MARKET WRAPS
Watch For:
Construction Spending for December; Markit Manufacturing PMI for January; ISM Report on Business Manufacturing for January; Canada GDP for November; results from Alphabet, Exxon Mobil, General Motors, Starbucks, UPS
Opening Call:
Stock futures reversed into the red Tuesday, with a packed day of corporate earrings ahead. Investors looked to leave a volatile January behind, though the prospect of rising interest rates still loomed large.
Stocks had an impressive showing Monday to close out the month, but that belies a tough January. Broad losses and trading marked by intense volatility last month came as investors stared down the prospect of higher interest rates and tighter monetary policy from the Federal Reserve. The central bank is expected to raise interest rates several times this year as it fights off high inflation; rate increases could put a dent in economic growth.
"There remains a great deal of uncertainty over the glide path for monetary tightening after last week's Fed rate meeting, with incessant speculation about the number of possible rate hikes we might get to see this year," said Michael Hewson, an analyst at broker CMC Markets.
"The consensus now appears to be between four or five, although some forecasts have come in as high as seven, as we get the equivalent of rate hike bingo to see who can outdo each other when it comes to forecasts."
Investors have a wave of corporate earnings and economic data in the day ahead. More than 110 constituents of the S&P 500 report quarterly results this week, with some big names Tuesday, including Exxon Mobil, UPS, Alphabet and General Motors.
On the economic front, global manufacturing purchasing managers indexes for January will be released, alongside, in the U.S., the ISM manufacturing index for January and last month's JOLTS job openings report.
Market Insight:
Read Barrons.com: Some U.S. Companies Depart Hong Kong. There Are Worries Over Politics and the Pandemic
Stocks to Watch:
Silvergate Capital shares rose almost 11% in premarket trading after announcing it was buying certain assets related to running a blockchain-based payment network from Diem Group, the Facebook-backed cryptocurrency project that is winding down.
The assets acquired by Silvergate include development, deployment and operations infrastructure and tools for running the network. Read more here.
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Sony's acquisition of Bungie "opens the regulatory path" for Microsoft's planned acquisition of Activision Blizzard, said a Benchmark analyst.
Bungie is a first-person shooter studio, having created the Halo and Destiny franchises. Microsoft now owns Halo, while Activision Blizzard owns Call of Duty, which had raised some concerns. Analyst Mike Hickey said in the note that he thinks those concerns are overly cautious.
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Sempra Infrastructure and Mexico's state-owned power utility CFE sign a memorandum of understanding to develop an LNG liquefaction terminal at the Mexican port of Topolobampo, a regasification terminal in La Paz, and to restart operations of the Guaymas-El Oro pipeline in Sonora state after rerouting the line.
The proposed projects will allow CFE to take advantage of its excess natural gas and pipeline capacity from Texas to supply gas to markets along Mexico's Pacific coast and to Baja California Sur, which isn't connected to the country's pipeline network or national power grid.
"CFE contributes to strengthening the country's energy security...while Sempra Infrastructure agrees to continue to work to develop critical new energy infrastructure in Mexico," the companies said.
Forex:
The dollar was down 0.2% against a basked of currencies but ING said it may stabilize as investors speculate over the size and pace of monetary policy tightening by the Fed.
"We think the dollar may already start stabilising today, even if another good day for risk assets may keep pro-cyclical currencies supported--which incidentally took the biggest hit last week," said ING's Francesco Pesole.
He said speculation the Fed could deliver five interest rate rises in 2022 including a 50 basis-point increase in March, should support the dollar.
Expectations that the ECB could turn more "hawkish" by signalling monetary policy tightening at Thursday's meeting is supporting the euro but this recovery may not last, said Unicredit.
"These EUR/USD recovery attempts could quickly fade and reverse if Christine Lagarde reiterates that a rate hike is unlikely to be delivered by the ECB this year, as we expect," Unicredit said.
EUR/USD may trade in a range above 1.12 Tuesday as a light agenda for economic data fails to offer the market clear direction, it said.
Bitcoin was rising, up almost 4% over the last 24 hours to above $38,500, according to data from CoinDesk.
The cryptocurrency has failed to breach the $39,000 mark--eyed as a crucial level by digital asset traders--since tumbling below $40,000 less than two weeks ago.
