MARKET WRAPS
Watch For:
U.S. interest rate decision; ADP National Employment Report for January; ISM Report on Business Manufacturing PMI; EIA Weekly Petroleum Status Report; Domestic Auto Sales for January; Ford Motor January Sales
Today's Top Headlines/Must Reads:
- Meta Platforms Poised to Post Earnings Drop From Digital-Ad Woes
- Intel CEO Takes Pay Cut as Chip Maker Targets Cost Reductions
- Disney, Salesforce and Others Draw Activist 'Swarm' After Shares Decline
- Investors Shrug Off Weak Earnings Reports as Stocks Rebound to Start Year
- Ukraine Braces for Major Russian Offensive
Follow WSJ market coverage here
Opening Call:
Stock futures pointed to a lower open for Wall Street on Wednesday, as a new month of trading was set to kick off with a Federal Reserve policy decision, data including a private-sector payrolls report and plenty more company results.
Most market watchers are forecasting a 25-basis point interest rate increase from the Fed. Even more attention will be focused on any commentary from Powell that pushing back against expectations the central has reached peak policy rates, and will start to lower them by year end.
Given markets have ignored Powell's protests before on that topic, "it is tough to see how he makes a strong impression unless taking drastic (and unlikely) measures like hiking the policy rate 50 basis points," Saxo Bank said.
Some have credited last month's strong stock market performance to hopes that the Fed may be ready to deliver its last rate increase for a while, though some on Wall Street have cautioned that investors are premature with that view. Morgan Stanley has warned that the strong January run for stocks is over.
"Incoming data, starting with the upcoming ISM's (today and Friday) and the Friday jobs and earnings data, may weigh more in the pricing of the Fed policy rate from here," Saxo added.
Stocks to Watch
Shares of Advanced Micro Devices rose 3.3% in premarket trading after reporting better-than-expected fourth-quarter earnings.
Electronic Arts gave a disappointing outlook for its current quarter and said it will delay the launch of a highly anticipated Star Wars game. Shares fell 10% before the opening bell.
Intel declined 0.4% premarket. CEO will see his base pay reduced 25% following the chip maker's disappointing fourth-quarter earnings and forecast last week.
Match swung to a profit in the fourth quarter but offered a disappointing outlook for its current quarter, citing challenging macroeconomic conditions. Shares tumbled 9.5% premarket.
Mondelez sales climbed 14% in the final quarter of 2022 as people bought more sweets and candies despite higher prices. Shares rose 3.2% premarket.
Snap warned sales in the current quarter are likely to drop after revenue growth stalled in the final three months of last year. Shares slid 14% premarket.
Super Micro Computer forecast sales between $1.42 billion and $1.52 billion, and adjusted earnings between $1.88 and $2.14 a share. Shares tumbled 11% in after-hours trading.
Western Digital declined 4.9% in premarket trading after the disk-drive and flash-memory chip company issued fiscal third-quarter guidance that fell well short of expectations.
T-Mobile and Altria are scheduled to report quarterly earnings ahead of the opening bell. Meta Platforms will be posting earnings after the stock market closes.
Economic Insight
Anything but a 25 basis point interest rate rise at the Fed's meeting would be a major surprise, and the focus will be on the guidance about the terminal rate level, Danske Bank said.
"We expect the communication to be on the hawkish side."
Markets are pricing in a total of 58 basis points of interest rate rises by June, while Danske looks for three consecutive 25bp interest rate increases which would take the Fed Funds rate to 5.00%-5.25% by May, the bank said.
---
The Fed is set to increase interest rates by 25 basis points, but Jerome Powell is unlikely to signal the end of the tightening cycle even as this interest-rate increase should be the last, Pantheon Macroeconomics said.
A full retreat from the Fed's hawkish tone is still unlikely as officials will prefer to wait until March, after two more rounds of growth and inflation data, Pantheon added.
"We think the Fed will soon have no choice but to back away from its unrelentingly hawkish message," it said.
"That's not sustainable as inflation falls, wage growth slows, and economic activity struggles, so the Fed is about to start steering toward a more balanced approach."
Forex:
The dollar traded flat as investors exercised caution ahead of the Fed's policy decision.
"We expect the post-meeting statement to reiterate that further rate rises are likely, while Jerome Powell will likely push back against market expectations for rate cuts this year," Unicredit Research said.
"The more the Fed wrong-foots investors, the greater the impact on the USD will be."
