MARKET WRAPS
Watch For:
Retail Sales for December; PPI for December; Industrial Production and Capacity Utilization for December; NAHB Housing Market Index for January; Business Inventories for November; Canada Industrial Product & Raw Materials Price Indexes for December
Earnings from Charles Schwab, Prologis, PNC, Kinder Morgan, Discover and Alcoa.
Today's Top Headlines/Must Reads:
- Disney Gets Boost as China Clears Marvel Superhero Films for Release
- Microsoft Plans to Announce Layoffs as Early as Wednesday Morning
- Despite Pressure, Bank of Japan Keeps Interest-Rate Targets Unchanged
- Oil Demand to Hit Record Level This Year as China Reopens, IEA Says
- December Retail Sales Report to Show How Consumers Weathered Holiday Season
Follow WSJ market coverage here
Opening Call:
Stock futures were largely flat on Wednesday as investors awaited the next round of earnings reports and a clutch of data, including retail sales.
Futures steadied after a burst of volatility when the Bank of Japan surprised traders by leaving its monetary policy unchanged, sparking a slide in the yen and Japanese government bond yields, alongside a jump in the Nikkei 225 stock benchmark.
Technical factors, such as the CBOE Volatility index below 20, suggesting complacency, and a high proportion of stocks looking overbought, may also constrain the latest rally, according to Fundstrat.
"Given that the VIX is showing a similar potential area of confluence this week while the percentage of SPX issues above their 20-day moving average has gone back above 80, this should bring about a stalling out in U.S. equities by end of week."
Stocks to Watch
Arcimoto plans a stock offering and intends to use proceeds for working capital and other general corporate purposes. Shares dropped 32% in after-hours trading.
Big 5 Sporting Goods reported fourth-quarter sales near the low end of its prior guidance as inflation curbed holiday discretionary spending. Shares declined 7.7% in after-hours trading.
Charles Schwab rose 1% in the premarket, with the financial services giant due to report earnings before the opening bell.
Goldman Sachs was not poised for a rebound. Shares edged 0.3% lower in Wednesday's premarket after the stock tanked 6.4% in the previous session.
Microsoft appeared little moved by reports that the tech giant would join the ranks of peers in reducing its workforce, with the stock down some 0.1% in premarket trading.
Moderna gained 6% in U.S. premarket trading after it announced late Tuesday strong results from a large trial of its respiratory syncytial virus (RSV) vaccine.
SmileDirectClub said it will realign its operating programs and global workforce as it targets costs. Shares gained 13% in after-hours trading.
Tesla shares continued to jump around, lifting 2.5% in the premarket to build on a 7.4% rally on Tuesday.
Other Movers
Japanese automakers listed in the U.S. advanced, with Toyota Motor up 1% in the premarket and Honda rising 1.5% outside of regular trading hours.
Davos Commentary
The spread of inflation into the wider economy, away from just energy prices, may be a cause for concern this year, according to the CEO of ABN AMRO.
"The worry I do have as we look forward into 2023 is that underlying inflation is now also [rising], so inflation has been not just limited to energy-price hikes," ABN's Robert Swaak told CNBC in an interview at the World Economic Forum in Davos.
"So we see the energy component starting to be less relevant to inflation and more the underlying components, underlying inflation," he says. The question now is how inflation will continue to behave and, in Europe, the subsequent response by the European Central Bank.
More Commentary
Western Economies Should Rebound in 2H, Says Standard Chartered Chairman
EU Must Show Attractiveness as US Inflation Act Endangers Investments, Gentiloni Says
Europe Could Avoid Recession, UniCredit's Orcel Says
Forex:
The dollar could fall further if data later in the day show signs the economy is cooling, ING said.
"The market's scrutiny over the U.S. economic outlook has grown exponentially since the ISM service report pointed to an imminent recession: expect more pain for the dollar should fresh signs of a slowdown emerge now that the U.S. data calendar is picking up again."
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Sterling rose after data showed U.K. inflation eased slightly in December but remained elevated, supporting the case for the BOE to raise interest rates further.
"This level of inflation is likely to mean the Bank of England continues to keep a tight rein on financial conditions," Premier Miton Monthly Income Fund said.
Read U.K. Inflation Falls for Second Month, Following Global Move
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ECB members at Davos could push back against a report that the central bank is considering slowing the pace of interest rate rises, lifting the euro after the currency fell on the headline, ING said.
