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Opening Call:
European shares look set to open higher on Thursday. Asian stock benchmarks advanced; the dollar weakened; Treasury yields broadly edged higher; while oil and gold futures also advanced.
Equities:
Stock futures were tracking higher early Thursday as investors brace for the release of U.S. consumer-price data for December.
EP Wealth Advisors reckoned the CPI report may give investors enough confidence that disinflation is likely to continue, even if price levels are "still a very long way from anything that is considered healthy."
However, the economy has certain factors that are beyond the Fed's control, such as volatility in supply chains, growing geopolitical risks, and a potential resurgence in inflation, it said.
Some analysts caution that the Fed's fight to stamp out inflation isn't over with last week's payrolls and wage growth data for December hotter than expected.
"With wages rising year-over-year more than twice as fast as the Fed's 2% target, we see persistent inflation as a significant risk," said Jason Hsu, chief investment officer at Rayliant Global Advisors.
New York Federal Reserve President John Williams on Wednesday said U.S. interest rates will likely need to stay high "for some time" until senior central bank officials are confident the rate of inflation is returning to 2%.
Meanwhile, the earnings season also kicks off in earnest on Friday, when Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo are set to report results.
Forex:
The U.S. dollar weakened in Asia with a focus on the U.S. December CPI data due later.
Risks appear to be tilted to a smaller increase in core CPI of 0.2% on month versus the consensus estimate of 0.3%, CBA said.
A softer outcome could embolden market participants to increase expectations for FOMC rate cuts and weigh on the USD, it added.
BNP Paribas Asset Management said it expected the euro to rise against the dollar over 2024 as the relative growth dynamic is gradually moving in the eurozone's favor versus the U.S.
However, this trend was unlikely to play out for the time being given near-term uncertainties over when the Fed and the European Central Bank will start cutting interest rates, it said.
Bonds:
Treasury yields broadly edged higher as investors positioned ahead of the December inflation report.
Economists expect annual headline CPI inflation, which has been falling since its peak of 9.1% in mid-2022, to inch up to 3.2% for December versus 3.1% in November. However, the core reading, which strips out more volatile items like food and energy, is expected to decline to 3.8%, from 4% previously.
"Market-based inflation expectations have come way down, signaling the Fed is going to be successful in fighting inflation," said Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities in New York.
"The question is, if inflation does come down, will that give the Fed leeway to lower rates despite the fact that the labor market has held up more robustly than we expected?"
Energy:
Oil futures gained early Thursday after the U.S. government reported an unexpected weekly rise in commercial crude supplies and larger-than-expected increases in gasoline and distillate inventories.
"Ongoing strength in refining activity has resulted in another week of solid builds to the products," said Matt Smith, Americas lead analyst at Kpler.
"This full house of bearish builds is offsetting the supportive influence of Red Sea concerns and Libyan supply disruptions," Smith said.
However, refining activity is going to drop significantly in the weeks ahead, as maintenance kicks in to slow product-inventory builds, he noted.
Metals:
Gold advanced amid geopolitical tensions in the Middle East.
Fears of a further escalation of the Middle East turmoil will likely continue to benefit the safe-haven asset in the mid-to-long term, analysts at Founder Cifco Futures said.
As the market has priced in expectations for rate cuts by the Fed, gold prices have been fluctuating since the beginning of this year, they said.
Investors would be watching the U.S. inflation data later in the day to gauge the timeline of the expected rate cuts.
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Copper rose in Asia.
Overall sentiment on metals remains positive as investors await the coming U.S. inflation data, Xinan Futures analysts said.
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Most iron-ore futures declined on prospects of weak demand for the underlying metal used to make steel.
January's stainless steel spot-market sales cycle may be shorter, owing to the Lunar New Year holidays and weak demand, spurring adjustments of production expectations by manufacturers, information provider Shanghai Metals Market said.
China's stainless steel billet production for January is estimated at 2.903 million tons, down 3.7% on month, SMM added.
TODAY'S TOP HEADLINES
What to Watch in the CPI Report: Will Inflation's Rapid Downturn Stabilize?
Consumer inflation ticked up in December but underlying price pressures continued to ease, analysts estimate, fueling hopes that the economy can dodge a recession.
