Consumer Credit for November; Canada Building Permits for November; Fed’s Raphael Bostic speech at the Rotary Club of Atlanta
Today’s Headlines/Must Reads
– Wall Street Sets Low Bar for Corporate Earnings Season
– Tech Industry Reversal Intensifies With New Layoffs
– Higher Rates, Tech Selloff Fuel Options Boom
– Foreign Investors Are Leery of China Bets, Despite Rebound Expectations
– House Republicans Turn Focus to Spending, China After Dramatic Speaker Vote
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Stock futures were firmer on Monday, as investors looked to extend a strong rally at the end of last week when jobs and services data raised hopes the Federal Reserve can soon stop raising interest rates and the economy can avoid a hard landing.
“On the back of ISM and payrolls, investors immediately moved to price in a less aggressive pace of rate hikes from the Federal Reserve,” Deutsche Bank noted.
“For instance, futures pricing for the end-2023 rate came down by -10.3bps over the week [-19.0bps on Friday] to 4.48%.”
Swissquote Bank said: “The Fed is not looking to push the U.S. economy into recession for fun, it wants to see the jobs market tighter because, in theory, a tighter jobs market should help ease inflation.”
“But if inflationary pressures ease with little negative impact on jobs, that’s what we call the goldilocks scenario: a soft-landing from the ultra-supportive monetary policy euphoria, easing inflation without too much pain on jobs market.”
Global markets rallied on Monday, catching up with last week’s U.S. gains. The Stoxx Europe 600, which has had a strong start to the year, rose 0.5%, while most Asian indexes advanced. Hong Kong’s Hang Seng rose 1.9%. The Shanghai Composite index rose 0.6%. Japanese markets were closed for a public holiday.
Investors are training their focus on inflation data due to be published on Thursday, with the figures likely to set the tone for the Fed’s policy meeting starting Jan. 31.
Meantime, earnings season kicks off in earnest on Friday when major banks including JPMorgan Chase and Bank of America file results.
Stocks to Watch
Bed Bath & Beyond shares rose 50% premarket in the latest bout of wild trading for the stock. The company is preparing to file for bankruptcy within weeks, the Journal previously reported.
Cincor shares rose 144% in premarket trading on news it will be bought by AstraZeneca. The offer price of $26 a share represents a 121% premium to CinCor’s closing price on Friday, and will see AstraZeneca pay $1.3 billion up front.
The agreement also includes a non-tradable $10 per share in cash payable on a specified regulatory submission of the U.S company’s candidate drug baxdrostat, being developed to treat cardiorenal diseases. The upfront amount plus the contingent payment would reach a transaction value of $1.8 billion.
CureVac stock rose 27% premarket after it announced promising preliminary results for its Covid-19 and flu-vaccine candidates. Both are being developed in collaboration with GSK.
Goldman Sachs is set to begin a large round of staff layoffs this week, cutting as many as 3,200 jobs, according to a report from Bloomberg. The bank is poised to start the job cutting midweek this week as it plans to make large cost-cutting measures amid a choppy economic environment.
Over a third of the job cuts will hail from the bank’s main trading and banking units, the report said. Read more here
Harmony Biosciences said John Jacobs is stepping down as its president and CEO to pursue another opportunity. Chief Medical Officer Jeffrey Dayno has been appointed as the interim CEO. Shares declined 4.8% in after-hours trading.
Macy’s on Friday reported uneven results for the holiday season, leading the department-store chain to expect sales for its year-end period to be at the low-to-midpoint of its previous range of $8.16 billion to $8.4 billion. The company’s CEO said economic woes will likely continue to weigh on consumers in 2023. Shares fell 3.6% in after-hours trading.
Tesla shares rose 2.1% in premarket trading, putting them on pace to claw back some of the losses endured during the first week of 2023.
A deceleration of inflation is a monetary and political priority for 2023, Muzinich said.
“The first regions to see inflation converging towards target will be the first to see the macro benefits and will likely attract international capital flows.”
Lower inflation helps to protect consumer purchasing power, business margins and real wages, Muzinich said. Lower inflation also reduces the risks of a wage compensation inflation spiral and removes the tail risk of excessive tightening while opening the door to a pivot in policy rates.
Central banks aren’t done yet with their fight against inflation, though. “A further and sustained decline in inflation will be needed before central banks are comfortable enough to stop raising rates,” Muzinich added.
