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North American Morning Briefing: Caution Likely to Persist Ahead of CPI Release

10/12/2022 | 05:34am EST

MARKET WRAPS

Watch For:

Producer Price Index for September; PepsiCo earnings

Opening Call:

Stock futures on Wednesday showed Wall Street striving to break a 5-day losing streak as bond yields fell ahead of crucial inflation data.

"Equities have become incredibly fragile, as knock-on effects from central bank tightening further pressure equity risk premia higher [lower multiples]," Tom Lee, head of research at Fundstrat said.

"And investors generally fear that inflation is not falling at a pace fast enough to prevent more aggressive measures by the Fed."

Adding to the market anxiety, and keeping any Wednesday rally in check, is the continuing turmoil in U.K. government bonds after the Bank of England reiterated it would stop supporting the market after Friday.

Ian Williams, strategist at Peel Hunt, noted: "The mood of global investors was gloomy enough and hardly needed yesterday's reminder from the IMF that the risks to financial stability have increased."

The Fed may offer its view on the topic as a number of officials are due to give comments on Wednesday. Neel Kashkari is due to speak at 12 noon, while Michael Barr will speak at 1:45 p.m.

The minutes of the Fed's previous monetary policy setting meeting will be released at 2 p.m. and Michelle Bowman will deliver comments at 6.30 pm.

Stocks to Watch:

Cameco, Brookfield Renewable Partners. Shares of both companies dropped in off hours trading, by 11% and 2% respectively, after they said they would buy nuclear-services business Westinghouse Electric.

Peabody Energy. The coal producer is in talks to combine with an Australian rival that could result in a new global giant worth some $6 billion. Peabody shares edged down 1.1% off hours.

Applied Blockchain. The maker of data centers for crypto mining reported a quarterly loss and said it was changing its name to Applied Digital. Its shares slid 4.8% off hours.

Economic Insight:

U.S. inflation hasn't peaked yet, with continued rise in food, housing costs and healthcare, even as energy shows signs of moderating, Yieldstreet said. It will be looking for continued divergence in direction between headline and core measures as compared to prior period.

The CPI data for September are due for release on Thursday. The consensus forecast in The Wall Street Journal's economist poll is for headline inflation of 8.1%, down from 8.3% in August, while core inflation is expected to rise to 6.5% from 6.3%.

Forex:

Investors seem wary about pushing the dollar higher ahead of the release of the Federal Reserve's latest meeting minutes and U.S. inflation data, Unicredit Research saod.

That is because there is speculation the Fed could sound less restrictive than usual in its minutes and that inflation could be lower than expected, which would weaken the dollar, Unicredit said.

"We remain somewhat skeptical about buying this scenario, not least because we do not expect U.S. CPI data to show a strong decline in price pressure, especially in the core component."

---

Sterling edged up on a report the Bank of England has signalled privately to banks that it could extend its emergency bond-buying program even as Governor Andrew Bailey said the intervention would end on Friday as planned.

The Financial Times reported that representatives from the BOE informed some lenders that it was prepared to extend the facility. Such a U-turn would "deal another blow to the central bank's credibility, as well as the credibility of Bailey himself," CMC Markets said.

ING said it appears that an extension to the program is "holding the key to averting another sharp selloff in the gilt market and the pound."

ING said GBP/USD looks set to drop to 1.00-1.05 area by year-end, from 1.0977 currently.

Bonds:

The Bank of England's first buyback of index-linked gilts on Tuesday saw more offers and take-up from the BOE, Federated Hermes said.

"This is a positive start and suggests deleveraging is taking place, however the big unknown remains how much more there is remaining to be sold, so the offers into the buybacks for the remainder of this week should be very telling," it said.

Federated Hermes thinks the BOE will likely want to step away from the financial stability support as planned at the end of this week, but said this is difficult to do without giving the market some comfort around what to expect regarding quantitative tightening.

