MARKET WRAPS
Watch For:
Eurozone Consumer Confidence Index; U.K. Retail Sales; updates
from Volkswagen, Alstom, Investor, Mediclinic, Grandvision, X5
Retail, Babcock
Opening Call:
A late-session slide on Wall Street sparked by a Peloton
warning, will likely hurt European shares early Friday. In Asia,
stocks suffered widespread losses, with the dollar, oil and gold
all weaker, while demand for bonds pushed Treasury yields lower
too.
Equities:
European shares face steep losses Friday after a late-afternoon
selloff on Wall Street, showing that investors are still concerned
about the prospects of tightening monetary policy and slowing
growth.
U.S. stocks slid Thursday, giving up their gains from earlier in
the day, as troubling news about Peloton catalyzed Nasdaq's
late-day swoon. The tech-heavy index dropped 1.3%, with the S&P
500 falling 1.1%, while the Dow closed almost 1% lower. Earlier in
the day, all three major indexes were up, with Nasdaq rising more
than 2%.
The drop started when CNBC reported that Peloton was halting
production for February and March to adjust for lower demand. That
news pushed the stock down 24% on the day, and sent chills through
Nasdaq.
The afternoon selloff wasn't surprising, said Sameer Samana, a
strategist at Wells Fargo Investment Institute. Even after the
recent pullback, selloffs usually need time to find a true bottom.
Moreover, on a day like Thursday, it's likely some traders decided
to sell into the early gains in order to cut some of their losses
from the prior selloffs.
"This is just how markets bottom," he said. "It just takes a few
days."
Faced with the prospect of multiple interest-rate rises, cooling
growth and inflation at multidecade highs, investors have been
reassessing the pandemic-era playbook that focused on outsize gains
for growth stocks, such as in tech.
"I don't see a whole lot in the market that is really alarming
me. There is no one out there saying 'run for the hills,' but there
are those saying they are going to take off risk and reposition to
other areas of the market," said Kara Murphy, chief investment
officer of Kestra Holdings.
Forex:
The dollar was slightly weaker early Friday but Westpac said the
currency should continue to firm into next week's FOMC meeting.
While a lot is priced in now, a straight comparison of USD Index
versus yield spreads shows that the dollar hasn't fully priced in
this story, Westpac added.
Corpay's Karl Schamotta said the latest rise in jobless claims
underlies a wider slowdown linked to Omicron "weighing on Treasury
yields across the curve and diminishing the dollar's appeal."
"We are starting to see a lift in currencies leveraged to growth
in the rest of the world as economies start to catch up with the
U.S." Schamotta sees strength ahead for currencies of commodity
exporting countries like Australia and Canada.
Commerzbank said elevated U.S. inflation expectations have
recently prevented the dollar from rising materially on the
market's bets that the Fed will start raising rates in March and
deliver four rate rises by year-end. The exact extent and timing of
rate rises are less important to the currency market than whether
the Fed will lift rates at or above the expected level of
inflation.
Inflation should, however, ease to a level well below market
expectations over the course of 2022 while the Fed will still lift
rates at the projected pace, boosting the dollar, said Commerzbank
currency analyst Ulrich Leuchtmann. "We therefore expect EUR/USD
levels below the 1.10 mark in the summer."
Other Currency News:
The Turkish lira's stabilization since the government announced
measures in December to stem a currency crisis won't last,
Commerzbank currency analyst Tatha Ghose said. The measures fail to
treat the cause of the currency's weakness--the central bank's
unconventional policy of lowering rates to tame high inflation,
Ghose said.
Inflation looks set to accelerate in coming months but there is
"very little chance" the central bank will lift rates, hence,
Turkey has the deepest negative real inflation-adjusted rate in
decades, Ghose said. "This is a disaster for the exchange rate
outlook." Commerzbank expects USD/TRY to rise to 15 by March this
year and to 16 by December 2023.
Ghose said the Hungarian forint is likely to underperform the
Czech koruna and the Polish zloty this year as Hungary's real
inflation-adjusted rate remains deeply negative. Although Hungary's
central bank continues to raise rates each month, the real rate
remains negative due to high inflation.