Friday’s unexpectedly weak ISM services activity data, coupled with jobs data showing weaker-than-expected wage growth, have contributed to “sizable” losses for the dollar, ING said.
“ISM services readings under 50 are one of the most reliable indicators of a U.S. economy headed into recession,” ING said, adding that this reading has “added to the pricing of the subsequent Federal Reserve easing cycle.”
For the DXY dollar index ING said “102.00 now looks to be the direction of travel as U.S. recession fears build.”
The euro could rise further against the dollar if the market becomes more convinced the Fed will ease policy as the European Central Bank is determined to raise interest rates further, ING said.
“Low gas prices and China reopening are also supportive for EUR/USD and we would say that, despite the bearish seasonals for EUR/USD, pressure is building for further near-term gains,” ING said.
With money likely flowing into emerging market funds and out of dollar deposits, EUR/USD could rise to 1.0735-1.0785 or potentially even 1.09 if U.S. inflation data on Thursday soften again, ING said.
Oil prices jumped to start the week as the reopening of the border between China and Hong Kong lifted sentiment and hopes for increased demand.
“As we get more snapshots of China’s mobility normalizing, oil prices could gradually rise tangentially to that impulse,” SPI Asset Management said.
U.S. inflation data due on Thursday will likely dominate the week’s focus while the EIA releases its short-term energy outlook on Tuesday.
Gold and base metals pushed higher in early European trading, driven by more positive sentiment around the global economy.
Marex said market sentiment in China on Monday morning was upbeat.
“The upward move was driven by positive macro changes. Guo Shuqing, chairman of the CBIRC [China Banking and Insurance Regulatory Commission], expressed the view that faster economic recovery and high-quality growth can be brought about by an increase in consumer spending and investing.”
Copper prices hit their highest level in six months, boosted by stronger sentiment around China’s property sector.
“Copper has advanced since November after lockdown protests led to an abrupt change in direction toward reopening the economy following months of fruitless lockdowns,” Saxo Bank said.
“The change in direction set by the government has bolstered the outlook for demand beyond the first quarter,” Saxo said, adding that “Beijing may allow some firms to add leverage by easing borrowing caps and push back the grace period for meeting debt targets.”
Renewed interest in combating climate change from the latest United Nations Climate Change Conference summit in Egypt is likely to bring in more investment for green steel, according to Fitch.
Green steel–which is steel made without the use of fossil fuels–would see more interest in particular from auto makers looking to reduce emissions with governments seeking to stamp down on carbon-intensive sectors, Fitch said.
It noted that iron and steel account for 7% of global emissions, so further partnerships are likely as companies and countries seek to cut their carbon footprints. That said, steel demand in general is likely to slip in 2023 amid a “slowing global economy with high levels of inflation,” hindering the uptake.
TODAY’S TOP HEADLINES
AstraZeneca to Buy CinCor Pharma for Around $1.3 billion
AstraZeneca PLC said Monday that it has agreed to buy CinCor Pharma, Inc., acquiring global rights to the latter’s baxdrostat cardiorenal drug for an upfront transaction value of around $1.3 billion.
The Anglo-Swedish pharma giant said that it will initiate a tender offer to acquire all of U.S.-listed clinical-stage biopharmaceutical company CinCor’s outstanding shares, for a price of $26 a share in cash at the closing of the deal, along with a non-tradable contingent value right of $10 a share in cash payable upon a specified regulatory submission of a baxdrostat product. The deal is expected to close in the first quarter.
Tech Industry Reversal Intensifies With New Rounds of Layoffs
A new wave of tech layoffs signals how executives in the industry are pivoting from a growth-above-all mindset to protecting their bottom line.
After a bruising 2022 in which companies from small startups to tech giants slammed the brakes on expansion, some of the biggest names in the sector are demonstrating that an era of austerity is only beginning, with expenses scrutinized and moonshot projects abandoned. Amazon.com Inc. and Salesforce Inc. both announced plans for layoffs in the past week.
Goldman Sachs may cut 3,200 jobs: report
Goldman Sachs Group Inc. GS is set to begin a large round of staff layoffs this week, cutting as many as 3,200 jobs, according to a report on Monday from Bloomberg.
The bank is poised to start the job cutting midweek this week as it plans to make large cost-cutting measures amid a choppy economic environment.
(MORE TO FOLLOW) Dow Jones Newswires