MARKET WRAPS
Watch For:
Interest Rate Decision; Federal Reserve economic projections; EIA Weekly Petroleum Status Report; Lennar earnings
Opening Call:
Today's Headlines/Must Reads
- U.K. Inflation Eases, Following Global Trend
- Quants Head for Banner Year as Fed Stokes Volatility
- FTX a Blueprint for Pursuing Offshore Crypto Exchanges
- Europe's Energy Crisis Expected to Boost Demand for Oil as Heat Source
- SpaceX Eyes Higher Valuation in Offering Employee Shares for Sale
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Stock futures struggled for momentum on Wednesday in cautious trading as Wall Street prepared for the Federal Reserve's policy decision.
The central bank is expected to raise borrowing costs by 50 basis points to a range of 4.25% to 4.50% at 2 p.m. Eastern.
Equity investors have become more hopeful that signs of easing price rises can allow the Fed to be less aggressive in its tightening policy, thereby making a recession less likely and thus supporting company earnings.
But some analysts remain wary that such optimism may falter if faced with a resolutely hawkish Fed, a view that may explain why equities gave up a big chunk of Tuesday's initial bounce.
"The softer-than-expected inflation print...sent stocks higher and the dollar lower, but the S&P 500 couldn't clear key resistance levels, as investors know Jerome Powell could coldheartedly kill the market joy at his post-FOMC press conference," Swissquote Bank said.
Stocks to Watch
ABM Industries forecast a full-year profit that was below Wall Street's expectations. Its shares fell 3% off hours.
Braze raised its revenue outlook for the year and improved its net loss expectations for the period. Its shares dropped 5% off hours.
Icosavax shares rallied 11% in after-hours trading after it said new data from a trial of its IVX-121 vaccine has demonstrated a sustained neutralizing antibody response against the respiratory syncytial virus, lasting for at least six months after a single dose.
Kaspien posted a wider third-quarter loss and lower revenue. Its shares dropped 29% in after-hours trading, reversing course after the stock had gained 35% during the day.
Moderna shares added 2% premarket, building on Tuesday's 20% gains, which came after a customized Moderna vaccine helped ward off the recurrence of melanoma in a mid-stage trial.
QuantumScape fell 3% after its shares were downgraded to Sell from Neutral at Goldman Sachs, The Fly reported.
Vallon Pharmaceuticals agreed to merge with GRI Bio, a privately-held biotech, in an all-stock deal. Vallon shares rose 154% in after-hours trading.
Forex:
The dollar dropped after the weaker-than-expected inflation reading, but ING expects Jerome Powell could "stick to the view that the inflation battle is still to be won" and help the currency recover.
The Fed is expected to raise interest rates by 50 basis points later today and may push back against a recent easing in financial conditions, ING said.
"The dollar can recover some of the lost ground as Powell works his magic to deliver a broadly hawkish--and above all credible--message."
Read Fed Decision More Likely to Move Euro Vs Dollar Than ECB Decision
Bonds:
German Bunds should underperform Treasurys in 2023, with the cyclical peak in U.S. yields likely reached, Deutsche Bank said.
It expects the 10-year Treasury yield to end next year at 3.65% with a steeper yield curve, and the 10-year German Bund yield at 2.60%.
"However, as we do not expect the Fed to fully pivot yet, we do have rates selling off early in the year relative to current pricing."
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Man GLG said bond markets, along with credit and risk markets will like the U.S. inflation data.
These markets "can continue to rally into year-end as seasonals and momentum also prove supportive."
It said the November inflation print adds evidence that peak inflation is firmly in the Federal Reserve's rear view mirror.
"Going forward U.S. policymakers can start to worry more about the aggressive rate hikes they've put in place and their lagged impact on economic growth," Man GLG said , expecting a more dovish tone from Jerome Powell at the December rates meeting, despite the well flagged 50bp rate hike.
Energy:
Oil prices were near-flat in Europe having rallied after the CPI print and as investors awaited the Fed's latest decision on interest rates.
IEA Update
A better-than-expected response to Europe's energy crisis and surprising economic resilience among major Asian economies are boosting demand for oil as a heat source, the IEA said as it lifted its forecast for global crude demand.
The energy watchdog raised its forecasts for oil-demand growth for 2022 by 140,000 barrels a day to 2.3 million barrels a day. For 2023, the IEA also lifted its demand growth forecast by 100,000 barrels a day to 1.7 million barrels a day.
