MARKET WRAPS
Watch For:
Employment Report for December; ISM Report on Business Services PMI for December; Canada Labour Force Survey for December; Federal Reserve Bank of Kansas City President Esther George speaks at The Central Exchange event
Today's Top Headlines/Must Reads:
- December Jobs Report to Show Labor Market's Strength as 2022 Closed
- As Rest of IPO Market Stalls, Corporate Carve-Outs Gain Steam
- Tesla Slashes Prices in China After Deliveries Slump
- U.S. EV Sales Jolted Higher in 2022 as Newcomers Target Tesla
- Shell Expects Natural-Gas Profit Rebounded in Fourth Quarter
- Ukraine Clashes Continue Despite Russia's Cease-Fire Calls
Opening Call:
Stock futures were soft on Friday as traders eyed a critical jobs report.
The jobs report looms over the market as the prospects for Federal Reserve policy dominates investor thinking.
Numerous Fed officials have made it clear they consider it unlikely the central bank can stop raising interest rates if the labor market continues to be robust and thus adds to inflationary pressures, particular in the services sector.
"In the current environment, any good news for the economy is tending to translate into bad news for stocks, since it shows that the hiking cycle has not yet had the desired effect in dampening demand. It also adds to the probability of higher rates for longer, until such time as the rate rises rein back the economy," Interactive Investors said.
Stocks to Watch
Bed Bath & Beyond is preparing to file for bankruptcy within weeks. The stock fell nearly 30% on Thursday. In premarket trading Friday, it was down another 12%.
Costco was rising 1.8% after the warehouse retailer said net sales in December jumped 7% to $23.8 billion, while same-store sales rose 5.5%.
CytomX Therapeutics said it will collaborate with Moderna to develop therapeutics for oncology and non-oncology conditions. Shares climbed 59% in after-hours trading.
Fate Therapeutics ended a collaboration agreement with Janssen Biotech. It also plans to reduce its workforce to about 220 employees in the first quarter. Shares dropped 50% in after-hours trading.
Graphite Bio voluntarily paused the Phase 1/2 CEDAR study of nulabeglogene autogedtemcel, or nula-cel, for sickle cell disease. Shares dropped 49% in after-hours trading.
Lucid Group's shares sold off 3% premarket alongside Tesla.
Spruce Biosciences entered into a licensing agreement with Kaken Pharmaceutical for the development and commercialization in Japan of tildacerfont. Shares surged 91% in after-hours trading.
Tesla was falling 5.4% in premarket trading. The company slashed prices in China for the second time in three months. On Thursday, Tesla said it delivered fewer cars made in China in December than it did the prior month.
World Wrestling Entertainment's Vince McMahon, the majority owner and former chief executive, plans to return to the company to pursue a sale of the business. The stock jumped 9.7% in premarket trading.
2023 Recessions
In 2023, the U.S. and European economies should see a transition toward normality after a series of shocks in the past three years, Berenberg said.
However, this doesn't mean that these economies will return to the times of ultra-low inflation and rock-bottom interest rates, but instead are likely to experience cyclical ups and downs and more-volatile inflation, Berenberg added.
The transition is likely to be bumpy as the Federal Reserve's interest-rate increases will likely push the U.S. into a mild recession while most European economies already started to contract in late 2022, Berenberg said.
After short recessions, both the U.S. and Europe should see a rebound in economic activity, it added.
Central Banks Vs Inflation
While the peak in headline inflation has seemingly passed, "the central banks can't yet declare a win over inflation," Danske Bank said, adding that this implies further policy tightening is warranted.
Headline inflation is set to move lower through most of 2023, given declining producer prices and base effects, but core inflation is set to be sticky at a higher level, Danske said.
Forex:
The dollar rose to a four-week high against a basket of currencies awaiting the release of U.S. monthly jobs data, which could, if strong, increase expectations for how much more the Fed will need to raise interest rates.
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ING expects the pound to remain weak and said strong U.S. jobs data could see it drop towards $1.1780.
Sterling "fell quite hard" as the dollar strengthened on Thursday, ING said.
ING pointed to evidence of a falling number of U.K. firms finding it harder to recruit staff, which "could be a leading indicator for softer wage growth," although for now the market is still pricing in 100-125 basis points of U.K. rate increases for late summer.
"On balance, we expect sterling to remain soft," ING added, but noted that a fall to $1.1650 is unlikely.
