MARKET WRAPS
Watch For:
Weekly Jobless Claims; Existing Home Sales for December; EIA Weekly Petroleum Status Report; Netflix results.
Opening Call:
Stock futures edged higher, putting indexes on course to pare some of the sharp losses that have come as investors embark on a broad repositioning of their portfolios, spooked by the prospect of tightening monetary policy and slowing growth.
Earnings were in focus again, with results due from The Travelers Companies and American Airlines Group before markets open. Netflix will be one of the first tech giants to post its fourth-quarter results, after markets close, when PPG Industries will also report.
Faced with the prospect of multiple interest rate increases, cooling economic growth and inflation which has soared to multidecade highs, investors have begun 2022 by reassessing the pandemic-era playbook that focused heavily on outsize gains for growth stocks, such as tech. In recent sessions, investors have rotated money out of fast-growing tech firms and into sectors expected to perform better in the coming year, such as financials and energy.
"I don't see a whole lot in the market that is really alarming me. There is no one out there saying 'run for the hills,' but there are those saying they are going to take off risk and reposition to other areas of the market," said Kara Murphy, chief investment officer of Kestra Holdings.
That has prompted tumultuous trading for major indexes. On Wednesday, the Nasdaq Composite closed more than 10% below its all-time closing high, putting it into what is considered correction territory for a stock index.
Investors are selling government bonds in anticipation of higher interest rates, pushing up bond yields and in the process, pressuring shares in tech companies, whose future earnings become less attractive when compared with bonds with rising yields.
Weekly jobless claims data are due at 8:30 a.m. ET and investors are also awaiting data on the housing market, a bright spot for the economy. The data, due at 10 a.m. ET, is expected to show that existing home sales slowed in December, but were still on track for the best year since 2006.
Stocks to Watch:
Alcoa said it's committed to finding a lower-cost supplier of electricity for its San Ciprian, Spain, smelter after deciding late last year to idle the plant for two years amid soaring electricity costs. Alcoa expects the curtailment of the plant to cost it $20-$25 million a year.
"We're actively working on the energy situation at San Ciprian," CEO Roy Harvey told analysts, noting the company is studying options for renewable energy, including wind power. "The important thing is we're no longer consuming incredibly high-priced energy."
Short-haul truck drivers serving major port and rail yards in Southern California have renewed their push to unionize XPO Logistics sites. The Teamsters union filed for an election with the National Labor Relations Board saying drivers at XPO sites in Commerce and San Diego are misclassified as independent contractors.
The union has been campaigning to organize XPO workers for years and in lawsuits has accused XPO of denying drivers wages and benefits by misclassifying them as independent contractors. An XPO spokesman said the company adheres to federal, state and local laws and properly classifies all individuals and businesses that perform work on behalf of XPO.
Forex:
Having recovered from last week's lows, the dollar could now start to edge lower ahead of next week's U.S. Federal Reserve policy meeting after the DXY dollar index failed to rise back above 96, UniCredit said.
"The dollar remains firm, but is probably now set to consolidate its recovery from lows," it said. "The inflation debate remains center stage across markets, primarily after data showed that price pressure is also rising to multi-year highs in the U.K. and Canada," it added.
The DXY dollar index was steady at 95.4780. Last week, the DXY fell to a two-month low of 94.6290.
Sterling appears little moved by the prospect of U.K. Prime Minister Boris Johnson leaving, but this could change, RBC Capital Markets said.
The pound rose to a two-year high against the euro after strong inflation data and "still seems relatively insensitive" to political uncertainty, said RBC currency strategist Adam Cole.
However, "we think this sensitivity rises if and when the front-runners to replace him [Johnson] become clear," he said, adding that bookmakers' implied probability of Johnson leaving before year-end remains high at 67%.
EUR/GBP fell 0.1% to 0.8326, having reached a near two-year low of 0.8312 on Wednesday after higher-than-expected U.K. inflation data fuelled expectations the Bank of England will raise interest rates further.
Bonds:
The yield on the 10-year U.S. Treasury note rose to 1.846% Thursday from 1.826% Wednesday, after rising steadily in recent weeks. Benchmark German bund yields fell further into negative territory, a day after they briefly turned positive for the first time since 2019. The yield on the 10-year German government bond fell to minus 0.018% Thursday from minus 0.014% Wednesday.
