MARKET WRAPS
Watch For:
Flash Manufacturing PMI for January; Flash Services PMI for January
Earnings reports from: Johnson & Johnson; General Electric; Raytheon Technologies; Microsoft Corp.; Verizon Communications; Canadian National Railway
Today's Top Headlines/Must Reads:
- Microsoft Earnings Likely Slid Last Quarter Amid Economic Concerns
- Investors Await Tech Earnings in Next Test for Markets
- Europe Stays in Washington's Shadow as It Argues Over Tanks for Ukraine
- Eurozone Economy Swings to Expansion in January, PMIs Show
- Companies Cut Temp Workers in Warning Sign for Labor Market
Follow WSJ market coverage here
Opening Call:
Stock futures drifted lower on Tuesday as the market eyes a rush of earnings reports in the next few days.
The hope among investors is that a less hawkish Fed will help the U.S. economy avoid a hard landing and this will support company earnings, according to analysts.
"Hold onto your hats as this week's ride could be on the wild side. And judging by the wave of New Year optimism that markets seemed to have been surfing pretty happily, investors are ready to believe in soft landings. The question at hand is what kind of cushioning do some of the world's biggest companies have wrapped around them in case things end with more of a jolt?," AJ Bell said.
"A slew of earnings data is heading our way and we'll finally get a chance to see just how much falling consumer confidence and dwindling discretionary spend has impacted the bottom line of global behemoths, from both the old and new guard," AJ Bell added.
The latest bounce for Wall Street has taken the S&P 500 through some important technical milestones - closing above 4,000 and its 200-day moving average - and this may bode well for the medium term, analysts said.
"The 2022 bear market looks to be on thin ice. The SPX's second straight day higher has successfully broken out above January 2023 highs. This is a positive development which not only has surpassed minor downtrends from last fall, but also is serving to exceed the entire downtrend from last January," Fundstrat said.
Stocks to Watch
HighPeak Energy said Monday it is considering a range of strategic options for the oil and natural gas company, including a potential sale. Shares gained 9.6% in after-hours trading.
Orion Energy Systems said it is updating its outlook due to "current business and economic challenges", which "could continue to impact the pace of projects." Shares declined 3.9% in after-hours trading.
T2 Biosystems reported preliminary results for the fourth quarter and 2022. Shares of the proprietary technology platform developer rose 3% in after-hours trading.
Tesla's Elon Musk testified he had funding to take the electric-vehicle maker private when he floated the idea in 2018. Tesla shares, which had jumped 7.7% Monday as part of a wider rally in EV stocks, drifted down about 1.5% in premarket trading Tuesday.
Zions Bancorp reported higher quarterly earnings but continued to pad its loss reserves on the prospect of a slowdown. Stocks fell 2.5% premarket.
Economic Insight
Incoming data are poised to make the Federal Reserve official's current hawkish stance untenable, Pantheon Macroeconomics said.
"Three straight good CPI reports, slowing wage growth, back-to-back grim retail sales and manufacturing output reports, the sudden drop in the services index, and the recession-level index have convinced many investors that the Fed cannot keep raising rates until core inflation is almost back to 2%."
Moreover, it is still too soon to see the effects on inflation and activity from the 125-basis-points interest-rate rises in November and December, Pantheon said.
"If the Fed continues to raise rates, the bigger danger will be an unnecessary recession."
Forex:
The dollar fell as fears over a hard landing for the global economy eased, driving investors away from safe haven assets, MUFG Bank said.
"Europe's economies appear to be holding up better than feared during the winter, there is building optimism over stronger rebound for China's economy this year, and there is more encouraging evidence that inflation pressures are now easing albeit from very elevated levels."
Easing inflation is giving markets confidence that central banks can pause their interest-rate hike cycles this year and potentially begin to reverse course, which is helping dampen hard landing fears, MUFG Bank said.
---
The euro remained flat on the day versus the dollar even after the latest eurozone PMI survey exceeded expectations.
The data added to evidence that the eurozone might escape a recession but the region is "not out the woods" as demand continued to fall and continuing price pressures supported the case for higher interest rates, S&P said in the survey's press release.
---
Sterling fell after data showed a key measure of U.K. manufacturing and services activity contracted by more than expected in January.
"Weaker-than-expected PMI numbers in January underscore the risk of the U.K. slipping into recession," S&P said in the survey's press release.
