MARKET WRAPS
Watch For:
ECB economic bulletin; Germany balance of payments; trading updates from OMV, Marks & Spencer, Whitbread, Tesco, Provident Financial
Opening Call:
Shares could inch higher in Europe on Thursday ahead of the release of key U.S. inflation data. In Asia, stock benchmarks were mixed; Treasury yields fell; the dollar softened; while oil and gold gained.
Equities:
European stocks may post mild gains on Thursday as investors await U.S. CPI data that are expected to show a further easing in price pressures.
Investors are growing more confident the inflation data would lead to more-muted increases in interest rates.
"It's becoming clearer that inflation has peaked and we're closer to the end of the rate-hike cycle than people were concerned we'd be," said Harris Financial Group. "That's why markets are breathing a sigh of relief."
Money managers say they are bracing for potentially volatile trading after the data release. Consumer-price index days in recent months have sparked big swings in stocks. A comedown in headline inflation would be an encouraging sign for investors, though many will also focus on so-called core inflation, a measure that excludes food and energy prices-which are often volatile-and is considered a better indicator of underlying pricing pressures.
Forex:
The dollar weakened in Asia ahead of the U.S. December CPI report.
Any downside surprises in the data will probably buoy markets and support dollar weakness, MUFG Bank said, noting that economists expect core CPI to rise 0.3% on month.
Current market expectations are for two more Fed rate increases in 1Q and a terminal rate below 5%, it added.
"By this time tomorrow, markets will have a much clearer view of what the Fed is likely to do in February," ANZ said.
"Judging by recent price action, it seems reasonable to believe that a weaker U.S. CPI print will mean a weaker USD and vice versa."
While Fed officials remain adamant that the central bank won't be cutting rates any time soon, markets continue to price a full unwind of hikes by the year-end. "If those cuts get priced out, USD headwinds may abate," ANZ said.
Bonds:
Treasury yields fell as concerns about global economic growth lingered and traders looked ahead to U.S. inflation data.
The World Bank warned the global economy risked slipping into recession this year. The prognosis follows similarly downbeat comments from the International Monetary Fund last week.
Weak economic growth may help the Fed in its battle against inflation and reduce the need for more increases in borrowing costs.
The central bank is expected to take its fed-funds rate target to a cycle peak of 4.92% by June 2023, but to reduce rates to 4.52% by December, according to 30-day fed-funds futures.
That terminal rate below 5% and the prospects of a rate cut next year is a more dovish scenario than Fed officials currently countenance, but bond guru Jeffrey Gundlach said the market is right and the Fed wrong.
"My 40 plus years of experience in finance strongly recommends that investors should look at what the market says over what the Fed says," the DoubleLine Capital LP chief investment officer told listeners on a webcast Tuesday, Bloomberg reported.
Energy:
Crude oil rose in Asia as the demand outlook brightened.
"Unsurprisingly, as the world's second biggest oil consumer [China] emerges from a three-year Covid cocoon, oil prices continue to rise after this year's balmy weather-inspired crush on the energy complex," SPI Asset Management said.
It continues to expect oil prices to remain supported as mobility in China returns to normal.
"Hopes of a strong rebound in Chinese oil demand, fears surrounding the coming [Group of Seven] price cap on Russian refined products, and a weakening dollar is providing support to oil prices this week," said DTN.
But traders also weighed one of the largest weekly inventory gains reported by the U.S. Energy Information Administration on record, and grappled with fears of a potential global economic slowdown as the Federal Reserve and other major central banks continue to tighten monetary policy in their effort to rein in inflation.
The Energy Information Administration report showing a "massive" build to commercial crude stocks largely reflects the continued slower pace of refinery runs following shut-ins during the recent winter storm," said DTN.
That was "coupled with the passing of the ad valorem tax season, which incentivizes keeping barrels offshore until the new year -- and helps explain the reported surge in net-imports of crude," it said.
Metals:
Gold prices were a tad higher ahead of the U.S. December inflation report.
Gold prices recently hit an eight-month high, and its rally could extend further if disinflation trends remain firmly in place, said Oanda.
Lower inflation could indicate that the Fed will ease its tight monetary policy stance, which is typically viewed as positive for gold prices, it said.
Traders are also betting that China's decision to drop Covid-19 restrictions on its economy will continue to boost prices of precious and industrial metals.
