MARKET WRAPS
Watch For:
U.S. Durable Goods for December; U.S. Advance Estimate 4Q GDP; U.S. Weekly Jobless Claims; Comcast Corp. 4Q results; McDonald's Corp. 4Q results; Mastercard Inc. 4Q results; Apple Inc. 1Q results; Mondelez International Inc. 4Q results; Visa Inc. 1Q results.
Opening Call:
Stock futures were flat Thursday, but looming interest-rate increases and tighter monetary policy continue to weigh on investor sentiment and could usher in volatility.
Earlier in the premarket, stock market futures for all three indexes were 0.5% to 1% lower.
The downswing built on a bout of volatility in the stock market that has seen major indexes swing wildly in intraday trading this week. The VIX hit its highest level in a year on Wednesday. Markets have been buffeted by concerns about central-bank policy around interest rates and inflation and geopolitical tensions over Ukraine and Russia.
Earnings season is ongoing and is seen as the next big test of whether the stock market's sky-high valuations can be justified.
"What I'm looking for this earnings season is inflationary pressures and margins-if companies are able to hold onto their profits," Fahad Kamal, chief investment officer at Kleinwort Hambros said. "Are they able to pass along prices, are they able to maintain pricing power?" As central banks rein in liquidity, that is what becomes really important, he added.
On Wednesday, the Fed signaled it would begin raising interest rates in mid-March, its latest step toward removing stimulus to bring down inflation. Fed Chairman Jerome Powell said the central bank could continue to lift rates faster than it did during the past decade.
The news shows the central bank "is in a hurry," said John Vail, chief global strategist at Nikko Asset Management in Tokyo. "The Fed got serious really fast and it's having an effect on markets."
Uncertainty over a potential Russian invasion of Ukraine is casting a pall, analysts said. Russia is a major energy exporter and oil prices have remained high even as stocks have fallen. The Fed won't be comfortable about inflation until oil prices decline, said Mr. Vail.
McDonalds, Mastercard, Comcast, Blackstone and Southwest Airlines are set to post results before Thursday's opening bell. Apple, Visa and food and beverage giant Mondelez are due to report after markets close.
Tesla shares declined 0.8% in off-hours trading after the electric-vehicle maker posted a record profit. Chief Executive Elon Musk said that he wouldn't introduce new models this year and that the company had been affected by supply-chain disruptions.
Data on gross domestic product in the final quarter of 2021 will go out at 8:30 a.m. ET. Economists forecasted the economy grew at a solid pace, propelled by consumer spending, business investment and efforts to rebuild inventories. Momentum may have been affected in recent weeks by the Omicron.
Fresh data on jobless claims, a proxy for layoffs, will also be released at 8:30 a.m. Analysts are anticipating a decline amid a tight labor market. Information on orders for durable and capital goods in December is scheduled for the same time.
Stocks to Watch:
ServiceNow shares headed higher after the workflow management software provider posted better-than-expected fourth-quarter earnings.
ServiceNow posted revenue of $1.61 billion and adjusted profits of $1.46 a share in the period, edging Wall Street estimates for sales of $1.6 billion and earnings of $1.43. Subscription revenue was $1.52 billion, up 29%, or 32% adjusted for currency, and slightly ahead of the company's guidance range.
ServiceNow ended the quarter with current remaining performance obligations - a measure of work to be completed in the next 12 months - of $5.7 billion, up 29%.
ServiceNow said it had 135 transactions in the quarter with more than $1 million in net new contract value, up 52% from a year ago. The company said the total number of customers producing $1 million or more in annual revenue rose to 1,359.
Forex:
The dollar is likely to remain supported into March when the Fed holds its next meeting, at which it could make an aggressive start to its interest rate hiking cycle, ING said.
"A debate over whether the Fed starts the cycle with 25bp or 50bp should keep the dollar bid into March," ING analysts say. Fed Chairman Jerome Powell essentially confirmed that the central bank would start lifting rates in March and refused to rule out a hike at every meeting this year. The DXY dollar index rose 0.9%, having earlier hit a six-week high of 96.8580.
Cryptocurrencies edged down, with bitcoin extending its decline into a third day to trade below $36,000. Ether fell 1.7%. Meta Platforms, formerly known as Facebook, is winding down its plans to build a cryptocurrency payments network and is selling its technology to a small bank, The Wall Street Journal reported.
The euro looks set to weaken further versus the dollar as the Fed expects to start raising interest rates while the European Central Bank is in no rush to follow suit, ING said.