Read More BOE/Gilts Insight:

Gilt Investors Are Concerned by BOE's Support Commitment in Times of Stress

BOE's Linker Purchase Helped Stabilize UK Real Rates

BOE's Mention of Threats of 'Fire Sale' in Gilts Isn't What Govt Wants to Hear

Energy:

Crude futures ticked higher ahead of OPEC's monthly report but gains were capped by concerns about weakening global growth while risk-off moves threatened to spill over into oil markets, SPI Asset Management said.

OPEC is set to release its first report since undertaking its largest supply cut since 2020. The report should offer clues on how the group views supply and demand and could offer key insights into whether the cartel thinks further cuts will be needed.

Metals:

Gold and base metals were down slightly in Europe, as the dollar gained modestly, with the IMF's warning on global growth adding to market pressure.


TODAY'S TOP HEADLINES


Cameco, Brookfield Renewable Partners to Buy Westinghouse Electric for $7.88 Billion

Cameco Corp. and Brookfield Renewable Partners said they will buy Westinghouse Electric Co. in a deal that will boost nuclear power, an energy resource reinvigorated by the need to reduce the use of carbon-based fuels.

The Canada-based companies said Tuesday that they are forming a strategic partnership to acquire the nuclear-services business. Brookfield Renewable, with its institutional partners, will own a 51% interest in Westinghouse and Cameco will own 49%, they said.


Coal Miner Peabody Energy in Deal Talks With Australian Rival Coronado

ADELAIDE, Australia-Peabody Energy Corp. is in talks to combine with an Australian rival that could result in a new global giant worth some $6 billion, illustrating how the coal-price surge that followed Russia's invasion of Ukraine is transforming the sector's fortunes.

Peabody, the largest American coal producer, is discussing a deal with Coronado Global Resources Inc., which has operations in the U.S. and Australia. In a regulatory filing with the Australian Securities Exchange on Wednesday, Coronado said negotiations were occurring.


Intel CEO Pushes to Further Separate Chip-Design, Production Arms

Intel Corp. plans to create greater decision-making separation between its chip designers and chip-making factories as part of Chief Executive Pat Gelsinger's bid to revamp the company and boost returns.

The new structure, which Mr. Gelsinger disclosed in a letter to staff on Tuesday, is designed to let Intel's network of factories operate like a contract chip-making operation, taking orders from both Intel engineers and external chip companies on an equal footing.


Meta's Facebook Takes Aim at Workers' PCs With New VR Headset

Facebook parent Meta Platforms Inc. stated its ambition to go after the professional computing market on Tuesday with the announcement of its most advanced virtual reality headset to date, the Quest Pro, saying it could be a better way to work than a personal computer.

Along with the new device, which costs around $1,500, Meta also announced partnerships with Microsoft Corp. and Zoom Video Communications Inc. that are expected to make the company's VR headsets more useful in hybrid-work scenarios.


Banks Absorb Nielsen Buyout Debt As Market Recoils

Investment banks are continuing to add billions of dollars of risky debt backing large corporate buyouts onto their own balance sheets after a recent market softening has made it difficult for them to sell the debt to investors.

A group of banks including Bank of America Corp., Barclays PLC and Credit Suisse Group AG is funding most of the debt for the buyout of TV ratings company Nielsen Holdings PLC themselves, according to people familiar with the matter.


Judge Rebuffs DOJ Request to Block Booz Allen Hamilton's Cybersecurity Deal

A federal judge in Maryland on Tuesday declined to halt Booz Allen Hamilton Holding Corp.'s purchase of a competing cybersecurity company, turning back the Justice Department's effort to block the deal on antitrust grounds.

Booz Allen in March moved to acquire EverWatch, a company it had been competing against to win a five-year contract to support the National Security Agency's mission of collecting foreign communications. The Justice Department sued in June, alleging that the acquisition would drive up prices for the U.S. government and create a monopoly supplier for a critical national-security service.


Royal Philips Lowers Top-Line View Amid Supply-Chain Snarls

Royal Philips NV said Wednesday that its performance for the third quarter was hurt by stronger-than-anticipated supply-chain challenges, and adopted a more pessimistic view on its sales through the end of the year.