Kitco.com said, "ideas of better economic growth in China are supporting metals prices on notions of increased demand."
Still, based on technical analysis, gold futures may be headed toward a so-called "golden cross." That happens when a short-term moving price average crosses above a long-term moving average, potentially indicating a change in sentiment toward the metal.
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Copper prices edged higher, buoyed by restocking demand,.
Fearful of critically low inventories, traders are purchasing copper due to concerns that China's U-turn on its zero-Covid policy and property sector policies could lead to scarcity of the metal, TD Securities said.
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Iron ore rose on prospects of more economic stimulus from China's government.
Beijing has ramped up policy support for its ailing property sector and there are expectations of more stimulus and infrastructure spending, ING said.
TODAY'S TOP HEADLINES
China's Inflation Accelerates as Economic Rebound Anticipated
China's inflationary pressure rose in December, as Beijing's abrupt reversal of its zero-Covid strategy last month paved the way for an economic rebound, official data showed Thursday.
For the full year, China's consumer-price index rose 2.0% from 2021, below an official target of around 3%, while its producer-price index rose 4.1%.
Russia Claims Success in Ukraine's Soledar as Moscow Names New War Commander
Russia claimed its first significant success in Ukraine since July, seizing most of the eastern town of Soledar after weeks of heavy fighting led by the Wagner Group paramilitary organization, as the country's top military officer took direct command of the campaign.
Gen. Valery Gerasimov's appointment as commander of Russia's war effort in Ukraine sidelines Gen. Sergei Surovikin, who was named to lead Russian forces there three months ago.
Air France-KLM Notifies Frequent Fliers of Data Breach
Customers of Air France-KLM are receiving notifications that their frequent-flier account data might have been exposed in a data breach, underscoring the potential risks if hackers obtain personal information that consumers may assume isn't particularly sensitive.
The data breach affected members of the airline's loyalty program, Flying Blue, a spokesperson said. The company's security team stopped the incident, the spokesperson added.
Trafigura Sells Stake in Russia-Backed Oil Refinery in India
Commodities trader Trafigura Group struck a deal to exit a major joint-venture with Rosneft Oil Co. in India, unwinding a relationship with Russia's energy giant that was a decade in the making.
Trafigura said Wednesday it had sold its 24.5% take in India's Nayara Energy Ltd. to Hara Capital Sarl. Hara is a subsidiary of Italy's Mareterra Group Holding, which used to be known as Genera Group Holding SpA and invests in energy companies.
Amazon Appeal to Union Victory in New York Rejected
A federal labor official has upheld the unionization of Amazon.com Inc. workers in Staten Island, N.Y., rejecting an appeal by the e-commerce giant, which tried to challenge last year's vote to organize.
Cornele Overstreet, a regional director with the National Labor Relations Board who has overseen the case, ruled on Wednesday that Amazon hadn't provided sufficient evidence to overturn the election results, according to an NLRB spokeswoman.
PC Shipments Drop Sharply in a Slump Expected to Last Until 2024
PC makers are in for another difficult year after shipments fell sharply in 2022, with industry estimates not projecting a full recovery until 2024.
Worldwide shipments dropped nearly 29% in the fourth quarter from a year earlier, marking the largest quarterly decline since the mid-1990s, according to preliminary data from research firm Gartner Inc. A similar report from International Data Corp. said it is clear the pandemic boom is over for the personal-computer market.
Alphabet Unit Verily to Trim More Than 200 Jobs
Verily Life Sciences, a healthcare unit of Alphabet Inc., is laying off more than 200 employees as part of a broader reorganization, the first major staff reductions to hit Google's parent following a wave of layoffs at other technology companies.
The cuts will affect about 15% of roles at Verily, which will discontinue work on a medical software program called Verily Value Suite and several early-stage products, CEO Stephen Gillett said in an email to employees Wednesday. Verily has more than 1,600 employees.
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Expected Major Events for Thursday
00:01/UK: CBI and PwC Financial Services Survey
06:00/FIN: Nov Balance of Payments
07:00/NOR: Nov Monthly GDP
08:00/SVK: Nov Employment and average monthly wage in selected branches
08:00/SVK: Nov Turnover in selected branches of economy, incl Industry & Construction
08:00/CZE: Nov Retail trade
(MORE TO FOLLOW) Dow Jones Newswires
01-12-23 0016ET