"So far the ECB is firmly sticking to the script that the bump in inflation will not hurry them into hiking," ING analysts said. "Until something substantially changes here, expect EUR/USD to stay under pressure."
ING expects EUR/USD to fall to 1.10 by the end of the first quarter and to 1.08 by the end of the second quarter.
Bonds:
The yield on the benchmark 10-year Treasury note edged down to 1.835% Thursday from 1.845%. Shorter-dated government bonds continued to sell off, with the two-year Treasury yield rising to 1.208%, notching a new pandemic high.
The Fed's message was "very hawkish" and went further than the market's already lofty expectations, said Till Keller, managing director for Germany, Austria and Switzerland at Ebury. Anticipating a 25 basis-point interest-rate rise in March, Ebury forecasts a total of four rises in 2022 as a bare minimum.
Keller finds that the perhaps most "hawkish" element of the FOMC's communication was Powell's comment that he didn't rule out the Fed raising interest rates at every meeting in the remainder of the year.
"While we see this as unlikely, the acknowledgement that every meeting from now on is a 'live' one is a clear signal of intent that policymakers are firmly committed to controlling U.S. inflation," Keller said.
U.S. borrowing costs rose after Powell delivered "a fairly hawkish press conference" Wednesday, UniCredit said.
Investors are now left wondering whether the Fed will deliver more than four rate increases in the current year, and pondering the possibility of a 50 basis-point rise and the likelihood of quantitative tightening starting as early as the summer, analysts at the bank say. "The reaction in US Treasuries was powerful, but appropriate given the outlook for an even steeper policy-tightening path," they say. The two-year Treasury yield is up 11 basis points to 1.202% this morning from Wednesday's close.
Commodities:
Oil prices ticked lower as hopes for a deal over Iran's nuclear ambitions rise. Russia's envoy to the negotiations taking place in Vienna said that world powers and Iran might reach an agreement next month.
The deal would likely involve lifting sanctions on Iran's oil by April, said Mikhail Ulyanov.
"If the talks continue at the pace they're currently going, in principle, it's quite realistic to reach agreement by the end of February," he was quoted by Bloomberg as saying.
Gold edged lower in early European trading. Geopolitical risks remain, so "the path higher for gold is there, but it will likely be a tough grind higher," Oanda reckons.
TODAY'S TOP HEADLINES
Apple Poised to Post Record Quarter as Investors Look for Insight Into iPhone Demand
Apple Inc. on Thursday is expected to post another record quarter, even as analysts see sales growing at their slowest pace in more than a year.
Jittery investors will be left parsing how much of that slowdown in revenue was because of lost sales due to supply chain problems-as previously warned by Apple executives-or waning interest in its latest iPhone lineup. Apple's iPhone 13 models are very similar to versions introduced in October 2020, something that in the past has been linked to slower sales.
Deutsche Bank Beats Profit Expectations, Restores Dividend
Deutsche Bank AG posted a rise in fourth-quarter profit, even though its investment-banking business took a hit from rising costs.
The better-than-expected result has paved the way for the bank to pay a dividend to shareholders for the first time since 2019.
Facebook's Cryptocurrency Venture to Wind Down, Sell Assets
Facebook's ambitious effort to bring cryptocurrency to the masses has failed.
The Diem Association, the consortium Facebook founded in 2019 to build a futuristic payments network, is winding down and selling its technology to a small California bank that serves bitcoin and blockchain companies for about $200 million, a person familiar with the matter said.
Tesla Supplier LG Energy Hits $99 Billion Valuation on Trading Debut
Shares in LG Energy Solution Ltd. jumped 68% on their first day of trading, after the world's No. 2 maker of electric-vehicle batteries raised about $10.6 billion in South Korea's largest-ever initial public offering.
The offering by LG Energy, which supplies batteries to Tesla Inc., General Motors Co. and Hyundai Motor Co., capitalized on investor appetite for key suppliers in the EV industry as well as electric-car makers themselves.
William Ackman's Hedge Fund Takes Stake in Netflix
Billionaire investor William Ackman said his hedge fund has acquired 3.1 million shares of Netflix Inc., attracted by a recent selloff of the streaming giant's stock.
Pershing Square, the fund, said it acquired a stake in Netflix due to a combination of investors' negative reaction to the streaming company's subscriber growth in the fourth quarter and recent market volatility.
Omicron Pushes Some Companies Back to Virtual Shareholder Meetings
(MORE TO FOLLOW) Dow Jones Newswires
01-27-22 0615ET
