MARKET WRAPS
Watch For:
World Agricultural Supply and Demand Estimates; U.S. Weekly Petroleum Status Report; Bank of Canada Summary of Monetary Policy Deliberations; speeches by Fed's Williams, Cook, Barr, Bostic, Kashkari, Waller; earnings from CVS Health, Uber, Disney, Fox, Robinhood.
Today's Headlines/Must Reads
- Strong Dollar Still Rattles U.S. Corporate Earnings
- Chinese Consumers Hoard Cash After Confidence Takes a Hit
- Disney's Earnings, Reorganization Represent Early Test for CEO Robert Iger
- The Investor Behind the $1 Billion Bet on Bed Bath & Beyond
- China Refused U.S. Call After Downing of Suspected Spy Balloon, Pentagon Says
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Opening Call:
Stock futures were lower on Wednesday, as investors pondered what the latest remarks from Jerome Powell could mean for the path of interest rates and as fresh market-moving catalysts were eyed.
"The downside risk to Powell's comments is that while inflationary pressures are easing in the goods economy, the services sector, which has more sticky inflation components, could underpin high inflation for much longer than anticipated," Saxo Bank said.
Investors will get fresh insight from several Fed officials who are scheduled to give speeches later on Wednesday.
Overseas trading was mixed, with indexes in Asia mostly lower, while the pan-continental Stoxx Europe 600 gained 0.6%.
Stocks to Watch
Bed Bath & Beyond shares remained highly volatile as the troubled retailer landed a rescue financing deal with Hudson Bay Capital Management. After almost halving in regular trading Tuesday, Bed Bath & Beyond stock gained 4% premarket.
Chipotle Mexican Grill said higher labor-related costs cut into profit, while sales were depressed during the holidays. Shares fell more than 5% off hours.
Shares of eBay were down 0.7% in premarket trading after the firm said it would cut around 4% of its workforce. Tech stocks have generally reacted positively to recent announcements of layoffs, with deeper cuts getting a bigger reaction.
Enphase Energy reported higher fourth-quarter revenue and guided for continued momentum in the first quarter. Shares increased 8% in after-hours trading.
Manchester United shares rose 13% in premarket trade after a report of an imminent Qatari bid for the team. The Daily Mail reported the bid from Qatar, which hosted the World Cup, will "blow away" other offers.
Microsoft is integrating the technology behind the viral chatbot ChatGPT into its Bing search engine. Microsoft shares rose 2% premarket, building on Tuesday's 4% rally.
New Relic reported fiscal third-quarter revenue and per-share earnings that beat analysts' expectations. It said it is attracting new customers at a rapid pace. Shares rose 15% in after-hours trading.
Prudential Financial swung to a quarterly loss and said assets under management at its global investment-management unit shrank 21%. Prudential stock fell 2% ahead of the opening bell.
Federal Reserve
Investors should focus on data releases instead of individual speeches by Fed policy makers "since [the] Fed has clearly communicated their data dependent approach," Danske Bank said.
The next potential market move is U.S. CPI data next Tuesday, it said, adding that while the markets were likely expecting a clear hawkish shift by Jerome Powell as a response to last Friday's "burning hot" labour market data, these expectations didn't materialise.
"That being said, Powell was not dovish and emphasized that if we continue to get strong labor market and inflation prints, the Fed may need to do more."
Forex:
The dollar was lower, with MUFG saying Powell failed to meet expectations to sound more hawkish about the need for further interest rate rises.
Powell's comments were consistent with those made prior to Friday's strong nonfarm payrolls report and the Fed's meeting last Wednesday, MUFG added.
"With the overnight index swap curve already priced for two additional 25 basis points rate hikes there was no catalyst for a move higher in rates which propelled the dollar weaker."
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The European Central Bank's decision to cut interest rates on government deposits to encourage fund withdrawals shouldn't have strong implications for the euro, ING said.
"The policy discussion remains much more central, with [ECB member] Isabel Schnabel delivering hawkish statements yesterday and warning against the risk of inflation becoming entrenched in the medium term," ING said.
ECB officials may continue delivering hawkish remarks that signal further interest-rate rises after the central bank's meeting last Thursday failed to convince markets of its resolve to fight inflation, although this appears to have been largely factored in by markets.
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Sterling is the second worst performing G10 currency after the Norwegian krone so far in February and faces further underperformance, MUFG Bank said.
