MARKET WRAPS
Watch For:
EU flash estimate euro area inflation, retail trade, business and consumer surveys; Germany retail trade, manufacturing orders, manufacturing turnover; UK Halifax house price index, S&P Global / CIPS UK Construction PMI; France consumer spending; trading update from Sodexo
Opening Call:
European shares look set to post gains on Friday ahead of U.S. jobs data. In Asia, stock benchmarks rose; Treasury yields were mixed; while the dollar, oil and gold strengthened.
Equities:
Stock futures point to gains in Europe at Friday’s open, ahead of the U.S. nonfarm payrolls data later in the day.
European stocks mostly declined Thursday, while U.S. stock indexes ended another choppy session in the red, as investors digested a fresh set of better-than-expected labor-market data and a hawkish set of Fed meeting minutes.
“As long as we’re still in a rate-hiking cycle, good economic data is going to be bad news for markets,” said Art Hogan, chief market strategist at B.Riley Wealth.
“While we will get a better overall picture of the jobs market [on Friday], private payrolls beating expectations and jobless claims coming in below are indications that the labor market remains resilient,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
Investors have started the year skittish about whether central banks can bring inflation back under control without inflicting too much damage on the global economy. Many investors are betting on a mild recession this year.
“Unless there is a shock from left field, we should see growth continue to be soft, inflation should decline and at some point, central banks are going to stop raising interest rates,” said Charles Diebel, head of fixed income at Mediolanum International Funds. “This year is all about when, not if.”
Forex:
The dollar strengthened slightly early Friday ahead of the U.S. nonfarm payrolls report.
Risk sentiment might tilt more toward wait-and-see in the run-up to this report, said IG. Any outperformance in wage pressures could be a catalyst to add to recent market jitters, IG added.
Bonds:
Treasury yields were mixed early Friday as traders reacted to the latest hawkish comments from the Fed.
On Thursday, traders boosted the likelihood that the Fed will lift rates above 5% over the next two months to as high as 41% before settling at 33%, up from 25% a day ago. The futures market also continued to price in rate cuts for later this year, despite the Fed’s efforts to push back against such thinking.
“It looks like the bond market is priced for a quicker resolution to the inflation problem than the Fed is willing to accept,” said Gary Pzegeo, head of fixed income at CIBC Private Wealth US.
“Bond yields suggest that risks will shift from inflation to unemployment at some point this year, forcing the Fed to shift policy into easing mode,” Pzegeo said. However, the Fed, in the minutes of its December meeting, pointed out that no one on the policy-setting Federal Open Market Committee expects easing in 2023.
Energy:
Oil futures rose in Asia, with prices supported by a more “petite” inventory build than expected, said SPI Asset Management.
The U.S. Energy Information Administration reported overnight that crude inventories rose by 1.7 million barrels for the week ended Dec. 30. That compared with analysts’ average forecast for an increase of 4.5 million barrels, according to a poll by S&P Global Commodity Insights.
“Energy has seen a severe selloff recently and we would be surprised if further weakness does occur,” said Tariq Zahir, managing member at Tyche Capital Advisors. “Charts on crude oil look bearish. However, we feel the risk is to the upside from here.”
Worries about the outlook for the global economy, and specifically China, have raised uncertainty about the outlook for energy demand.
“Chinese COVID infections are a concern for demand in the immediate term, however, the medium to long-term outlook is more constructive following the change in China’s COVID policy,” said Warren Patterson and Ewa Manthey, commodities strategists at ING.
“The oil market is looking better supplied in the near term and risks are likely skewed to the downside. However, our oil balance starts to show a tightening in the market from the second quarter through to the end of the year, which suggests that we should see stronger prices from 2Q23 onwards,” ING said.
Metals:
Gold rose early Friday, but is likely to be weighed by renewed prospects for Fed tightening.
The precious metal seems to be struggling as the latest round of U.S. economic data suggests the Fed will have lots of pressure on it to tighten further, said Oanda.
Gold prices could stay stuck above the $1,800/oz level, added Oanda.
Read: Why gold prices may be headed for record highs this year
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Copper prices rose, extending overnight gains as Chinese officials unveiled additional measures to support the country’s real-estate sector, which is a major source of copper demand.