"Bitcoin bullish momentum is slowly building up and it could surprise to the upside if the dollar continues to weaken as much of the Fed tightening for the year begins to get priced in," said Edward Moya, an analyst at broker Oanda.
"Bitcoin's most likely scenario is to continue to consolidate here, but if risk appetite remains firm in February, a lot of money on the sideline is ready to pounce."
Bonds:
Treasury yields continued to show modest moves, as investors awaited a busy week of jobs data, including Friday's January employment report.
Analysts said a nuanced discussion of rate moves by Fed officials on Monday helped to temper yields, particularly toward the short end of the curve.
"Given the uniform nature of the Fed messaging on the heels of Powell's press conference...our read is that the Committee doesn't want the market to get too far ahead of what monetary policy makers are prepared to deliver - i.e. 25 bp in March and a balance sheet runoff announcement this summer," wrote strategists Ian Lyngen and Ben Jeffery at BMO Capital Markets.
The yield on the 2-year Treasury note was sitting at 1.18% Tuesday having touched 1.21% Monday.
"Investors continued to dial up the probability of numerous rate hikes taking place this year," said Jim Reid, a strategist at Deutsche Bank.
"In fact, we crossed a number of fresh milestones yesterday, the biggest of which was that Fed funds futures priced in 5 full hikes this year for the first time at one point in trading, although by the close that had fallen back a tad to 4.94 hikes."
Other Bond News:
Sovereign bonds lost ground across the board in January, with Treasurys underperforming their European counterparts and Italian BTPs a relative outperformer, said Deutsche Bank. Treasurys lost 1.9% last month, compared with a 1.1% loss for German Bunds and a 1.2% decline in French OATs.
"It was the worst monthly performance for Treasurys since February 2021," said Deutsche Bank. Italian BTPs lost 0.6%, and were thus a relative outperformer.
Deutsche Bank attributes the relatively good performance of BTPs to easing concerns over political risk, given the re-appointment of President Sergio Mattarella, which enabled Prime Minister Mario Draghi to continue in office.
Commodities:
Oil prices weakened in Europe as investors awaited the latest API data and an OPEC+ meeting for clues about supply.
Wednesday will see the latest monthly meeting on production for the OPEC+ group of national oil producers. Geopolitical tensions with Russia over its military presence at Ukraine's border have added pressure to oil markets recently.
TODAY'S TOP HEADLINES
Google Set to Cap Blockbuster Year With Sales Gains
Google parent Alphabet Inc. is expected to report another quarter of strong sales growth, capping a year when profits nearly doubled despite mounting regulatory pressure that threatens the search giant's future.
The company's dominance in online search, video and internet ad sales made it one of last year's leading beneficiaries of an upswing in digital advertising. Last year, small and large businesses alike flooded into the ad market in a bid to win customers who spent early parts of the pandemic sequestered in their homes.
U.S. Companies Face More Restrictions After Privacy Ruling Against Google
American technology providers are under intense pressure in Europe after a regulator there found Google Analytics' services illegal. The decision is expected to spur a domino effect that could result in similar restrictions for other U.S. tech providers.
The recent ruling means American companies beyond big tech firms will have more difficulties moving data from Europe to the U.S., and could lead to tougher scrutiny from privacy regulators of banks, airlines and other sectors, privacy experts say.
Videogame Maker Electronic Arts Hires Microsoft Executive as CFO
Videogame maker Electronic Arts Inc. hired Microsoft Corp. executive Chris Suh as chief financial officer, succeeding Blake Jorgensen, who announced his departure in September.
Mr. Suh's appointment takes effect on March 1, said Redwood City, Calif.-based Electronic Arts in a press release. He has served for the past four years as chief financial officer in the cloud and artificial intelligence division at Microsoft. Before that, he was general manager of the company's investor relations division and held several finance roles during his 25-year tenure with the software giant.
New York Times Buys Wordle
The New York Times said it bought Wordle, the word game that has become an online phenomenon.
The media company said it paid a price in the low-seven figures. The game will move from its current website to the New York Times site and apps, but the company declined to say when that would happen.
Bond Market Hints of Calm After Disruptive Selloff
Yields on longer-term U.S. government bonds have shown signs of stabilizing in recent days, easing the pressure generated on stocks by their rapid early-year climb.
(MORE TO FOLLOW) Dow Jones Newswires
02-01-22 0557ET
