North American Morning Briefing: Stock Futures Waver Ahead of Jobless Claims, More Inflation Data

MARKET WRAPS

Watch For:

U.S. Weekly Jobless Claims; U.S. PPI for December; Federal Reserve Bank of Philadelphia President Patrick Harker speaks at The Philadelphia Business Journal Economic Forecast virtual event; U.S. Senate Banking, Housing, and Urban Affairs Committee nominations hearing with Lael Brainard; Federal Reserve Bank of Richmond President Thomas Barkin speaks to the Virginia Bankers Association and Virginia Chamber of Commerce’s financial forecast virtual event; Federal Reserve Bank of Chicago President Charles Evans speaks at Milwaukee Business Journal Economic Forecast event; Federal Reserve Bank of Dallas hosts town hall meeting to discuss recruitment of its next president.

Opening Call:

Stock futures wavered and bond yields rose ahead of fresh data on inflation and the labor market that may provide some insight into the path ahead for monetary policy.


Stocks largely continued their upward march this week, with investors taking Wednesday’s consumer-price index data in their stride. Inflation reached its highest level since 1982 last month, but was in line with expectations. Markets didn’t react strongly and the S&P 500 closed less than 1.5% off its record high.

Federal Reserve officials are signaling that an interest-rate rise could come as soon as March. The Fed’s James Bullard said Wednesday that four rises were likely in 2022. Governor Lael Brainard is scheduled to speak in front of the Senate Banking Committee at 10 a.m. ET in her nomination hearing to become vice chair and investors are waiting to hear her views on inflation and the economic recovery.

“The main story is the market view on the central bank’s next steps. The market is balancing two things: less support from monetary policy, but overall the underlying economy is good and we think the earnings figures that will start to come out now will be quite strong,” said Luc Filip, head of investments at SYZ Private Banking.

The U.S. producer-price index, an inflation metric that measures the prices of goods exiting factories, is slated to go out at 8:30 a.m., as is the latest data on weekly jobless claims. Economists are expecting the tight labor market to have kept a lid on layoffs, a continuation of the trend that has kept the weekly level below the 2019 average since early December.

Earnings season kicks off this week, with Delta Air Lines set to post results early Thursday. Major financial firms including BlackRock, Citigroup, JPMorgan and Wells Fargo are set to report Friday.

Investors are on edge for bank earnings after Jefferies posted revenue and earnings that missed analysts’ estimates Wednesday, said Jeffrey Meyers, a consultant at Market Securities. The stock fell 9.3% and continued to decline Thursday in off-hours trading, retreating another 0.9%.

Stocks to Watch:

Blackstone’s increased takeover offer for Australia’s Crown Resorts is welcome, said Crown shareholder Forager Funds Management.

Crown on Thursday said it received the revised non-binding proposal from Blackstone for A$13.10/share in cash, an increase from the A$12.50/share the investment manager offered in November. Crown rejected the initial offer as too low.

“It is likely that a deal will get done, the increase in offer price is a welcome step in the right direction and we are supportive of the board continuing a push for an appropriate firm offer for shareholders,” Forager said.

KB Home’s subcontractor base was hit by the Omicron variant, but the company said it’s more experienced in dealing with disruptions after nearly two years of the pandemic.

“We’ve developed methods for continuing to progress our homes despite missing parts and pieces,” said Co-COO Robert McGibney on a call with analysts. “We’ve adjusted our processes to sync up with the delays and extended lead times, and we’re in lockstep with our trade partners and suppliers of communication around our future needs and what their capacities are.”

The company expects strong home buying demand to continue into 2022 and support its top-line growth.

Robinhood Markets doesn’t plan on spending significant amounts of corporate cash on crypto assets any time soon, despite growing demand from its users for such investments, Chief Financial Officer Jason Warnick said at WSJ’s CFO Network Summit.

Warnick said “there aren’t compelling reasons strategically for our business to put any meaningful amount of our corporate cash into cryptocurrencies.”

He said the company was keeping an eye out for comments from regulators on how to treat crypto assets. That’s why Robinhood hasn’t added any new coins or currencies on top of the ones it already offers, including Bitcoin, Dogecoin and Litecoin, Warnick said.

Companies in the retail sector are raising prices at different speeds in response to inflationary pressures, including higher wages and labor costs, chief financial officers said at WSJ’s CFO Network Summit.

CarParts.com adjusts prices every day across its sales channels, David Meniane, the company’s chief operating and financial officer said.