The Dutch health-technology company expects to report adjusted earnings before interest, taxes and amortization--a metric that strips out exceptional and other one-off items--of around 210 million euros ($203.8 million) for the third quarter, around 5% of sales.


Toyota Starts Plant in Junta-Led Myanmar Making 1 to 2 Cars a Day

TOKYO-Toyota Motor Corp. said it has begun producing cars at a new plant in Myanmar that had been on hold after the country's military seized power in a coup last year.

Toyota began assembling one or two cars a day at its plant in Yangon last month, a spokeswoman for the Japanese auto maker said Wednesday. She said Toyota wanted to contribute to the industrial development of Myanmar and the livelihood of local employees and their families.


Biden Says Very Slight Recession Is Possible, but He Doesn't Anticipate One

(MORE TO FOLLOW) Dow Jones Newswires

10-12-22 0533ET

Stocks mentioned in the article
ChangeLast1st jan.
APPLIED DIGITAL CORPORATION 5.81% 3.41 Delayed Quote.78.26%
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) 0.50% 0.57888 Delayed Quote.1.73%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.10% 0.71318 Delayed Quote.3.48%
BANK OF AMERICA CORPORATION 1.24% 36.03 Delayed Quote.8.45%
BARCLAYS PLC 0.75% 187.42 Delayed Quote.17.64%
BOOZ ALLEN HAMILTON HOLDING CORPORATION 0.77% 94.205 Delayed Quote.-8.75%
BRENT OIL -0.63% 82.49 Delayed Quote.-0.55%
BRITISH POUND / US DOLLAR (GBP/USD) -0.58% 1.2317 Delayed Quote.1.76%
BROOKFIELD RENEWABLE CORPORATION -1.00% 41.55 Delayed Quote.11.32%
CAMECO CORPORATION 2.36% 38.43 Delayed Quote.24.18%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) 0.47% 0.610933 Delayed Quote.0.08%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.09% 0.75232 Delayed Quote.1.80%
CORONADO GLOBAL RESOURCES INC. -0.49% 2.05 Delayed Quote.3.02%
EURO / BRITISH POUND (EUR/GBP) 0.07% 0.88897 Delayed Quote.-0.32%
EURO / US DOLLAR (EUR/USD) -0.50% 1.09504 Delayed Quote.1.48%
FEDERATED HERMES, INC. 2.70% 40.66 Delayed Quote.11.15%
INDIAN RUPEE / BRITISH POUND (INR/GBP) 0.05% 0.0099 Delayed Quote.-0.72%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.44% 0.012184 Delayed Quote.1.10%
INTEL CORPORATION 2.87% 29.225 Delayed Quote.9.99%
META PLATFORMS, INC. 2.79% 182.935 Delayed Quote.27.24%
MICROSOFT CORPORATION 1.99% 259.58 Delayed Quote.5.39%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.22% 0.6525 Delayed Quote.1.40%
PEABODY ENERGY CORPORATION -0.75% 27.56 Delayed Quote.4.77%
PEPSICO, INC. 0.32% 168.68 Delayed Quote.-5.34%
TOYOTA INDUSTRIES CORPORATION -0.25% 7850 Delayed Quote.8.70%
TOYOTA MOTOR CORPORATION -1.18% 1880.5 Delayed Quote.4.99%
UK 10Y CASH -0.31% 3.0866 Delayed Quote.-9.31%
UNICREDIT S.P.A. -1.34% 17.76 Delayed Quote.36.23%
US DOLLAR / BRITISH POUND (USD/GBP) 0.55% 0.811906 Delayed Quote.-1.74%
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION 0.65% 104.48 Delayed Quote.4.68%
WTI -0.72% 76.382 Delayed Quote.-1.72%
ZOOM VIDEO COMMUNICATIONS, INC. 4.15% 79.9063 Delayed Quote.15.31%
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