Galaxy Futures thinks the policy moves could offer an extra boost to investor sentiment, which is already buoyed by optimism surrounding China’s reopening and help support copper prices in both the physical and futures markets.
The brokerage’s channel checks with traders, producers and buyers suggest that buying interest is strengthening after some prices pulled back in recent sessions. This could support a near-term price rebound for copper.
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Chinese iron ore prices advanced, as the steelmaking raw material sustained its bullish start into 2023. The ore has rallied since late last year amid rising hopes for a reopening-driven economic recovery in China and more policy support for the country’s real-estate sector, a key source of steel and iron ore demand.
But Yongan Futures warned of downside risks, flagging potentially weaker demand after the winter restocking period, which may weigh on buying interest in the physical market and consequently damp sentiment in futures.
In the longer run, Yongan advised investors to monitor the strength and pace of real-estate recovery on the ground.
TODAY’S TOP HEADLINES
Fed Official Sees Progress on Inflation, Says More Rate Rises Needed
The Federal Reserve’s short-term benchmark rate isn’t yet at a level high enough to sufficiently slow the U.S. economy to combat high inflation, but it should get there this year, a central bank official said Thursday.
“We are getting closer,” said St. Louis Fed President James Bullard during a talk to business leaders in St. Louis. “What we’re looking at is a combination of factors that are making it more likely that 2023 will be a disinflationary year.”
U.K. Property Funds Extend Withdrawal Limits
LONDON-Some large U.K.-focused property funds are limiting withdrawals, extending restrictions that began in the fall, as investors such as pension funds pull back from the sector.
BlackRock Inc. is deferring meeting third-quarter requests for redemptions from a fund that would ordinarily have been paid at the end of December, said a person familiar with the matter.
Mercedes-Benz Plans to Install Its Own Network of EV Chargers
Mercedes-Benz AG plans to build its own global network of electric-vehicle chargers, making it one of the few major car companies aside from Tesla Inc. to invest directly in such a project.
The German luxury auto maker said Thursday during an event at CES in Las Vegas that it intends to install roughly 10,000 high-power EV chargers worldwide, starting in the U.S. and Canada this year.
Samsung Expects 69% Drop in Profit on Slumping Tech Demand
SEOUL-Samsung Electronics Co. said it expects its fourth-quarter profit to plunge as the firm’s mainstay memory-chip and smartphone businesses face a sharp pullback in demand, showing the extent of the global tech downturn after pandemic highs.
The South Korean tech giant on Friday forecast its operating profit in the quarter ending Dec. 31 to drop by 69% from the prior year to 4.3 trillion won, the rough equivalent of $3.4 billion.
Salesforce Customers Not Swayed by Slack, Analysts Say
When Salesforce Inc. bought the messaging application Slack for $27.7 billion almost two years ago, it said the marriage would “transform the way everyone works in the all-digital, work-from-anywhere world.” Corporate technology buyers so far aren’t impressed, analysts said.
The acquisition sought to capture the fast-growing market for communications and collaboration software during the Covid-19 pandemic, as employers sent workers home and shifted to remote systems.
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Expected Major Events for Friday
00:01/UK: Dec BRC-Sensormatic IQ Footfall Monitor
07:00/GER: Nov Retail Trade
07:00/GER: Nov Manufacturing orders
07:00/GER: Nov Manufacturing turnover
07:00/ROM: Nov Retail trade
07:00/DEN: Nov Unemployment
07:00/NOR: Nov Industrial Production Index
07:00/UK: Dec Halifax House Price Index
07:00/UK: 4Q Halifax House Price Index: UK Regional Breakdown quarterly release
07:30/HUN: Nov Employment & unemployment
07:30/HUN: Nov Retail Sales
07:30/SWI: Nov Retail Sales
07:45/FRA: Nov Household consumption expenditure in manufactured goods
08:00/CZE: Nov External trade
08:00/CZE: Nov Industry, Construction
09:30/UK: Dec S&P Global / CIPS UK Construction PMI
10:00/LUX: 3Q Balance of Payments
10:00/EU: Dec Flash Estimate euro area inflation
10:00/EU: Nov Retail trade
10:00/EU: Dec Business & Consumer Surveys – Business Climate Indicator & Economic Sentiment Indicator
11:00/IRL: Nov Retail Sales Index
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January 06, 2023 00:16 ET (05:16 GMT)
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