MARKET WRAPS
Watch For:
Housing Starts for January; Weekly Jobless Claims; Federal Reserve Bank of St. Louis President James Bullard speaks at SGH Macro Advisors and Columbia University Fireside Chat; Federal Reserve Bank of Cleveland President Loretta Mester speaks via videoconference at event hosted by the Volatility and Risk Institute and the Center for the Global Economy and Business, NYU Stern School of Business; Federal Reserve Bank of New York President John Williams virtual visit to the northern New Jersey region; Walmart results
Opening Call:
Stock futures fell Thursday after Western officials said they weren't seeing a de-escalation on the Ukrainian border, despite Moscow's claims of troop withdrawals.
Stocks have come under pressure from heightened tensions between Russia and Western allies over Ukraine. The White House warned that a Russian invasion could be imminent, and diplomatic efforts have so far been inconclusive. Moscow said that it had pulled back some troops, which spurred a rally in markets earlier in the week. Western officials said Wednesday that Russia was actually continuing its military buildup.
"We've got to put more focus on what's being done on the ground, rather than what's being said," said Paul Jackson, global head of asset allocation research at Invesco. "My presumption is that this will be sorted out diplomatically. If markets go down a lot more, then I would think it would be an opportunity to buy."
He isn't expecting a major change from Russia while its ally, China, hosts the Winter Olympics. The Games conclude this weekend so "we still have a little while to go before we can feel things have really dissipated on a permanent basis," Mr. Jackson said. "In the interim, it's a propaganda game."
The latest data on jobless claims, a proxy for layoffs, is set to go out at 8:30 a.m. ET. Economists are expecting claims to continue to edge down as the tight labor market moves past Omicron-related disruptions.
Overseas, the pan-continental Stoxx Europe 600 ticked down 0.1%, while in Asia, major benchmarks were mixed.
Economic Insight:
The distinguishing feature of the current global inflation shock is a synchronized run-up in global goods prices, said UBS.
This, in turn, can be traced back to common bottlenecks and supply-chain disruption, it said. But the good news for UBS is that these supply bottlenecks are starting to dissipate rapidly.
Air freight has started to improve, as a recovery in passenger flights adds cargo space. Expenditure switching from goods back to services is proceeding rapidly in places and global manufacturing orders have also slowed relatively sharply, pushing orders-to-inventories ratios back to pre-pandemic levels, UBS said.
Stocks to Watch:
Cheesecake Factory said commodity costs have increased more than previously anticipated, and the chain told investors that it's increasing prices by 3.25% in new menus now being printed, and could lift them further later this year, by 2%. The chain predicts commodity costs are growing by a double-digit percentage rate compared with last year, with labor up 5%.
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Cisco CEO Charles Robbins said on the earnings conference call the company doesn't comment on rumors in response to an analyst's question about whether it was buying software maker Splunk following a WSJ report last week.
Robbins said the company is constantly evaluating potential opportunities, with those decisions based on the strategic, cultural and financial fit. "You should expect us to continue to be very, very disciplined as we go forward as well," Robbins said.
Robbins also said the supply chain for Cisco didn't get materially better or worse in the second quarter. He said there were some effects from Omicron toward the end with people not being able to show up at factories because they were sick, as well as some logistics issues and added that the company didn't have a timeline for when things will begin to improve.
"All we know now is we expect this to be with us through the second half of our year."
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Nvidia CEO Jensen Huang said the company will use its regular capital allocation review process to assess how to spend its ample cash now that it's not splashing out on chip-design specialist Arm.
"We'll make the best judgment about how to use our capital in helping our growth and sustaining our growth and accelerating our growth, and we'll have all of those sensible conversations during those capital allocation meetings," Huang said on a call with analysts, adding "we're just delighted to have so much capital."
CFO Colette Kress said the company should see its automotive segment return to growth in the current quarter and should see revenue advance from the prior quarter after two periods of decline. The segment had been hit by supply chain bottlenecks that have dented car shipments.
Forex:
The dollar rose 0.1% in Europe against a basket of currencies, as investors flocked to safe havens on fresh worries about Russia-Ukraine tensions and as they digested the Fed's January meeting minutes.
