MARKET WRAPS

Watch For:

Existing Home Sales for January; Federal Reserve Bank of New York President John Williams virtual visit to the northern New Jersey region concludes

Opening Call:

Stock futures gained Friday, as investors tracked the escalating violence in Ukraine and considered the potential path of U.S. monetary policy.

Investors have struggled with mixed messages on the potential for escalation between Russia and Ukraine. Secretary of State Antony Blinken warned Thursday of a looming Russian offensive against Ukraine and proposed a last-ditch diplomatic meeting with his Russian counterpart.

War between Ukraine and Russia could prolong elevated inflation in developed economies by disrupting supplies of important commodities, said Hani Redha, a portfolio manager at PineBridge Investments. Russia is among the world's largest suppliers of oil, as well as the biggest exporter of wheat and a major producer of metals such as palladium, aluminum and nickel.

"Inflation is really the big question that will determine how markets play out and that only adds to the delay in resolving the inflation situation," Mr. Redha said. He expects markets will remain volatile as investors try to assess how central banks will respond to elevated prices and the direction of the Ukraine conflict.

Economists surveyed by The Wall Street Journal forecast that home sales data for January, due out at 10 a.m. ET, will show a slight drop from December.

Overseas, the pan-continental Stoxx Europe 600 added 0.2%, while major indexes in Asia closed mixed.

Stocks to Watch:

A National Labor Relations Board regional director has approved a March date for Amazon workers in New York to vote on unionizing.

Thursday's approval comes after union organizers and Amazon.com on Wednesday agreed to hold an in-person election at a facility in Staten Island, New York, between March 25 and March 30. The NLRB said the ballot count will take place March 31.

Amazon workers at the facility codenamed JFK8 will vote on whether to join the independent "Amazon Labor Union." The vote will conclude as a separate union election wraps up at an Amazon facility in Alabama. No Amazon worker is represented by a union.

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Intel CEO Pat Gelsinger, in trying to win over skeptical investors about his turnaround plan, pledged what he calls a "double double."

At an Intel investor day, he said: "I want to double the earnings of this company and double the multiple of this company as you build confidence in what we're doing."

Gelsinger said sales this year will see moderate growth, with the pace advancing from next year and reaching 10%-12% growth in around 2025 or 2026.

CFO Dave Zinsner said the company's pace of capital investments will moderate around 2025 to 2026. Capex as a percentage of revenue will be in the mid-30s during the next few years of plant and research investments, he said. The figure should return to around 25% 2025 to 2026.

Zinsner said the company's gross margins should recover around 2025 from a period of investments. Gross margins this year through 2024 are expected to be around 51% to 53%. They should reach 54% to 58% from around 2025, although inflation will be a headwind, he added.

Zinsner said Intel should generate $76 billion in sales this year, about $1 billion ahead of Wall Street expectations. Gross margins should be around 52%, he said. The company still has an appetite for M&A after agreeing to buy Israeli-based Tower Semiconductor, he said but added that the bar for deals is high.

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Keysight Technologies expects supply-chain constraints to stretch into 2023. Company officials said conditions in the first quarter remained largely unchanged from the previous quarter but said that they continued to expect some improvement in the second half of the year.

Asked about potential dealmaking, Chief Executive Ronald Nersesian said that the company is looking, though realistically, he noted that it takes about a year for deal-price agreements as valuations are reset.

"When they see a pullback, they still view their old share price as the price that [the] company should get a premium to," he said, adding: "We have a very active funnel right now, including software."

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Roku Financial Chief Steven Louden said the total net revenue estimate for the current quarter reflects expectations for standard seasonality combined with the ongoing impact of supply chain disruptions on advertising spending in certain verticals.

Roku guided for $720 million, while analysts polled by FactSet were expecting $750.9 million. Louden said conditions that positively affected gross profit and gross margin in the first quarter have shifted.

In the current quarter, the platform business is expected to have a greater portion of video advertising while the player business is expected to have a negative gross margin as Roku continues to absorb elevated supply chain-related costs.

