MARKET WRAPS
Watch For:
U.S. Trade for December; Canada Trade for December; Pfizer earnings
Opening Call:
Stock futures edged up Tuesday as investors awaited another docket of major earnings and data on the trade deficit.
Markets have been roiled by volatile trading in recent sessions, prompted in part by expectations of higher rates. The Fed's expected tightening comes against a backdrop of moderating growth and investors have been reassessing which companies are best placed to weather the more challenging outlook.
"The question is does the Fed get it right. Do they walk the line properly between raising rates and tightening policy at a pace that helps to curb inflation but doesn't slow demand and hurt the economy," said Peter Langas, chief portfolio strategist at Bessemer Trust.
Companies set to report earnings ahead of the opening bell Tuesday include Pfizer, KKR, Harvey-Davidson and Warner Music Group. Lyft, Chipotle Mexican Grill and Peloton are set to report results after markets close.
Tech firms, the darlings of last year's rally, have been at the forefront of investors' reassessments, as higher interest rates threaten to weigh on their pricey valuations, which rely on expectations for growth far in the future. Large-cap tech firms have been particularly choppy in recent days, exacerbating broader market volatility.
"Across the tech spectrum, investors will be more discerning of the underlying fundamentals and long-term drivers of growth and strategy," said Mr. Langas. "Companies that are able to contend with threats in a strong way are going to be rewarded and those that are struggling are going to be penalized."
Data on the trade deficit is due at 8:30 a.m. ET. Economists expect the data could show the deficit hit a record in December, due to strong consumer demand and improvements in the supply-chain bottlenecks that have weighed on economic growth and boosted inflation.
Overseas, the pan-continental Stoxx Europe 600 rose 0.6%, while the U.K.'s FTSE 100 rose 0.7%, hitting its highest level since January 2020. Asian stock markets were mixed.
Forex:
The dollar was firmer in Europe, continuing its positive run after the strong jobs report.
Maybank said a higher-than-expected CPI reading this week could further support the greenback, particularly in the context of tightening labor market conditions and wage growth acceleration increasing the likelihood of a swifter pace of Fed policy normalization. The run-up to the FOMC meeting in March could be dollar-supportive too as there is some speculation for a 50bp rate increase, Maybank added.
ING said Friday's jobs data should help the dollar to build on recent gains on prospects of the Fed raising interest rates this year, starting in March.
"Friday's payrolls numbers have helped build a floor under the dollar as markets should continue to cement their hawkish views on Fed tightening into the March meeting."
The low-yielding Japanese yen and Swiss franc could emerge as the biggest losers against the dollar, ING said.
Bonds:
Investors continued to jettison bonds on the expectation that the Fed is poised to embark on a course of interest-rates rises. The yield on the benchmark 10-year Treasury note rose to 1.947%, putting it on course for its highest closing level since 2019, after settling at 1.915% Monday.
Investors are looking ahead to important data on consumer prices and auctions of government debt this week, which could help to provide further color around appetite for Treasurys.
"We have little economic data until we see CPI on Thursday. We do have Treasury supply in 3yr, 10yr, and 30yr this week," wrote managing director Tom di Galoma of Seaport Global Holdings, in a daily note.
"On the geopolitical front a Russian invasion of Ukraine is likely according to Jake Sullivan, the national security adviser to President Biden."
Commodities:
Oil prices were lower in Europe, with indirect talks between the U.S. and Iran to revive the nuclear agreement expected later Tuesday. A new deal could allow over 1 million barrels a day of Iranian oil back into the market.
"While the world's eyes are focused on the Ukraine-Russia conflict, agreement appears a distinct possibility in the nuclear talks with Iran, " said Commerzbank.
"Oil sanctions against Iran could potentially be relaxed by mid-year, which would allow Iranian oil exports to return in the second half of the year."
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While other base metals fell in Europe, aluminum was up 1.2% and within sight of a record high on supply concerns.
A collection of bullish factors have conspired to push the lightweight metal higher: Fears that fresh sanctions on Russia could crimp the country's aluminum exports are one factor; another is rising energy prices which have put some smelters out of business; and the latest driver is a fresh outbreak of Covid-19 in Guangxi, China, a key aluminum producing region. A major city in the province has been put into lockdown, threatening to disrupt aluminum production.
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Aluminum's path to higher prices looks clear to Goldman Sachs, underpinned by climbing electric-vehicle sales and supply constrained by climate-related costs.