Commodities:
Oil prices slipped following the release of U.S. oil stats, which showed a stronger-than-expected build in the nation's crude and gasoline inventories. The American Petroleum Institute said Wednesday that crude stockpiles rose by 1.4 million barrels, about 100,000 barrels more than analysts had been expecting.
Gasoline inventories rose by 3.5 million barrels compared to analysts' predictions of a 1.9 million barrel build. Investors and traders will be looking to official data on U.S. crude stocks set to be published by the Department of Energy at 1600 GMT for clues on oil demand.
Gold prices were edging lower a day after jumping to a two-month high. On Wednesday, prices of the precious metal jumped suddenly, gains that coincided with large inflows into the SPDR Gold Shares exchange-traded fund. The gold ETF, the largest of its kind, saw net inflows of $305 million on Wednesday.
That marked the largest daily inflow of money into all gold ETFs tracked by FactSet since November. Investors have largely shunned such gold funds amid an uncertain outlook for the precious metal.
Gold ETFs saw large inflows as gold prices rose to record levels last year. Analysts said gold is threatened by the prospect of interest rate hikes this year but is gaining support from multi-decade high inflation levels.
After the global average price for aluminum shot to its highest level in more than a decade last year, Alcoa expects tight supply to keep prices high this year.
The aluminum maker says production remains constrained by high costs for electricity and reductions in carbon emissions, especially in China, the world's largest producer of the commodity.
China has curtailed more than 2 million metric tons of production capacity to reduce power consumption and clean up the environment. "The factors supporting higher aluminum prices represent structural changes that we believe will remain in place over the next decade," CEO Roy Harvey said.
Commonwealth Bank of Australia said whether or not iron ore prices stay stronger than expected for the next few weeks will depend in big part on whether supplies are disrupted by wet weather or the pandemic.
"Heavy rains in Brazil have adversely impacted Brazilian iron ore production already. Australian supply may face disruptions as Western Australia looks to reopen its borders on Feb. 5," CBA said.
TODAY'S TOP HEADLINES
United Airlines Says Omicron Variant to Slow Travel Rebound
United Airlines Holdings Inc. said the emergence of the Omicron variant of Covid-19 dented near-term bookings and will slow its recovery, but said the setback is likely to be temporary.
The Chicago-based airline is scaling back its schedule in the first months of the year as it grapples with the new variant's impact on travel demand. United said it now expects to fly less this year than it did in 2019, instead of the 5% growth it had previously anticipated.
Owner of Bankrupt 737 MAX Supplier Tect Challenges Boeing's Legal Release
The owner of bankrupt Tect Aerospace Group Holdings Inc. said it plans to vote against the 737 MAX supplier's chapter 11 liquidation plan if Boeing Co. would receive broad legal protection.
Stony Point Group Inc., the family-office owner of privately-held Tect, said on Tuesday that Boeing's suspension of 737 MAX jetliner production was culpable for the aircraft parts maker's April 2021 bankruptcy filing.
U.S. Flight Disruptions Ease as New 5G Service Goes Live
The launch of enhanced 5G services Wednesday had a limited impact on U.S. flights after aviation regulators gave airlines additional guidance to reflect the decision not to launch the new cellular service near major airports.
Airlines had said they were concerned about potential travel disruptions once wireless providers began beaming new signals to customers, due to flight restrictions intended to protect aircraft from possible interference from the new fifth-generation service. Wireless operators have said the service won't disrupt airplanes' instruments.
Sony Expects Microsoft to Keep Activision Games Multiplatform
TOKYO-Sony Group Corp. said Thursday that it expected Microsoft Corp. to ensure that games from Activision Blizzard Inc. are available on non-Microsoft videogame platforms if Microsoft completes its proposed acquisition of Activision.
"We expect that Microsoft will abide by contractual agreements and continue to ensure Activision games are multiplatform," a Sony spokesman said Thursday.
Unilever Walks Away From Glaxo Consumer-Healthcare Deal
Unilever PLC said it wouldn't increase its $68 billion offer for GlaxoSmithKline PLC's consumer-healthcare business, effectively walking away from a potential deal that would have added a raft of drugstore staples to its portfolio.
(MORE TO FOLLOW) Dow Jones Newswires
01-20-22 0610ET