Forex:

The dollar, Japanese yen and Swiss franc all fell in European trade, as the prospect of a Russia-U.S. meeting reduced demand for safe havens.

Russian foreign minister Sergei Lavrov agreed to meet Secretary of State Antony Blinken for talks next week, provided Russia doesn't invade Ukraine. That has helped "restore some market calm," said MUFG Bank analysts but cautioned that the ebb and flow of increased and reduced fears over a possible conflict could continue for some time.

The potential meeting "may mean market conditions remain stable into the weekend but the appetite for risk will likely be contained until that meeting takes place," the analysts said.

Other Currency News:

The euro is unlikely to rise materially versus the dollar as the European Central Bank adopts a cautious approach to raising interest rates, said MUFG Bank.

A speech by ECB chief economist Philip Lane on Thursday highlighted that "eurozone inflation looks less of a risk than in the U.K. or the U.S. and hence the scope for any sustained move higher in EUR/USD is limited from here given the ECB will likely prove more cautious than the markets are currently priced," said MUFG analysts.

The impact of energy prices on inflation is more significant in the eurozone compared to the U.K. and U.S., while eurozone wage pressures are more muted, they added.

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Bonds:

Treasury yields edged down in Europe as investors continued to monitor developments around Ukraine.

Santander Asset Management has changed its view on Treasurys to neutral from underweight and said that whilst it thinks the yield on the 10-year note will finish the year in the range 2%-2.3%, it sees the current level as a tactical buying opportunity.

Markets are pricing a first interest rate rise by the Fed in March and a total of five increases this year, said Santander AM, which prices four hikes by the Fed with risks biased to more increases.

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Commodities:

Oil prices extended their retreat in Europe and are set for a weekly loss as expectations of additional Iranian supply have counteracted tensions over Ukraine.

Signs that talks over reviving the 2015 Iran nuclear deal are progressing have weighed as investors expect an agreement would lift sanctions and allow Iran's oil back onto the market.

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Gold futures edged back below $1,900 in Europe, although demand for safe havens as Ukraine tensions bubble, means the precious metal is still within reach of its all-time high of $2,069, said Commerzbank.

"The need for safety among market participants still appears considerable against the backdrop of the Ukraine crisis, meaning that gold remains in demand as a safe haven."

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A Chinese developer failed to make overdue interest payments on two dollar bonds months after winning a reprieve from debt investors, the latest hit to the country's deeply troubled offshore bond market.

The speed with which Yango Group Co. has run into trouble again shows that bond exchanges-a popular tool for developers seeking to avert default and a broader debt restructuring-won't necessarily be enough to tide over all of these companies through a brutal industry downturn.


Can Quebec's Dams Power New York City? Blackstone Is Betting $4.5 Billion on It.

Construction is expected to begin this spring on one of the largest renewable energy projects in New York since Niagara Falls was harnessed for hydropower more than a half-century ago.

By late 2025, a 339-mile high-voltage transmission line is expected to deliver enough hydropower from Quebec's remote forests to supply about 20% of New York City's needs. The first electricity will finally flow 17 years after developers set out to bury a power line along the bottoms of Lake Champlain and the Hudson River, assuming they clear one last regulatory hurdle and encounter no further challenges. Opponents still have concerns about the project's environmental impacts.


Allianz Takes $4 Billion Legal Hit Over Investment-Fund Losses

Allianz SE set aside more than $4 billion for legal expenses stemming from losses its investment funds racked up during the March 2020 market panic when their options trades went bad.

The German financial giant said Friday that it had reached settlements with major investors in those funds. It booked EUR3.7 billion in legal provisions, equivalent to $4.2 billion, in its 2021 results. As a result, Allianz's net income fell 2.6% to EUR6.6 billion. The fund losses have drawn probes from the U.S. Justice Department and Securities and Exchange Commission as well as several lawsuits from the funds' investors.


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02-18-22 0556ET