Meanwhile, E.l.f. Beauty hiked prices in spring and is evaluating another increase, according to finance chief Mandy Fields. While container costs may abate in the months ahead, labor costs will likely remain elevated, Fields said.

“Once the costs have gone up, I do not see a reversal there. I think that’s why you see companies taking moves on pricing,” Fields added.

Forex:

The dollar dropped to a two-month low against the euro and a basket of currencies, continuing Wednesday’s falls after data showed U.S. CPI inflation at a 39-year high of 7.0% in December. Investors may need evidence of stronger growth to start buying the currency again, said MUFG.

Although the data confirms expectations of swift interest-rate rises, U.S. rates markets show “relatively poor” expectations for rate rises beyond this year, said Derek Halpenny, MUFG’s head of research for global markets EMEA.

A catalyst for renewed dollar strength could be economic data “that convinces the market of stronger growth” and raises forecasts for the Fed’s terminal rate. The DXY dollar index falls 0.2% to 94.7460. EUR/USD rises 0.3% to 1.1478, according to FactSet.

Political uncertainty surrounding calls for U.K. Prime Minister Boris Johnson to resign are unlikely to have much impact on the pound, MUFG Bank said.

“Firstly, we doubt we have arrived at that juncture,” MUFG analyst Derek Halpenny said. An inquiry over claims Downing Street officials held a series of parties during lockdown could take weeks, he said.

Secondly, a new prime minister wouldn’t “dramatically” change policy to a degree that would affect sterling’s performance, he said.

Bonds:

The yield on the benchmark 10-year Treasury note ticked up to 1.745% Thursday from 1.724% Wednesday, reversing direction after two sessions of declines. Shorter-dated bond yields also climbed, with the 2-year yield reaching 0.929%, up for a third day.

Capital Economics raises its previous forecasts for global government bond yields as it continues to expect central banks’ tighter monetary policy to drive them further upward, markets economist Franziska Palmas said.

“We continue to expect monetary tightening to push up 10-year government bond yields across developed markets but we now forecast them to reach a higher level than we had previously anticipated, especially in the U.S., Germany and the U.K.,” she said.

CE now forecasts the 10-year U.S. Treasury yield to reach 2.25% by end-2022 and 2.75% by end-2023, up from its previous forecasts of 2.00% and 2.25%, respectively. It expects the 10-year Bund yield to rise to 0.50% by the end of 2023 versus 0.25% anticipated previously.

The U.S. December CPI report, which comes on the back of last week’s drop in the unemployment rate, confirms Pimco’s expectations for the Fed to begin hiking interest rates in March and wind down their balance sheet later this year, said Tiffany Wilding, US economist at Pimco.

This latest CPI report was in line with baseline forecast for core CPI to peak around 6% in February, before ultimately moderating in the second half of the year, she says, but adds that Pimco is increasingly focused on risks from Omicron variant outbreaks.

Wilding said Pimco also remains concerned about the impact that more disruption to production in China and other key suppliers could have on U.S. retail inventories and prices.

Read Barron’s.com: Why Bond Investors Shouldn’t Sweat Rising Yields

Commodities:

Oil prices wavered after mixed data on stockpiles from the Energy Information Administration. The EIA stockpiles data, released Wednesday, showed that crude oil inventories dropped by a larger than forecast 4.5 million barrels last week.

Gasoline stock however jumped by almost 8 million barrels, when analysts had been forecasting a smaller increase of 2.3 million barrels. Distillate stocks also rose by 2.5 million barrels, roughly double the increase analysts had predicted.

Gold prices eased but remain close to a one-week high reached Wednesday after U.S. inflation data. The precious metal has gained 1.3% so far this week as investors look to it as a hedge against inflation and as prices have been supported by a falling dollar.

Jefferies said few were surprised by iron ore’s slump to less than $90/ton in November as the Chinese housing market stumbled. However, the steel ingredient, known for bucking market expectations, has since surprised onlookers with a surge back above $130/ton.

Jefferies reckons worse-than-usual seasonal supply disruptions in Brazil and expectations of a recovery in Chinese demand have been driving the unexpected gains. “We forecast a small surplus in the iron ore market this year, with an average benchmark price of $90/ton…but risk to this price assumption is to the upside if Chinese credit growth continues to accelerate from the 2H21 trough.”

   
 
 
   
 
 

TODAY’S TOP HEADLINES

 
 

TPG Prices IPO at $29.50 a Share

(MORE TO FOLLOW) Dow Jones Newswires

January 13, 2022 06:14 ET (11:14 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.