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MARKET WRAPS
Watch For:
US CPI; ECB’s de Guindos speaks; updates from: TotalEnergies, Siemens, ThyssenKrupp, Societe Generale, Credit Agricole, Legrand, Pernod Ricard, L’Oreal, Nexi, Zurich Insurance, Credit Suisse, Ashmore, Unilever, Euronext, AstraZeneca, RELX, Royal Mail, Tate & Lyle.
Opening Call:
European stock futures wavered between small gains and losses ahead of US CPI data. U.S. stock futures were pointing to small opening losses. Bonds yields continue to fall, with the 10-year last spotted at 1.92%, The dollar was steady in early Asia trading. Oil traded higher; while gold was steady.
Equities:
European stocks could struggle at the open as investors wait for U.S. inflation data released later Thursday.
On Wall Street, stocks rose and government-bond yields fell Wednesday following a recent climb, potentially easing some pressure on technology shares.
Fresh U.S. inflation data later is expected to give investors additional clues as to how quickly the Fed may raise rates after slashing them in 2020 to cushion the economy from the impact of Covid-19.
Expectations are for the January CPI to show a 0.4% increase after a 0.5% rise in the prior month – with the year-over-year reading expected to show a 7.2% climb after U.S. inflation for December hit its fastest pace in nearly four decades.
Matt Weller, global head of market research at Forex.com, said a notable jump in core inflation data could persuade the Fed to act more aggressively and raise rates by 0.5 percentage point. Other global central banks are weighing their own policy changes.
Investors are also focusing on company earnings reports as they try to gauge how Corporate America is dealing with higher inflation and persistent global supply chain disruptions.
“Earnings and sales really have come in overall quite nicely relative to expectations at the beginning of this quarter, so that’s a positive force within the market,” said Lisa Erickson, senior market strategist at U.S. Bank Wealth Management.
Forex:
The dollar was unchanged in early Asia trade. The dollar could weaken if inflation numbers come in soft or in line with expectations, Edward Moya told WSJ.
“We’re approaching that pivotal moment tomorrow, we are seeing dollar softness and we have seen Treasury yields come down a bit,” the Oanda senior market analyst said.
“Investors are putting a lot of weight on the reading, which should sway investor expectation over how aggressive the Fed will be with their rate hiking cycle. A lot of people are aggressively pricing in a hot inflation number tomorrow and the market is vulnerable to a reversal if there’s a reading that’s in line with expectations.”
Other currencies:
Sterling is likely to strengthen as the BOE could raise interest rates by more than the market expects, Credit Suisse said. The BOE raised its key rate by 25 basis points to 0.50% last Thursday but four out of nine policymakers preferred a larger 50 basis points rise, which suggests the possibility of “more upside” to rates being priced in by markets if inflation data stays elevated, Credit Suisse analysts said.
“Given the general and vitriolic pushback against BOE chief [Andrew] Bailey’s calls for wage moderation, including from 10 Downing St, it seems clear to us which direction inflation expectations are heading,” they said. Credit Suisse maintains its EUR/GBP target of 0.8275.
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Credit Suisse continues to advise selling the euro against the dollar at levels above $.1450 even after the ECB fuelled speculation it could raise interest rates this year at last Thursday’s meeting.
“The reasons that underpin our thinking include the fact that markets are now pricing several rate hikes by the ECB already, the collapse in inflation expectation following the ECB meeting, dovish commentary by selected ECB officials in recent days, the widening in peripheral spreads and the fact that U.S. yields are high and keep on rising,” Credit Suisse analysts said.
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Most Asian currencies weaken against the dollar in the early Asian trade, ahead of the U.S. January CPI report due later today.
Market participants’ relief toward recent central bank officials’ comments that tempered Fed rate-increase expectations may prove superficial in run-up to this report’s release, Mizuho Bank said.
The report could point to further upside and broadening risks to inflation, the Japanese bank added, noting unwavering near-term Fed rate increase expectations have lifted two-year Treasury yields by 2 bps to 1.36%.
Bonds:
Bonds yields took a breather, the yield on the 10-year Treasury fell to 1.92% on Thursday, down from 1.95%, the highest it’s been since before the pandemic began.
The 10-year Treasury yield hit its highest level since July 2019 on Tuesday, while the 2-year yield carved out another 52-week high Wednesday as investors prepare for the next U.S. inflation reading.
