MARKET WRAPS
Watch For:
U.S. Weekly Jobless Claims; Oracle 2Q earnings.
Opening Call:
Stock futures edged down as investors assessed the latest headlines on restrictions to limit the spread of the Omicron variant.
Stocks have swung in recent weeks, buffeted by conflicting headlines on the Omicron coronavirus variant and mixed signals on the health of the economy. Investors are still awaiting further data on the strain's severity and vaccine efficacy. Some pharmaceutical companies including Pfizer and GlaxoSmithKline have said this week that their shot and antibody treatment appear to work in early-stage studies.
European governments have moved to tighten restrictions, spurring concerns about setbacks to the economic recovery. U.K. Prime Minister Johnson outlined a new work-from-home mandate and mask guidelines on Wednesday evening. A study released by a Japanese scientist said the variant was four times more transmissible than the Delta strain.
"There's still a lot we don't know, we're waiting for details to emerge, " said Arun Sai, a multiasset strategist at Pictet Asset Management. On restrictions, "as long as it's temporary, it doesn't completely derail the recovery. We now know the playbook. We're talking about a one or two quarter postponement of a recovery in services, that's the critical element that's at risk here."
Cloud-computing firm Oracle, network company Broadcom and wholesaler Costco are set to report Thursday after market close. Popular meme stock GameStop declined 3.2% in off-hours trading after the company posted earnings that showed a widening loss last quarter.
"Earnings have been strong overall, it's a really positive underlying driver for equity markets," said Kiran Ganesh, a multiasset strategist at UBS Global Wealth Management.
Shares of Amazon.com declined 0.2% premarket after the Italian government fined it $1.3 billion for alleged abuse of market dominance. The European Union is also investigating the e-commerce giant in a similar antitrust case.
Fresh data on U.S. jobless claims, a proxy for layoffs, is set to go out at 8:30 a.m. ET. Economists are forecasting that the level will remain near pandemic lows. It has come close to the pre-pandemic average in recent weeks in a sign that the labor market is improving.
In Asia, China's producer-price index showed a 12.9% increase in November from a year earlier, a decline from the previous month but still more than economists expected. Consumer prices also rose.
"Factory gate prices only showed modest signs of slowing," which may signal that higher inflation will remain in place in the coming months, said Michael Hewson, a chief markets analyst at CMC Markets. China's producer prices drive consumer prices around the world, he added.
Forex:
The dollar was higher in Europe, with the USD Index back above 96.00, as investors looked ahead to data Friday that are expected to show inflation accelerated further in November, which would support bets the Federal Reserve will speed up the withdrawal of asset purchases.
On Wednesday the dollar "emerged as an underperformer" on reduced safe haven flows after the Pfizer/BioNTech announcement, said ING analysts. "Investors may be attracted by current levels [in particular against low-yielders] to build back some dollar longs ahead of the CPI report and the Fed meeting next week, so we would expect the dollar to start finding some support as early as today."
Sterling is likely to weaken versus the dollar if the Bank of England delays raising interest rates and the Fed accelerates the tapering of asset purchases, MUFG Bank said.
The BOE will likely keep rates unchanged until at least February after the U.K. government tightened coronavirus restrictions and following recently cautious comments from BOE officials, MUFG's Lee Hardman said.
Meanwhile, the Fed should speed up tapering at its December 14-15 meeting, he said. "The time gap between the first BOE and Fed rate hikes is likely to be much shorter now than initially expected which should keep downward pressure on cable heading into year end and moving it closer to the 1.3000-level."
Bitcoin reversed direction after four days of gains, slipping 2% from its level at 5 p.m. Wednesday. It traded below $50,000, a 28% drop from its record high set in November.
Bonds:
The yield on the benchmark 10-year Treasury note edged down to 1.494% Thursday from 1.508% Wednesday.
Long-dated yields for government debt edged higher still in Europe, after they posted their biggest three-day rise in weeks following the Pfizer/BioNTech Omicron report. Meanwhile, the 2-year yield, which is most closely associated with the near-term path of Fed policy, declined on Wednesday.
Bank of America said the yield curve will keep flattening: "The hawkish Fed pivot suggests risks of further curve flattening and further pull forward of rate hikes."