Tight natural gas and coal markets had forced power rationing across China and Europe over the past six months, with aluminum smelters most exposed. This rationing "has put the aluminum market on the path to inventory depletion by 2023," Goldman Sachs said, which raised its 12-month forecast to $4,000/ton from $3,500/ton.
TODAY'S TOP HEADLINES
Peloton CEO John Foley to Step Down, Become Executive Chair
Peloton Interactive Inc. plans to replace its chief executive, cut costs and overhaul its board after a slowdown in demand caused the once-hot bike maker's value to plummet.
Peloton co-founder John Foley, who has led the company for its entire 10-year existence, is stepping down as CEO and will become executive chair, the company told The Wall Street Journal. Barry McCarthy, the former chief financial officer of Spotify Technology SA and Netflix Inc., will become CEO and president and join Peloton's board.
Nvidia, SoftBank Call Off Blockbuster Arm Deal
Nvidia Corp. and Japan's SoftBank Group Corp. are abandoning a blockbuster deal for the U.S. semiconductor giant to acquire chip-design specialist Arm after regulators raised antitrust concerns.
The two companies said in a joint statement on Tuesday that they had agreed not to move forward with the transaction "because of significant regulatory challenges."
U.S. Adds China's Wuxi Biologics to 'Unverified List'; Shares Dive
HONG KONG-The shares of one of China's most valuable biotechnology companies plummeted Tuesday, losing almost a quarter of their value after the U.S. Commerce Department flagged concerns about the firm to American exporters.
Two units of Wuxi Biologics (Cayman) Inc., a Jiangsu-headquartered firm whose stock is listed in Hong Kong, were among 33 Chinese organizations that were added to an "unverified list" by the Commerce Department on Monday.
Guess Faces Calls to Remove Marciano Brothers From Board
An activist investor is calling for the co-founders of Guess Inc. to be removed from the clothing maker's board, arguing that sexual-misconduct allegations against one of the men threaten its turnaround efforts.
Legion Partners Asset Management LLC has a roughly 2.5% stake in Guess and has been urging it to remove Paul Marciano and his brother, Maurice Marciano, according to a person familiar with the matter and a letter sent to the company's board Monday that was viewed by The Wall Street Journal.
BP Sets Aim to Sustain Hydrocarbons Profits out to 2030 Whilst Cutting Production
BP PLC said Tuesday that it will aim to sustain earnings from hydrocarbon production out to 2030, even though production is expected to fall 40% by the end of the decade from 2019 levels.
The British oil-and-gas giant wants annual earnings before interest, taxes, depreciation and amortization from hydrocarbons to remain at around $33 billion until 2025, and then maintain it in a $30 billion-$35 billion range until 2030. BP said that this will be achieved through a continued focus on costs and performance, and disciplined investments in high-margin opportunities.
BNP Paribas Targets Higher Shareholder Returns Through 2025
BNP Paribas SA plans to raise the proportion of earnings it pays to shareholders through 2025, joining a cohort of European lenders in increasing shareholder returns after the European Central Bank lifted the restrictions on payouts it had imposed at the onset of the coronavirus pandemic.
The French bank said Tuesday that it is targeting a payout ratio of 60% as part of its new plan from 2022 to 2025, including a minimum cash payout of 50%.
SoftBank Group Ekes Out Profit
TOKYO--SoftBank Group Corp. on Tuesday reported a small profit in the October-December quarter despite continued troubles in China's technology industry.
The Japanese technology investor, best known for its $100 billion Vision Fund, reported net income attributable to owners of the parent of 29 billion yen, equivalent to $252.0 million, for the quarter ended Dec. 31. That followed a $3.5 billion loss in the previous quarter.
Sensor Maker Velodyne Lidar's Shares Surge After Amazon Investment
Velodyne Lidar Inc.'s stock jumped more than 50% in extended-hours trading Monday after the maker of sensors for autonomous cars reported an investment by Amazon.com Inc.
The California-based Velodyne on Monday said it would issue a warrant for an Amazon subsidiary to buy nearly 39.6 million shares. In return, Amazon would get a board observer as long as its stake stays above about 12.3 million shares. The deal also includes a so-called standstill agreement.
LG Energy Solution Posts Profit Turnaround for 2021
South Korean battery maker LG Energy Solution Ltd. posted a profit turnaround for 2021, with fourth-quarter earnings swinging to profit on brisk electric-vehicle battery sales.
(MORE TO FOLLOW) Dow Jones Newswires
02-08-22 0554ET
