-president of Congo's national assembly, Jean-Marc Kabund, is another indicator of worsening instability in a country that produces a third of the world's cobalt, which could add pressure on the global battery supply chain.
"Due to the already tight nature of the global battery supply chain, any disruption to cobalt production in the DRC will have a noticeable impact on battery supplies globally," the firm said. "The latest events point to continued instability between the cabinet and parliament over the next few quarters."
TODAY'S TOP HEADLINES
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When allegations of a toxic workplace at Activision Blizzard Inc. surfaced last year and investors fled the video-gaming giant's stock, Microsoft Corp. rushed in.
A California regulatory agency had sued Activision in July alleging widespread sexual harassment. Then a Wall Street Journal article in November reported that longtime Chief Executive Bobby Kotick knew about allegations of employee misconduct across Activision that he didn't brief the board on, adding to pressure on the company and its stock.
China Notifies Firms of Tougher Investment Rules for Big Tech
SINGAPORE-China has notified some companies of new rules that require the country's biggest internet firms to seek approval for investment deals, a mechanism that is likely to curb domestic technology giants from growing even bigger through acquisitions, according to people familiar with the issue.
The country's top internet regulator, the Cyberspace Administration of China, recently established a new mechanism that requires internet companies to obtain formal approval for investment deals if they have 100 million users or more or have posted revenue in the previous year of at least 10 billion yuan, equivalent to $1.57 billion, the people said.
Sony Shares Fall Sharply After News of Microsoft Deal for Activision Blizzard
Sony Group Corp.'s shares fell nearly 13% in Tokyo on Wednesday on concerns about tough new competition for its videogame business from the newly announced combination of Microsoft Corp. and Activision Blizzard Inc.
The $75 billion deal, which still needs regulatory approval, would unite Microsoft's Xbox platform with the publisher of top games including Call of Duty and World of Warcraft.
Apple Says Senate's Big-Tech Legislation Would Weaken Its User-Privacy Push
Apple Inc. is warning that Senate legislation aimed at reining in large tech companies would weaken a privacy-protection tool that it rolled out last year and has already stung Facebook, Snapchat and other online-ad businesses reliant on user data to target messages.
The Senate Judiciary Committee is set to debate a bipartisan bill, dubbed the American Innovation and Choice Online Act, on Thursday that supporters say aims to protect digital competition. The legislation is set to limit the power of the biggest U.S. tech companies, including Apple, Amazon.com Inc., Google-parent Alphabet Inc. and Facebook's Meta Platforms Inc.
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01-19-22 0606ET