HSBC has turned neutral on U.K. index-linked government bonds, or linkers, following their recent outperformance against comparable debt.
“While we continue to see a relatively bullish outlook for U.K. linkers in the months ahead, we are turning neutral (from mildly bullish) in the near-term following the recent cross-market outperformance,” said HSBC’s head of U.K. rates strategy Daniela Russell.
Despite the positive backdrop, the U.K.-based bank prefers to wait for a better opportunity to re-establish a bullish bias.
Energy:
Oil prices traded higher after stronger-than-expected drawdowns of inventories, ANZ said. The Energy Information Administration said on Wednesday that drawdowns for the week of Feb. 4 amounted to 4.8 million barrels.
Metals:
Gold trades steadily ahead of the release of U.S. CPI data later today, which should signal whether the Fed will implement between four to six rate hikes this year, Oanda said.
Gold traders seem to be still divided over what will be the next move, although Oanda thinks that if hawkish expectations ease, the price of gold could rise.
Iron ore prices edged higher, staging a slight recovery after a steep downturn on Wednesday amid concerns over potential regulatory measures to curb the commodity’s hot rally in recent weeks.
Huatai Futures reckons iron ore’s momentum may remain under some pressure in the near term, as recent news suggest Beijing officials have started to pay attention to the commodity’s rapid gains so far this year. Policy direction is a particularly important trading factor in China. The brokerage advises investors to stay on the sidelines for now.
TODAY’S TOP HEADLINES
Fed’s Mester Supports Moves to Accelerate Balance-Sheet Wind-Down
Federal Reserve Bank of Cleveland President Loretta Mester said Wednesday that as part of the central bank’s looming effort to shrink the size of its nearly $9 trillion balance sheet, she’d support taking active measures to speed that process along.
“While our principles state that we will reduce balance-sheet assets primarily by adjusting the reinvestment amounts of the principal payments we receive on our assets, I would support selling some of our mortgage-backed securities at some point during the reduction period to speed the conversion of our portfolio’s composition to primarily Treasurys,” Ms. Mester said in remarks given before a virtual gathering held by the European Economics and Financial Centre.
Stock-Trading Ban for Members of Congress Gains Traction
WASHINGTON-House Speaker Nancy Pelosi said she expected Democrats to reach consensus on restricting stock trading by members of Congress and called for new rules for federal judges, as proposals competed for bipartisan support.
“It’s complicated, but members will figure it out,” she said. “I assume they’ll have it pretty soon,” the California Democrat said, referring to the House Administration Committee tasked with reviewing the proposals. She also wanted any legislation to also require financial disclosures from the judiciary, including Supreme Court justices. “It has to be governmentwide,” she said.
Officials Raise Concerns Canada Border Protest Will Disrupt Supply Chains
Canadian and U.S. officials expressed concerns Wednesday on the possible fallout from a prolonged traffic disruption at Detroit’s Ambassador Bridge on already strained supply-chain networks.
On Monday, the bridge was temporarily closed by a blockade set up by protesters fighting Covid-19 vaccine mandates. Some of those protesting said they were inspired to act by a demonstration in Ottawa, which for the past 13 days has clogged traffic in the Canadian capital’s core district and disrupted residents’ lives.
Bank of Canada Gov. Macklem: Current Rate of Inflation ‘Too High’
OTTAWA-Bank of Canada Gov. Tiff Macklem said Canada’s current rate of inflation “is too high” and requires a pivot in monetary policy to return increases in the consumer-price index back to the central bank’s 2% target.
“The economy will need higher interest rates to moderate growth in spending and bring demand in line with supply,” Mr. Macklem said in a speech Wednesday.
SEC Proposes Broad Disclosure Rules for Private Investment Funds
WASHINGTON-Regulators proposed expansive new requirements for private investment funds Wednesday as part of a widening effort to police a rapidly growing but relatively opaque corner of the capital markets.
In a Wednesday morning meeting, the Securities and Exchange Commission passed a proposal that would force hedge funds and private-equity funds to provide basic disclosures to their investors and guard against conflicts. The Democratic-controlled commission approved the proposal by a 3-to-1 vote, signaling a strong chance that a final version will be adopted. The agency will now seek public comments for at least two months before issuing a final rule.
U.K. Launches Review of Serious Fraud Office Over Unaoil Bribery Case
(MORE TO FOLLOW) Dow Jones Newswires
February 10, 2022 00:46 ET (05:46 GMT)
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