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North American Morning Briefing: Yields Rise, Stock Futures Waver Ahead of Inflation Data, Earnings

01/10/2022 | 05:58am EDT

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Opening Call:

Futures pointed to muted moves for stocks, while government bonds extended losses, as investors awaited inflation data and the start of earnings season.

Rising yields at the start of 2022 have sent a shudder through tech stocks. Pushing yields up are indications that the Federal Reserve could raise short-term interest rates in March and begin to shrink its holdings of bonds and other assets soon afterward.

Inflation data due Wednesday will be keenly watched as investors seek to predict when the Fed will begin to raise borrowing costs. Monthly consumer prices are expected to have risen more than 7% from a year earlier, for the first time since 1982.

Later this week, fourth-quarter earnings season kicks off at major U.S. financial firms, with JPMorgan Chase, Citigroup, Wells Fargo and BlackRock due to file results. Many investors are pushing money into bank stocks, figuring they stand to profit from a rise in interest rates.

Among them is Hani Redha, a multiasset fund manager at PineBridge Investments. He said the New York-based investment firm has cut its ownership of tech stocks and Treasurys while boosting cash holdings and exposure to financial companies.

"Equities are down and bonds are down too," Mr. Redha said. "At least for a while, even cash is better than owning risk assets."

Overseas stock markets were mixed. The Stoxx Europe 600 slipped, weighed down by shares of real estate and tech companies. Shares in Atos sank 17% after the French information-technology firm said 2021 results lagged expectations due to project delays and supply-chain challenges.

Forex:

The dollar recovered following declines Friday when December's U.S. nonfarm payrolls data showed lower-than-expected jobs growth.

The Federal Reserve is unlikely to be concerned by softer employment growth as the underlying trend remains favorable, with further improvement in the labor market expected, MUFG Bank currency analyst Lee Hardman said.

The unemployment rate fell 0.3 percentage points to 3.9% in December, just above the pre-coronavirus low of 3.5% and broadly in line with the Fed's estimates for full employment, he said.

"A further decline in the unemployment rate in the coming months should result in the labor market meeting the Fed's conditions to begin raising rates as soon as at the March FOMC meeting."

The Russian ruble rose as talks between U.S. and Russia about the build-up of Russian troops along Ukraine's border get underway.

Expectations of a breakthrough in lowering tensions are unlikely to be high, ING analysts said. For example, it will be difficult for NATO to promise that it will refuse to accept membership applications from Ukraine as demanded by Russia, they said.

"Yet we see the RUB holding its recovery from last week's USD/RUB spike high at 77.30." As Russian exporters return from their New Year holidays, USD/RUB should return to the 73-75 range, backed by a "very hawkish" Russian central bank and three-month RUB implied yields at 8.5%, they said.

Bonds:

The yield on benchmark 10-year Treasury notes-which moves inversely to their price-rose to 1.795% from 1.769% Friday. Friday's closing level was the highest since January 2020, when yields tumbled at the start of the pandemic.

Ten-year U.S. Treasury and German Bund yields are on track for Societe Generale's respective targets of 1.80% and 0% in 1Q, the French bank's rates strategists said.

"In the coming months, the focus will remain on the next Fed policy steps, so rates market volatility should be driven by U.S. Treasuries," they added.

In the eurozone, near-term inflation prints will likely be high and volatile, maintaining pressure on the European Central Bank to continue preparing policy normalization, Societe Generale said.

"After a volatile 1H, the evolution of the inflation outlook in 2H22 will be a key determining factor for medium-term expectations of ECB policy."

Commodities:

Oil prices were flat as fresh supply from Kazakhstan and Libya comes back online. Libyan oil production increased by 200,000 barrels a day to 900,000 barrels, after a major pipeline was restored, according to the nation's energy minister.

Meanwhile in Kazakhstan, after major protests disrupted production last week, production was gradually returning to normal levels, the operator of the country's largest oil field said.

U.S. natural-gas prices rose 4.2% to $3.88 per million British thermal units. Cold weather in the Midwest and eastern U.S. early this week will likely boost demand for the fuel, according to analysts at NatGas Weather.

Gold prices are likely to decline this year as bond yields and the dollar rise, though concerns about inflation and Covid-19 variants will slow losses, UBS said.

The bank is forecasting the precious metal to end 2022 at $1,650 a troy ounce but expects it to end the current quarter little changed.

"Currently, omicron and inflation risks are keeping some investors holding onto their gold investments, but we think further upside to U.S. real yields and a stronger U.S. dollar will undermine the supportive factors by 2Q22," the bank's commodities strategists said.