The U.S. and NATO claimed Russian troops have increased along Ukraine's borders despite Moscow's insistence it was pulling back. "The dollar could find some support until we get more clarity on this," said ING analysts.
Continuing speculation about the Fed front-loading policy tightening should also support the dollar, they added. The Fed's minutes showed "nothing more than well-telegraphed alarm over high inflation" and "few indications around the pace of interest rate hikes" but markets are reluctant to price out a 50 basis points rate rise in March, ING said.
Other Currency News:
The Turkish lira weakened ahead of the latest policy decision from the central bank due at 06:00 a.m. ET.
The bank's recent communications indicated it intends to keep its one-week repo rate unchanged at 14% for the second consecutive meeting to avoid further lira depreciation while trying to replenish its foreign-exchange reserves, said analysts at Unicredit's research team.
That would "probably leave USD/TRY relatively steady at close to the 14.00 handle," they said.
Bonds:
Treasury yields edged lower in Europe but with the 10-year rate still hovering above 2%, as investors continued to parse the Fed minutes, with some saying it provided little new information about policy makers' coming plans.
"We have reached peak uncertainty for monetary policy," said Jason England, global bonds portfolio manager at Janus Henderson Investors. "The FOMC minutes did not offer much more after the hawkish pivot already delivered at the January meeting."
Read Barrons.com: Bond Yields Close to Flashing Recession Signal - Bank of America
Other Bond News:
The improvement in the credit rating of U.S. corporate bonds is slowing despite fewer companies being at risk of downgrade at the start of 2022 than in any year since 2015, said S&P.
"Rating levels may be settling at below pre-pandemic levels," with cumulative downgrades since the start of 2020 outnumbering upgrades by 429, S&P said. Also, there is now a higher share of issuers are rated 'B-' or lower than before the pandemic.
Commodities:
Oil prices fell more than 1% as traders continued to monitor the Russia-Ukraine situation.
Wednesday's release by the EIA of its latest data, which showed a surprise inventory build, also weighed on European sentiment.
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Natural gas prices jumped after both Ukrainian and pro-Russian separatists in the east of the country accused each other of shelling their positions, raising concerns of a conflict that could shut off Russian gas supplies to Europe.
European and U.K. benchmark natural gas prices rose more than 7% respectively.
According to reports, pro-Russian separatists said Ukrainian troops had fired on their positions with mortars and grenades while Ukraine said the separatists had also fired on their positions.
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Aluminum prices could gain over the long term thanks to a rising "green premium" amid countries' carbon-neutrality targets, said Fitch.
The EU passed a climate-change agenda calling for the implementation of a carbon border tax by 2023, which should mean aluminum smelted via higher-emission methods would face heavier import taxes, Fitch said.
End users seem willing to pay the difference, with Russian producer Rusal reporting it is receiving a premium for its low-carbon aluminum products compared with regular smelting methods. "Should there be a substantial surge in demand for low-carbon aluminum, we would expect to see increasing risks to the aluminum pricing structure."
TODAY'S TOP HEADLINES
Amazon and Visa Reach Global Deal on Credit Cards
Amazon.com Inc. and Visa Inc. reached an agreement allowing customers to use Visa credit cards across the online retailer's websites and shops, the companies said, resolving a monthslong dispute.
Amazon in November told customers it would stop accepting Visa credit cards issued in the U.K. starting in January because of the card network's high fees. Last month, Amazon said it would allow customers to keep using their cards past that date while it negotiated an agreement with Visa.
Hasbro Activist Begins Proxy Fight, Urges Wizards Unit Spinoff
A little-known activist investor is seeking to add several directors to Hasbro Inc.'s board and is urging the toy maker to make changes including a spinoff of its fast-growing unit housing games such as Dungeons & Dragons.
Alta Fox Capital Management LLC, which has a 2.5% stake in Hasbro worth roughly $325 million, has nominated five directors to its board, according to a letter viewed by The Wall Street Journal that will be sent to the company's shareholders. Shareholders will vote on director nominees at Hasbro's annual meeting this spring.
Activist Investor Daniel Loeb Sees Roughly $1 Trillion of Untapped Value in Amazon
(MORE TO FOLLOW) Dow Jones Newswires
02-17-22 0524ET
