MARKET WRAPS
Stocks:
European stocks held solid gains on Thursday supported by ongoing hopes that slowing inflation will encourage the Federal Reserve to back away from steep interest-rate increases.
Investors are training their focus on U.S. CPI data due to be published at 1330 GMT. Economists surveyed by The Wall Street Journal expect annual consumer-price inflation to have slowed to 6.5% in December from 7.1% in November. They expect core inflation, which strips out volatile energy and food prices, to have slowed to 5.7% from 6% in November.
"Another good inflation report today, particularly on the core side, will give policymakers more than enough reason to slow the pace of tightening further and even lower the terminal rate projections in March, if it continues," said OANDA.
Stocks to Watch
Spirits growth in the U.S. will inevitably slow after thee years of strong performance, but structural drivers remain for the industry, Jefferies said.
Spirits are an affordable luxury, but it is natural that growth should moderate from recent outperformance in the U.S., the sector's largest market, it said.
In the longer term, a shift toward favoring spirits over other categories, as well as premiumization and opportunities in emerging markets, offer good prospects, Jefferies said. It said Pernod Ricard and Remy Cointreau were among its preferred stocks, as well as Diageo.
Read Distillers Face Downtrading as Recession Looms, Deutsche Says
Economic Insight
Norges Bank will continue with its plan to raise interest rates further in the first quarter after GDP for November came in stronger than the central bank had expected, Handelsbanken said.
Mainland GDP rose 0.2% on the month in November, while Norges Bank had forecast a 0.2% contraction, as a rise in car purchases as well as the fishing and electricity industries boosted growth.
"The key impression is that activity continues upwards, and we have also seen that the registered unemployment rate has remained lower than assumed by Norges Bank."
Handelsbanken expects Norges Bank to keep interest rates on hold next week, before hiking further to 3% at its March meeting.
Read Norwegian Economy is Holding Up, But Slowdown is Coming
U.S. Markets:
Stock futures were steady, while longer-term bond prices rose, as traders awaited crucial inflation data.
Other U.S. economic data on the cards on Thursday include the weekly initial jobless claims. There will also be a batch of Fed officials making comments.
Read Barrons.com 3 Fed Presidents Are Speaking Today. Don't Expect a Different Message on Rates.
Though inflation is clearly the focus, investors are also aware that the fourth-quarter corporate earnings season kicks into gear on Friday, with big banks, including JPMorgan Chase, Citigroup and Bank of America presenting their results.
Financial sector profits are expected to fall 6.3%, according to S&P Global Market Intelligence, with earnings for the whole S&P 500 forecast to contract 2.8%.
Forex:
The dollar hovered just above recent seven-month lows against a basket of currencies, but relatively benign U.S. inflation data would likely prompt renewed falls, ING said.
"A number in line with consensus probably allows the risk rally to continue. China reopening and lower energy prices are all encouraging this reallocation towards risk and should today's CPI number oblige, DXY could make a move towards the 102 area."
Separately, ING said the Swiss franc could weaken further against the euro although losses may be limited as the SNB will intervene to prevent any significant falls.
The SNB would prefer a stronger franc to fight inflation but it's been getting this from a lower USD/CHF, allowing EUR/CHF to rise, ING said.
With the dollar likely stay offered and the European Central Bank signalling further decisive policy tightening, EUR/CHF could rise further but "we doubt the SNB would want to see a big rally this early and the move may stall in the 1.0070/1.0100 area."
Bonds:
Pimco continues to see a strong case for investing in bonds after yields reset higher in 2022 and with an economic downturn looking likely in 2023.
"Fixed income markets today can offer broad opportunities to build resilient portfolios with the potential for both attractive returns and mitigation against downside risks."
Pimco's baseline is a modest recession and moderating inflation, but its investment committee discussions focused on the wide range of plausible scenarios and asset price returns in those scenarios.
"Although we expect disinflation, U.S. Treasury Inflation-Protected Securities could perform well given uncertainty over where core inflation settles versus current pricing."
Read Spanish, Italian Auctions Round off This Week's Heavy Bond Supply
Energy:
Oil prices were little changed as traders balanced a surge in U.S. inventories against Chinese demand hopes.
Energy traders are looking past the build in U.S. crude stocks, which was likely driven by refinery shutdowns on the gulf coast due to recent cold weather, ING said. Optimism about Chinese demand was providing support, it added.