"If inflation angst was to return and given the less compelling evidence of an inflation drop in the U.K. compared to elsewhere, we could see further underperformance," MUFG said.
The OECD forecast more sticky inflation in the U.K. compared with elsewhere.
Meanwhile, data since Brexit showed the U.K. suffered the highest increase in inflation compared with the U.S., eurozone and Japan.
Energy:
Oil prices were slightly firmer in Europe thanks to a weaker dollar following Powell's comments.
"He didn't choose this moment to notably change the script post payrolls. There was some fear that he would," Deutsche Bank said.
Metals:
Base metals and gold moved higher in London.
Commodity Research Group said the lack of alarm from Powell over nonfarm payrolls reassured markets, as did his commitment to being data dependent.
"Also reassuring, was Powell saying that many of the signs that precede typical recessions, such as excessive leverage and asset bubbles, are notably absent this time around, boding well for the economy and labor markets."
Cobalt
A project to formalize small-scale cobalt mining in the world's top producer, the Democratic Republic of Congo, is failing after being interrupted by pandemic shutdowns, New York University researchers said.
Small-scale miners in Congo account for about 10% of the global output of cobalt, a metal critical to the clean-energy transition.
A pilot open-pit mine, backed by Trafigura, in southern Congo has now been turned into dozens of poorly ventilated and unstable shafts, where more than 15,000 miners, including children, come to work, instead of 5,000, the researchers noted.
"Global companies buying cobalt need to encourage the formalization and responsible extraction of the mineral rather than engaging in a futile attempt to avoid cobalt associated with artisanal mining."
TODAY'S TOP HEADLINES
Disney's Earnings, Reorganization Represent Early Test for CEO Robert Iger
Robert Iger returns to center stage under a bright spotlight Wednesday to present Walt Disney Co.'s quarterly results and, more important, a vision for the company.
On the same day as his first conference call with Wall Street analysts since returning to the company and succeeding former Chief Executive Bob Chapek, Mr. Iger is also expected to present a plan to reorganize Disney's corporate ranks and cut costs, which the company has been promising since last year.
Google to Roll Out AI Search Features as Microsoft Rivalry Heats Up
PARIS-Google plans to give details on new search features powered by artificial intelligence a day after Microsoft Corp. said it was building the technology behind the chatbot ChatGPT into its Bing search engine.
At an event Wednesday in the French capital, the Alphabet Inc. unit plans to describe new types of search results that include more direct and lengthy textual responses generated in response to complex queries, according to a screenshot of one such result, rather than the snippets and short direct answers and links to outside sites now available through the search engine.
The Investor Behind the $1 Billion Bet on Bed Bath & Beyond
Why would a well-established hedge fund and other investors spend as much as $1 billion to purchase the equity of a retailer on the verge of bankruptcy-a move that could wipe out that equity?
That is what some on Wall Street are asking after Hudson Bay Capital Management and others agreed to invest in struggling Bed Bath & Beyond Inc.
Omnicom CEO Wants to Embrace Generative AI as Quickly as Possible
Advertising holding company Omnicom Group Inc. sounded bullish on the future of generative artificial intelligence-which can be used to create new content, including text or images-as it reported fourth-quarter earnings Tuesday.
Omnicom Chief Executive John Wren said his outlook on the technology's potential impact has evolved. "We'll be embracing it as quickly as we possibly can," he said, adding that it would help employees and benefit clients.
Chipotle Profit Hit by Higher Labor Costs
Chipotle Mexican Grill Inc. said that higher costs associated with labor cut into its profit in its most recent quarter, while sales were depressed during the holidays.
The burrito chain said Tuesday that staff sick pay and medical expenses contributed to elevated costs during its fourth quarter. The company reported per-share earnings adjusted for one-time items of $8.29 for the period that ended Dec. 31, below analysts' expectations of $8.91 per share, according to FactSet.
Strong Dollar Still Rattles U.S. Multinational Corporate Earnings
A reversal in the epic U.S. dollar rally hasn't yet provided much respite to large U.S. multinational companies.
Companies in the S&P 500 that derive more than half of their revenue outside the U.S. are on pace to post an 8.7% slide in fourth-quarter earnings, according to FactSet data through Monday. In contrast, companies with most of their sales in the U.S. are poised to record a 3% earnings drop. About 55% of the companies in the index have reported so far.
(MORE TO FOLLOW) Dow Jones Newswires
02-08-23 0620ET