Aluminum prices rose after a major French smelter said it would cut output because of soaring electricity prices. The smelter at Dunkirk, which has a capacity of 285,000 tons a year, is to cut production by a total of 15% this week.

The smelter is the latest in Europe to take such steps as a shortage of natural gas drives up energy prices.

Aluminum smelters are particularly exposed to rising electricity prices as their production process is very energy-intensive. Meanwhile, copper prices also rose, inching up 0.1% and nickel gained 0.8%.

TODAY'S TOP HEADLINES

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Two Chinese Startups Tried to Catch Up to Makers of Advanced Computer Chips-and Failed

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Electric-Vehicle Race Heats Up as Detroit Makes Its Move

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Facebook's Former Elections Boss Now Questions Social Media's Impact on Politics

Katie Harbath joined Facebook more than a decade ago as the first Republican employee in the company's Washington, D.C., office, pushing skeptical members of Congress on the virtues of the young social network for healthy elections.

Restaurants Seek Federal Aid as Omicron Surge Threatens Another Hard Winter

Small restaurants are heading back to Congress for help, saying their challenges are worsening as the Omicron variant drives a surge in Covid-19 cases across the country.

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Rocket Grew Into America's Biggest Mortgage Lender, but Now Comes the Hard Part

Rocket Cos. struck it big selling the American Dream. Now it has to convince investors it can keep growing even in a sleepy mortgage market.

The Detroit-based lender has barreled through the pandemic. It doubled its mortgage originations in 2020 and grew them by another third through last fall. It is now the biggest mortgage lender in the country, making nearly as many home loans as Wells Fargo & Co. and JPMorgan Chase & Co. combined. Through much of 2021, roughly one out of every 14 mortgages in the U.S. went through Rocket.

Richmond Fed's Barkin Says a March Rate Rise Is Conceivable

(MORE TO FOLLOW) Dow Jones Newswires

01-10-22 0557ET

Stocks mentioned in the article
ChangeLast1st jan.
ADVANCED MICRO DEVICES, INC. 3.55% 102.26 Delayed Quote.-28.94%
ATOS SE 0.24% 24.94 Real-time Quote.-33.30%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.87% 0.667 Delayed Quote.3.56%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.87% 0.716 Delayed Quote.-2.23%
BLACKROCK, INC. 2.16% 666.53 Delayed Quote.-27.20%
BRITISH POUND / EURO (GBP/EUR) 0.07% 1.1764 Delayed Quote.-1.19%
BRITISH POUND / US DOLLAR (GBP/USD) 0.09% 1.26275 Delayed Quote.-6.75%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.39% 0.732311 Delayed Quote.4.76%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.33% 0.7853 Delayed Quote.-1.03%
CITIGROUP INC. -0.87% 53.62 Delayed Quote.-11.21%
EURO / US DOLLAR (EUR/USD) -0.01% 1.07317 Delayed Quote.-5.61%
FORD MOTOR COMPANY 3.89% 13.63 Delayed Quote.-34.38%
GENERAL MOTORS COMPANY 3.07% 38.57 Delayed Quote.-34.21%
GOLD -0.01% 1852.7 Delayed Quote.1.28%
INDIAN RUPEE / EURO (INR/EUR) 0.11% 0.012015 Delayed Quote.1.75%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.05% 0.012892 Delayed Quote.-4.10%
INTEL CORPORATION 2.46% 44.55 Delayed Quote.-13.50%
LONDON BRENT OIL 1.52% 119.2 Delayed Quote.50.58%
META PLATFORMS, INC. 1.83% 195.13 Delayed Quote.-41.99%
MSCI SINGAPORE (GDTR) 0.97% 5632.99 Real-time Quote.-11.14%
MSCI TAIWAN (STRD) 2.89% 614.431 Real-time Quote.-19.54%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.83% 0.6534 Delayed Quote.-5.22%
S&P GSCI ALUMINUM INDEX 0.19% 181.9213 Real-time Quote.2.01%
S&P GSCI NATURAL GAS INDEX -1.89% 408.6057 Real-time Quote.133.97%
STOXX EUROPE 600 1.42% 443.93 Delayed Quote.-8.99%
STOXX EUROPE 600 NR 1.43% 1016.74 Delayed Quote.-7.46%
TAIWAN SEMICONDUCTOR CO., LTD. 0.90% 78.7 End-of-day quote.0.13%
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED 3.11% 530 End-of-day quote.-13.82%
US DOLLAR / EURO (USD/EUR) 0.01% 0.931819 Delayed Quote.5.95%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.76% 66.25 Delayed Quote.-14.60%
WELLS FARGO & COMPANY 0.64% 45.89 Delayed Quote.-4.36%
WTI 0.94% 115.083 Delayed Quote.51.34%
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