"A number of signs, including an increase in crude oil import quotas, suggest a recovery in Chinese oil demand this year."
Natural Gas
European natural gas prices have fallen significantly due to reduced demand and ample inventories but the declines have likely been overdone and will recover to encourage LNG imports to keep flowing to the continent, SEB said.
It expects European TTF prices to bounce back to around EUR100 a megawatt-hour this quarter and average EUR105/MWh for the year. The European gas contracts are now cheaper than some Asian LNG prices, suggesting U.S. LNG exports could begin flowing there instead, SEB added. EU gas prices would need to rise to keep the steady flow of LNG coming.
Metals:
Copper prices slipped as traders take a breather after five days of gains and awaited the U.S. CPI data.
Optimism about China's reopening, coupled with a weaker dollar, have fueled a rally for copper and other base metals whose demand is highly dependent on China.
DOW JONES NEWSPLUS
EMEA HEADLINES
Ubisoft Shares Slump After Games Underperform in Lackluster Holiday Season
Shares of Ubisoft Entertainment SA, the maker of the Assassin's Creed videogame series, plunged Thursday after the French company said its "Mario + Rabbids: Sparks of Hope" and "Just Dance 2023" games underperformed during the holiday season as people spend less time at home than during the pandemic and grapple with higher prices for everyday goods.
At 0815 GMT, Ubisoft shares traded 21% lower at EUR18.84.
Centrica Raises 2022 Adjusted EPS Guidance After Strong Performance
British Gas owner Centrica PLC on Thursday raised its full-year adjusted earnings per share guidance after saying that its operational performance since November has remained strong.
The energy group said it now expects to report adjusted EPS for the year of more than 30 pence (36.45 U.S. cents). On Nov. 10 the company said it expected to report adjusted EPS for the year at the top end of analysts' expectations of 15.1 to 26.0 pence.
Marks & Spencer 3Q Sales Rose on Year After Strong Christmas Performance
Marks & Spencer Group PLC said Thursday that its performance over the Christmas period was strong, with a rise in third-quarter sales.
The U.K. retailer said that group sales for the 13 weeks ended Dec. 31 were 3.60 billion pounds ($4.37 billion), up 9.9% on year. A year prior it said sales in the period were GBP3.27 billion.
Tesco Backs FY 2023 Views After Strong Christmas Performance
Tesco PLC on Thursday backed its adjusted operating profit expectations for fiscal 2023, following a robust performance during Christmas, mainly driven by Central Europe.
The U.K. grocer said it currently expects adjusted operating profit--which strips out exceptional and other one-off items--for fiscal 2023 to be in the range of 2.4 billion to 2.6 billion pounds ($2.92 billion to $3.16 billion).
Whitbread 3Q Sales Rose 18%; Says It Is Confident on FY 2024
Whitbread PLC on Thursday said its like-for-like group sales grew 18.3% in the third quarter and it expects pricing to remain strong as it looks to fiscal 2024 with confidence.
The owner of budget hotel-chain Premier Inn said that accommodation sales for the U.K. in the 13 weeks to Dec. 1 rose 20.6% from the same quarter a year prior as more rooms were occupied at a higher price. Food and restaurant sales were up 6.9%.
Persimmon 2022 Sales Rate Dropped as Demand Falls; Begins 2023 with Lower Orders
Persimmon PLC said Thursday that its 2022 sales rates fell, particularly in the second half, and it enters 2023 with a lower forward sales position on year.
For the year ended Dec. 31, the U.K. home builder said its 2022 private sales rate declined to 0.69 per outlet per week from 0.83, driven by notably weaker customer demand in the second half as concerns over the economy, mortgage rates and cost of living hit customer confidence.
GLOBAL NEWS
December Inflation Report to Show Whether Price Increases Continued to Moderate
The Labor Department's inflation report for December will show whether price increases continued to slow after reaching their fastest pace in 40 years in mid-2022.
Why Investors May Be Too Optimistic About Inflation
In December 1974, celebrated historian and sometime presidential speechwriter Arthur M. Schlesinger Jr. summed up the problem with contemporary forecasters in a single, very long sentence in The Wall Street Journal: "To this moment most economists, businessmen and government officials obstinately regard inflation not as the structural vulnerability of contemporary capitalism but rather as the accidental result of unlucky coincidences requiring only patience, time (and unemployment) for its alleviation."
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01-12-23 0603ET