It seems premature for the ECB to unwind its restrictive policy stance and ECB member Francois Villeroy and ECB President Lagarde could dismiss Tuesday's headline from Bloomberg at Davos on Wednesday and Thursday, respectively, ING added.
"Either way, the overall environment looks likely to stay largely supportive for EUR/USD and a return to 1.0850-1.0900 seems possible by the end of this week."
Bonds:
Many investors have begun to position for falling interest rates as inflation risks have cooled and recession risks have risen, Morgan Stanley Wealth Management said.
However, downward pressure on Treasury yields could be offset by bulging fiscal deficits, the Fed's quantitative tightening as well as tightening by the ECB and the BOJ, it said.
"The end of the ECB's bond purchases could leave issuance of euro-denominated debt at a level not seen in more than 20 years," Morgan Stanley WM said, adding that this comes at a time when risks of rising U.S. debts and deficits could also increase U.S. Treasury issuance.
Read Despite Pressure, Bank of Japan Keeps Interest-Rate Targets Unchanged
Energy:
Oil prices rallied after the IEA said China's reopening will help push oil demand to a record level this year.
Brent hit its highest level since November after the IEA said. Oil demand should average 101.7 million barrels a day this year, a record level, thanks largely to China's reopening.
The watchdog added just under 200,000 barrels a day to its 2023 oil demand growth forecast in its monthly report, taking in 1.9 million barrels a day.
Read more from the IEA here
Metals:
Base metals made solid gains with gold also in positive territory, as worries over hawkishness from the BOJ were eased after it maintained its policy on interest rates.
Marex added that Chinese "infrastructure construction will accelerate after the Chinese New Year," with a number of investments to be introduced to support new construction projects.
TODAY'S TOP HEADLINES
Disney Gets Boost as China Clears Marvel Superhero Films for Release
HONG KONG-China has cleared two of Walt Disney Co.'s Marvel movies for screening in the country, a significant victory for Hollywood after years of tighter Chinese restrictions on new releases.
Disney's Marvel Studios said on Chinese social media that two of its films, "Black Panther: Wakanda Forever" and "Ant-Man and the Wasp: Quantumania," will hit Chinese theaters next month.
Microsoft Plans to Announce Layoffs as Early as Wednesday Morning
Microsoft Corp. is planning to announce more layoffs as soon as Wednesday morning, according to a person familiar with the matter.
Last year, Microsoft had more than one round of layoffs but didn't announce how many positions it cut. The round that started in July affected less than 1% of the company's total workforce of more than 200,000 people, the company said at the time.
KKR Agrees to Buy S&P Global's Engineering Solutions Unit for $975 Million
KKR & Co. is buying S&P Global Inc.'s Engineering Solutions business for about $975 million in cash, acquiring a business that provides technical standards and related knowledge to architects, engineers and technical professionals.
"We see significant opportunities for Engineering Solutions to accelerate growth, expand its footprint and continue to innovate as an independent company," said KKR Partner Webster Chua. The firm expects to close the deal by the end of June and plans to focus on enhancing product coverage and expanding distribution, among other things, according to a news release.
Bayer Could Go the Way of General Electric and Daimler
In the slow-burning decline of the industrial conglomerate, the next shoe to drop might be German drugs-to-crops giant Bayer.
The inventor of aspirin has attracted a lot of attention from activist investors lately. Jeff Ubben's Inclusive Capital Partners disclosed a stake last week. Bluebell Capital Partners, a small European fund that helped to oust the former chief executive officer of French yogurt maker Danone, also has built a stake.
Coal Miner Coronado Scanning for Acquisitions After Failed Merger Talks
Coronado Global Resources Inc. executives on Wednesday said the coal-mining company has no intention of revisiting failed deal talks with Peabody Energy Corp. but remains eager to expand, and will consider buying coal operations from larger rivals such as BHP Group Ltd.
Incoming chief executive Douglas Thompson said Coronado, which produces steelmaking coal in the U.S. and Australia, is keen to mop up coal operations being shed by major miners, many of which are pivoting to focus on commodities such as copper needed in a global energy transition.
Germany's BASF to Post 2022 Loss on $7.90 Billion Impairment
Germany's BASF SE expects to post a net loss for 2022 after booking impairments worth 7.3 billion euros ($7.90 billion) from the deconsolidation of Russian exploration and production activities after Moscow's invasion of Ukraine.
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01-18-23 0618ET