Higher U.S. front-end rates "are a clear reflection of the recent shift in Fed policy due to elevated inflation concerns," while fears of policy errors help drive the long-end trend, as tightening begins when the economy still struggles, said BofA.
The European Central Bank's first interest rate rise could come at the beginning of 2024, with a 25 basis point increase, said Barclays. It sees some risks of a rate hike already a quarter earlier, or even in mid-2023, subject to inflationary developments.
"If inflation does not fall below 1.5% in 4Q 2022-1Q 2023, as per our and the ECB's current forecasts, but converges to 2% from above, the lift-off date would likely be brought forward to 1H 2023," Barclays said.
Commodities:
Brent crude could climb even further after a recent rebound as structural deficits keep supporting prices, Goldman Sachs said. Brent has already recovered about half of the ground it lost as the emergence of the Omicron variant fueled concerns about oil demand.
"We therefore recommend investors re-engage some long positions, but caution that oil markets may see substantial increases in volatility and decreases in liquidity in coming weeks," it said.
Iron ore has become Morgan Stanley's top mined-commodities pick on a six-month horizon, citing an expected recovery in Chinese steel output following the Beijing Winter Olympics in February.
A recent slip in aluminum prices should give investors a good entry point to buy into that commodity as well in the coming months, supported by constrained Chinese supply, said Morgan Stanley.
"We also highlight nickel's strong demand story, supported by both stainless steel output and EVs, and supply risks in Indonesia." Coal and zinc are toward the bottom of its list of picks, given Beijing has intervened to boost coal supply and zinc is facing risks to demand.
Meantime, Citi expects a U-shaped swing in iron-ore prices in 2022 as an easing in Chinese credit will likely prompt a recovery in property starts and sales in the second half of 2022, following major declines in the first half. Citi said China already has plenty of iron ore sitting in stockpiles at its ports to meet upticks in demand.
"Steel mills' weak appetite for purchasing iron ore, owing to lower output and rising use of steel scrap, has resulted in 30-million-ton inventory builds at Chinese ports since July 2021."
Gold was flat in early European trade with investors focusing on upcoming U.S. inflation data due this week. Geopolitical tensions between the U.S. and Russia may help support demand for safe-haven assets like gold in the near term, Commerzbank said.
TODAY'S TOP HEADLINES
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It has been a rough few weeks for Robinhood Markets Inc.'s stock.
Shares of the retail-trading platform have tumbled lately and reached an all-time intraday low this week. Robinhood's stock has been trading for more than four weeks below its initial public offering price of $38 a share. It closed Wednesday at $23.72, a 38% decline from its IPO price and a 72% drop from its intraday high of $85 reached earlier this year.
Italy's UniCredit Unveils New Strategy as Restructuring Ends
ROME-UniCredit SpA said it plans to expand by hiring staff and investing in digitization as part of a three-year strategic plan that includes share buybacks and bigger dividends.
The plan, the first since Chief Executive Andrea Orceltook the helm in April, targets annual revenue growth of about 2% and profit growth of 10% through 2024.
Chinese Developer Kaisa Defaults, Fitch Says, as Industry's Debt Challenges Mount
Kaisa Group Holdings Ltd., which in 2015 became one of the first Chinese developers to default abroad, has defaulted again after not repaying a $400 million bond that came due this week, Fitch Ratings said.
Failures to repay investors are piling up in China's property sector, as real-estate companies buckle under the strain of falling home sales, government curbs on borrowing, and a bond-market selloff that has all but shut the market for new deals.
Uber Workers Would Be Classed as Employees Under EU Proposal
Uber Technologies Inc., Amazon.com Inc.-backed Deliveroo PLC and other gig-economy companies could be forced to give more benefits to their drivers and delivery personnel under a European Union proposal that would reclassify many of their jobs as employment.
The draft bill, proposed Thursday by the EU's executive arm, would establish a presumption that many of the companies in what is often called the gig economy actually employ workers, depending on the level of control the companies exercise over how workers perform their jobs. Until now, most such companies have deemed the majority of their workers to be independent contractors.
Amazon Fined $1.3 Billion in Italian Antitrust Case
Italy's antitrust regulator fined Amazon.com Inc. $1.3 billion for harming competitors by favoring third-party sellers that use the U.S. company's logistics services.
(MORE TO FOLLOW) Dow Jones Newswires
12-09-21 0615ET