Read more here
Metals:
Copper edged higher as risk appetite was lifted by the CPI data and as the dollar weakened.
OANDA said gold should remain comfortably above $1,800/oz ahead of the FOMC decision and could have a path toward $1,861/oz if the Fed abandons its hawkish tone completely.
TODAY'S TOP HEADLINES
SpaceX Eyes Higher Valuation in Offering Employee Shares for Sale
SpaceX is offering to sell employee-owned shares at a higher valuation than its last private funding round, people familiar with the matter said, a sign of conviction when a market rout has tanked the value of other U.S. startups.
The Elon Musk-led space exploration company has started to market employee stock for sale, offering to sell the shares at $77 each, which would value the company around $140 billion, the people said.
Sensor Startup Quanergy Files for Bankruptcy 10 Months After SPAC Merger
Silicon Valley tech startup Quanergy Systems Inc. filed for bankruptcy Tuesday, less than a year after it became a publicly traded company on the New York Stock Exchange.
The Sunnyvale, Calif.-based company, which designs and develops light detection and ranging, or lidar, sensors used in fields such as security and transportation, aims to sell itself under chapter 11 protection, according to court papers filed by the company's chief restructuring officer, Lawrence Perkins.
U.K. Inflation Eased in November, Following Global Trend
LONDON-The U.K.'s annual rate of inflation fell in November, a fresh sign that the surge in consumer prices around the world since early last year is easing as household spending power declines and central banks push borrowing costs higher.
Consumer prices in the U.K. were 10.7% higher than a year earlier, a slower rate of inflation than the 11.1% recorded in October as gasoline prices cooled, the Office for National Statistics said Wednesday. The core rate of inflation, which excludes energy and food, fell to 6.3% from 6.5%.
Quants Are Headed for Best Year in Decades as Fed Stokes Volatility
A cadre of quant investment strategies that benefit during times of tumult are on pace for their best year since at least 2000-and those funds are counting on markets remaining volatile to extend their banner run.
The funds wager on various assets as they rise or fall, building their bets as a trend strengthens. When algorithmic warning signs flash, they pivot into fresh positions. Those strategies have been a rare haven for much of the year as the Federal Reserve's interest-rate increases have pummeled stocks and bonds. The SG CTA Index, run by Société Générale and BarclayHedge to track the 20 largest such strategies, is up 19% in 2022, on pace for its best year since launching in 2000.
Europe's Energy Crisis Expected to Boost Demand for Oil as Heat Source
A better-than-expected response to Europe's energy crisis and surprising economic resilience among major Asian economies are boosting demand for oil as a heat source, the International Energy Agency said Wednesday as it lifted its forecast for global crude demand.
The Paris-based energy watchdog raised its forecasts for oil-demand growth for 2022 by 140,000 barrels a day to 2.3 million barrels a day. For 2023, the IEA also lifted its demand growth forecast by 100,000 barrels a day to 1.7 million barrels a day.
FTX Fraud Suits Offer Blueprint for Pursuing Offshore Crypto Exchanges
FTX was one of the largest overseas crypto exchanges, based on a Caribbean island with a friendly regulatory regime, and arguably beyond the reach of U.S. rules that govern how trading firms deal with investors and consumers.
The lawsuits filed Tuesday show how U.S. regulators have found a way to police global crypto conduct they don't closely regulate. The Commodity Futures Trading Commission alleged, for instance, that Bahamas-based FTX affected the price of commodities sold in the U.S. That gave the CFTC authority to file a civil fraud lawsuit against FTX founder Sam Bankman-Fried and his companies.
Congressional Negotiators Reach Framework for Deal on Funding Government
WASHINGTON-Congressional negotiators said they agreed on a framework for a fiscal 2023 government funding package, with lawmakers saying the breakthrough in talks puts them on course to vote next week before leaving for Christmas break.
Late Tuesday, Senate Appropriations Committee Chairman Pat Leahy (D., Vt.) and House Appropriations Committee Chairwoman Rosa DeLauro (D., Conn.) released statements saying that they had reached a bipartisan framework with Sen. Richard Shelby (R., Ala.) that should allow for enactment of an omnibus spending bill that would boost funding for both the military and domestic priorities.
Ukraine Fends Off Fresh Wave of Drone Attacks on Kyiv
Ukrainian air defenses repelled a wave of Russian strikes in Kyiv on Wednesday, knocking at least 13 drones out of the sky, with explosions reported in the historical center of the city.
(MORE TO FOLLOW) Dow Jones Newswires
12-14-22 0610ET