Bonds:
Both the 10-year Treasury and 10-year Bund yields have peaked, ABN Amro said.
"The recession will weigh on EU rates in 2023 with the 10y Bund yield expected to fall below the 2% level in 2023," ABN said, forecasting a similar path for U.S. rates.
ABN expects both Treasury and German Bund curves to remain inverted through most of 2023 as elevated core inflation will maintain short-term rates higher for longer.
Energy:
Oil prices steadied in Europe as traders await greater signals on China's post-Lunar New Year demand.
Traders are hoping that Chinese demand comes back strong as the nation reopens but many are still cautious about a flare-up of Covid-19 cases that could occur during the holiday period.
"China will need more oil to grease its economic consumption and production engines," SPI Asset Management said.
"The oil market is still lightly positioned...So, there should be way more upside on this trade."
Metals:
Metal prices were moving higher in early London trading as the macroeconomic environment was seen improving.
"The macro environment is bullish for commodity money flows," Peak Trading Research said.
Crude oil prices rising yesterday, rallies in equities and inflation expectations rebounding have all helped improve macroeconomic sentiment.
Iron Ore/Copper Outlook
The outlook for steel ingredient iron ore continues to be buoyed by optimism about China's economic recovery, according to Citi.
"Iron ore currently has upside risk from the China reopening theme, given its inelastic demand and supply which leaves it able to trade more financially, rather than physically (as its physical market remains weak at present)."
---
Base-metal prices have started 2023 strongly, fueled by China's reopening, while unrest in Peru is clouding the outlook for copper supplies, Macquarie said.
"The biggest outperforming commodities have been tin, zinc, and copper which are up 18%,14% and 10% higher than where they started the year, respectively," it said.
Copper-mining operations in Peru, the world's No. 2 producer of the metal, are facing production disruptions due to protests, adding to uncertainty around 2023 supply, Macquarie added.
It highlighted lead, nickel and cobalt--which are 8%, 6% and 6% lower than where they started January, respectively--as the biggest underperformers in the year to date.
TODAY'S TOP HEADLINES
Microsoft Earnings Likely Slid Last Quarter Amid Economic Concerns
Microsoft Corp. likely recorded its slowest sales growth in more than six years last quarter as economic concerns cooled demand for its software and cloud services.
The Redmond, Wash., firm's revenue growth is expected to slow to less than 3% in the three months through Dec. 31 compared with a year earlier while its net income is expected to fall more than 8%, according to financial analysts surveyed by FactSet. They predicted the company would announce sales of $53.12 billion and a net income of $17.21 billion for the period.
Drug Distributor AmerisourceBergen to Change Name to Cencora
AmerisourceBergen Corp. plans to change its name to Cencora to reflect its aim to expand outside the U.S. and beyond drug distribution.
The company, among the largest distributors of medicines and other healthcare products in the U.S., with $239 billion in revenue last fiscal year, said Tuesday it expects to begin using the new name in the second half of this year.
Twitter Headquarters Landlord Sues Elon Musk's Company, Alleging Unpaid Rent
Twitter Inc. is being sued over allegedly unpaid rent at its headquarters building in San Francisco, adding to legal battles between the social-media company and vendors since Elon Musk acquired the business last year.
The landlord, SRI Nine Market Square LLC, alleged in a lawsuit that Twitter failed to make a roughly $3.4 million rent payment for December and a similarly sized payment for January.
Google to Reduce Top Executive Bonuses, CEO Sundar Pichai Says
Google Chief Executive Sundar Pichai said top executives would take pay cuts following the largest round of layoffs in the company's history.
Speaking at a companywide meeting on Monday, Mr. Pichai said employees at the senior-vice president level and above would get lower bonuses as part of cost-cutting measures, according to people who heard the remarks.
Ford Plans 3,200 Job Cuts in Europe, Bloomberg Reports
-Ford Motor Co. plans to cut about 3,200 jobs in Europe, as part of efforts to reduce costs amid its electrification push, Bloomberg reports, citing union IG Metall.
-The majority of positions affected by the cuts are in Germany and the plan would remove around 65% of the car maker's development positions in Europe, according to Bloomberg.
-Ford and IG Metall didn't immediately respond to requests for comment.
Companies Cut Temp Workers in Warning Sign for Labor Market
(MORE TO FOLLOW) Dow Jones Newswires
01-24-23 0638ET