However, it's "extremely difficult" to imagine either another 50bp rate hike or Powell accelerating policy easing, UniCredit added.
Read Dollar Could Fall But Only Briefly if Fed Signals Pause
---
Sterling faces sustained weakness on concerns about the U.K.'s worse economic outlook compared to elsewhere, Commerzbank said.
IMF said Tuesday the U.K. will be the only major economy to shrink this year, which is bad news for sterling, as it's unclear whether this growth gap will be long-term, Commerzbank added.
"If that was the case, we would have to fear that the relation of British to U.S. and European per capita gross domestic product was deteriorating."
The lower the per capita GDP of an economy, the lower the currency is valued, Commerzbank said.
Bonds:
Bond markets seem confident heading into key data releases, such as eurozone inflation, and the Fed's policy meeting, Commerzbank said.
In particular, French inflation data on Tuesday, coming in line, soothed market concerns after a bounce triggered by the upside surprise in the Spanish inflation data on Monday, Commerzbank said.
As regards the Fed meeting, a 25 basis point interest-rate rise is a foregone conclusion, it added.
Energy:
Oil prices edged higher in Europe ahead of the Fed meeting and an OPEC+ panel.
While both meetings have the potential to move the oil market, the likely outcomes have been well flagged ahead of Wednesday.
The OPEC+ panel is largely expected to recommend keeping output levels unchanged while the Fed is broadly seen raising interest rates by half a percentage point.
The OPEC+ meeting will not consist of all the group members and so is unlikely to see a big change in policy, ING said.
"The meeting could shed some more light on how the group sees the outlook evolving in the months ahead."
Metals:
Base metal prices were slipping ahead of today's Fed decision on interest rates, with the market largely expecting a 25 basis-point hike.
The market is entering a pivotal spot for risk markets, with the Fed able to set the tone for the months ahead, SPI Asset Management said.
While the market is widely expecting a 25bp hike, a less hawkish outcome would be welcomed by investors, SPI added.
Read Barron's Gold Is Gaining Ground. Here's How to Play It.
TODAY'S TOP HEADLINES
BP's CEO Plays Down Renewables Push
LONDON-BP PLC Chief Executive Bernard Looney plans to dial back elements of the oil giant's high-profile push into renewable energy, he has said in recent discussions with people close to the company.
Mr. Looney has said he is disappointed in the returns from some of the oil giant's renewable investments and plans to pursue a narrower green-energy strategy, according to people familiar with the discussions. He has told some of the people that BP needs to do more to convince shareholders of its strategy to maximize profit in areas where it has a competitive advantage, including its legacy oil-and-gas operations.
Meta Platforms Poised to Post Earnings Drop From Digital-Ad Woes
Facebook parent Meta Platforms Inc. is expected to post its third quarter in a row of declining sales as it struggles with weak advertiser demand in an increasingly competitive social-media landscape.
Meta is expected to report quarterly revenue of nearly $31.6 billion, according to analysts surveyed by FactSet, or a 5.5% drop compared with a year ago. The company's sales slump has accelerated in recent months after falling less than 1% in the June quarter and around 4.5% in the three months ended in September.
Intel CEO Takes Pay Cut as Chip Maker Targets Cost Reductions
Intel Corp. Chief Executive Pat Gelsinger and other managers are taking pay cuts, days after the company posted quarterly earnings that disappointed Wall Street.
Mr. Gelsinger, in the top job for two years, will see his base pay reduced 25%, Intel said. Other cuts will be staggered, the company said, with base-pay hits of 15% for members of the executive team, 10% for senior managers and 5% for midlevel managers.
Disney, Salesforce and Others Draw Activist 'Swarm' After Shares Decline
Shareholder activists, newly emboldened by beaten-down share prices, are increasingly crowding into the same big names.
The software company Salesforce Inc., beset by slowing growth and executive turnover, faces at least four activists, while Walt Disney Co. has drawn the attention of two well-known activists, one of which is mounting a fight for a board seat. The cloud-software company Splunk Inc. last year drew two activists, and the toy maker Hasbro Inc. fended off a pair in a challenge for board seats.
Snap Warns of Sales Drop After Revenue Growth Stalls
Snap Inc. warned sales in the current quarter are likely to drop after revenue growth stalled in the final three months of last year, illustrating the difficult market conditions social-media companies are having to navigate.
(MORE TO FOLLOW) Dow Jones Newswires
02-01-23 0639ET