Bonds:
Yield Development
In the coming quarters, long yields will be particularly dependent on shifts in the current rate of inflation, Danske Bank said.
A further factor will be whether the European Central Bank and the U.S. Federal Reserve begin to signal that peak interest rates are close at hand or indeed have already been reached, the bank added.
"We believe the Fed is closer to signaling an end to policy tightening than the ECB and foresee cuts from the major central banks only in 2024."
Corporate-Bond Market
Defaults in the corporate-bond market could be higher than expected in the fiscal year 2023/24 as economic growth slows and a high number of bonds are due to mature during that period, Aperture Investors said.
"Default rates will end higher over 2023/24 than the market expects due to [the] severity of the economic downturn, 2024 maturity walls, and the low quality of credit fundamentals in the leveraged loan market."
Energy:
Oil prices were little changed in Europe and on course to end the week sharply lower thanks to demand concerns.
Saudi Aramco's decision to cut its selling prices Thursday only added to concerns about demand, Saxo Bank said.
The first week of 2023 "confirms our view about a challenging Q1 before demand eventually recovers as the Covid cloud starts to lift in China," Saxo Bank added.
Metals:
Metal prices were moving higher in early London trading, helped by a weaker dollar and struggles over supply.
Prices have been helped by a weaker dollar and expectation of tight supply, according to Fitch Solutions.
Despite the rise in coronavirus cases, "we expect metal prices to remain elevated in 2023," Fitch said.
Copper Outlook
China reopening and restricted supply from Latin America is likely to boost prices for copper in 2023, Fitch Solutions said, revising its 2023 copper price outlook to $8,500 a metric ton from $8,400 a ton as it expects "a rebound in Mainland Chinese copper demand to boost prices along with a weakening U.S. dollar."
China's move away from zero-covid should boost demand for all industrial metals, with stimulus measures being put in place within the country's construction sector, it said.
Similarly, price support is likely to be found from operational issues from producers in Latin America with labor strikes and community issues in Peru and Chile likely to continue affecting primary supply, Fitch added.
TODAY'S TOP HEADLINES
U.S. EV Sales Jolted Higher in 2022 as Newcomers Target Tesla
U.S. electric-vehicle sales leapt by two-thirds in 2022 while the broader auto market contracted, newly released year-end figures show, as fresh plug-in models from traditional auto makers whittled away at EV juggernaut Tesla Inc.'s lead.
Auto makers sold 807,180 fully electric vehicles in the U.S. last year, or 5.8% of all vehicles sold, up from 3.2% a year earlier, according to year-end figures released this week by market-research firm Motor Intelligence. In comparison, total U.S. auto sales fell 8% in 2022 from a year earlier.
Shell Expects Natural-Gas Profit Rebounded in Fourth Quarter
Shell PLC expects its quarterly natural-gas profit was "significantly higher" than in the preceding three months, when price swings hurt results in that core business amid a global scramble for energy.
The London-based oil giant said Friday it experienced higher refining margins in its chemicals and fuels business in the last three months of 2022, but that trading profit from refined products will lag third-quarter results.
New Biden Law Won't Kill Drug Cures. It Will Reshape Them.
Big pharma loves to bemoan the impact on future drug research when lawmakers get tougher on the industry. The truth is usually a lot more complicated.
In a 2021 study, for instance, three academics including Massachusetts Institute of Technology finance professor Andrew Lo looked at what happened to innovation when drug companies were no longer able to resort to one of their favorite tactics: paying generic makers to stay off the market, known as "pay-for-delay." A 2013 Supreme Court ruling had essentially barred such agreements. What the researchers found was that companies actually responded by increasing their research and development spending to find new drugs.
How Samsung Could Climb Out of the Chip Price Pit
South Korea's Samsung Electronics has recorded an unexpectedly steep profit plunge as the memory-chip market wilts. How long the market slump lasts also depends on how quickly-or whether-the South Korean electronics giant changes its tune on its ambitious output growth plans.
Samsung's operating profit for the quarter ending in December dropped 69% from a year earlier to its lowest level since 2014, according to the company's preliminary results released Friday. That was also much lower than analysts' estimates on S&P Global Market Intelligence. The company will report full earnings later this month.
Shell to Take $2 Bln Tax Hit for 4Q as Integrated Gas Trading Soared
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01-06-23 0625ET