Fed's Williams says interest rates need to stay high 'for some time' to ensure inflation is tamed
New York Federal Reserve President John Williams said U.S. interest rates will likely need to stay high "for some time" until senior central bank officials are confident the rate of inflation is returning to 2%.
Williams made his remarks Tuesday at a speech in White Plains, N.Y. He is seen as a close ally of Fed Chairman Jerome Powell, so his words carry a lot of weight in financial markets.
SEC Approves Bitcoin ETFs for Everyday Investors
The U.S. Securities and Exchange Commission voted Wednesday to allow mainstream investors to buy and sell bitcoin as easily as stocks and mutual funds, a decision hailed by the industry as a game changer.
The SEC decision clears the way for the first U.S. exchange-traded funds that hold bitcoin to be sold to the public. Expectations of U.S. regulatory approval for such funds drove the price of bitcoin to the highest level in about two years. The digital currency traded just below $46,000 late Wednesday, up from $17,000 in January 2023.
SAP to Pay More Than $220 Million to End Bribery Probes
SAP has agreed to pay more than $220 million to settle foreign bribery probes brought against the German software maker by U.S. and South African authorities.
SAP and its co-conspirators paid bribes to foreign officials in South Africa and Indonesia, delivering money in the form of cash, wire transfers, political contributions and sometimes luxury goods, U.S. prosecutors said Wednesday.
South Africa Accuses Israel of Genocide in U.N. Court
The International Court of Justice begins hearings Thursday on South Africa's accusation of genocide against Israel, contending that the Jewish state's military response to Hamas attacks launched from Gaza violates the international treaty drafted in the aftermath of Nazi Germany's systematic extermination of six million Jews.
More than 150 countries have ratified the Genocide Convention, which allows a nation to file a complaint against another it believes is committing genocide even if, as in South Africa's case, it has no direct connection to the conflict. South Africa argues that Israeli military operations, which the Gaza health ministry says have cost more than 22,000 Palestinian lives, are intended to wipe out Palestinians in Gaza as a distinct group.
Google Trims Hundreds of Jobs as It Marshalls Resources for AI
Google laid off hundreds of employees in several areas of the business on Wednesday, a sign of further cost reductions at the search giant as it continues to reverse a pandemic hiring spree.
The cuts affected employees in divisions including those working on Google's Assistant program, hardware and internal software tools, the company said. The exact size and scope of the layoffs couldn't immediately be determined.
Citigroup Taking Charges on Argentina, Russia and Its Own Restructuring
Citigroup recorded a litany of one-time charges and expenses in the fourth quarter related to its exposures to Argentina's debt market, Russia's political instability and the bank's own restructuring plan.
Citi said Wednesday in a regulatory filing that it set aside $1.3 billion in reserves to account for risks in Argentina and Russia. The recent devaluation of the Argentine peso also wiped out about $880 million in revenue from the bank's services, markets and banking division, the bank said.
Alaska Airlines cancels 737 Max 9 flights through Saturday
Alaska Air Group Inc. on Wednesday said that it would cancel all flights using Boeing Co.'s 737 Max 9 jets through Saturday while it conducts inspections on the aircraft, after a panel tore off of one such plane used by Alaska Airlines during a flight last week.
The company said the decision would affect 110-150 flights per day. It said it "continues to wait for documentation from Boeing and the FAA to begin inspection of our 737-9 Max fleet."
Skydance Backers Explore All-Cash Deal to Gain Control of Paramount
Shari Redstone, whose family controls Paramount Global, has entertained several offers over the years to buy its famed movie studio. Skydance Media CEO David Ellison is eyeing something more ambitious.
Ellison is discussing an all-cash bid for Paramount's parent, National Amusements, with financial help from other Skydance investors including his father, billionaire Larry Ellison, according to people familiar with the matter. The investors would buy at least a majority stake in National Amusements from the Redstones, the people said.
Amazon Is Laying Off Hundreds at Prime Video, MGM Studios and Twitch
Amazon is eliminating hundreds of jobs across its film and television studio and Twitch streaming platform in an effort to rein in costs.
(MORE TO FOLLOW) Dow Jones Newswires
01-11-24 0015ET