"The real rate on the forint is less negative than on the zloty,
but the gap has begun to narrow as the Polish central bank is now
catching up." Commerzbank expects EUR/HUF to rise to 375 by
September.
The Fed's digital dollar paper flagged that a prospective
Fedcoin could have major implications for a central bank balance
sheet officials already want to see made smaller. Launching a
digital dollar could affect bank reserves and push them down, the
Fed paper, released Thursday said.
"Over the long term, the Federal Reserve might have to increase
the size of its balance sheet to accommodate CBDC growth, similar
to the balance-sheet impact of issuing increasing amounts of
physical currency." While there are a lot of moving parts, some
economists have said a Fedcoin could lead to persistently very
large Fed balance sheets, although how much isn't known.
Bonds:
Treasury yields fell back in Asia, as a generally risk-off mood
dominated regional markets, with bonds in demand.
Yields climbed Thursday, with the two-year rate carving out a
52-week high, as investors looked beyond mixed U.S. data and toward
next week's Fed policy meeting.
At next week's gathering, the Fed is expected to lay the
groundwork for delivering a rate increase in March, with some
investors even penciling in the prospect of a half percentage point
rise in the fed-funds rate target rather than a quarter-point
increase.
Apollo Global Management's chief economist Torsten Slok expects
the U.S. economic recovery to accelerate in six months to a year.
"Obviously Omicron has been holding back consumption on some high
frequency indicators," he said at a Volcker Alliance event,
pointing to restaurant bookings as well as travel and credit-card
data.
Mark Zandi, chief economist at Moody's Analytics agreed with
Slok's overall assessment and projected four rate hikes this year,
adding that he expects the 10-year Treasury yield to be closer to
2.5% by year end. Among Zandi's key assumptions are that each wave
of infection is less disruptive and that the Fed will normalize
policy quickly.
Energy:
Oil futures extended their retreat in Asian trading. They
settled with a modest loss Thursday, easing back from their highest
levels since 2014, following an unexpected weekly rise in U.S.
crude supplies, but geopolitical risks to global supplies helped to
limit price losses.
OANDA said oil could head higher in the near term despite the
surprise build in stockpiles, as the global market remains tight.
Supply has been disrupted in countries including Libya and the
UAE.
ANZ noted that OPEC+ production curb compliance was high, having
surged to 120% in December, meaning the group underproduced its
monthly target. CBA said the resilience of oil demand amid the
spread of Omicron continues to support global prices.
Read: Oil Prices May Soon Rise to $100 a Barrel .
Metals:
Gold was a few cents lower on position adjustment ahead of the
weekend, having ended with a slight loss Thursday. The focus of
gold traders is shifting to next week's FOMC meeting, with
Russia-Ukraine tensions probably factored into current prices,
Phillip Futures said.
Rising U.S. interest rates remain a potential headwind since
this translates into a higher opportunity cost of holding
non-yielding bullion, the brokerage added.
"Gold is finally finding its footing, largely due to the
inflationary environment we find ourselves in, combined with the
recent weakness in the dollar," said Adam Koos, president at
Libertas Wealth Management Group.
"While rising Treasury yields will surely continue to put a
ceiling above price, that doesn't change the fact that there is a
clear and distinct increase in relative strength not seen since the
late-spring 2021 price spike."
Base metals were broadly, with aluminum leading losses.
Brokerage Marex said there are expectations of aluminum
production increases in China, putting downward pressure on prices.
The country's supply outlook is also improving, with aluminum ingot
inventories in China rising from a week ago, the first weekly gain
in stocks since Nov. 15.
TODAY'S TOP HEADLINES
Fed Launches Review of Possible Central Bank Digital
Currency
WASHINGTON-The Federal Reserve on Thursday launched a review of
the potential benefits and risks of issuing a U.S. digital
currency, as central banks around the world experiment with the
potential new form of money to keep pace with private-sector
payments innovations.
Fed officials have been divided on the matter, making it
unlikely they will decide soon on whether to create a digital
dollar. Unlike private cryptocurrencies like bitcoin, a Fed version
would be issued by and backed by the U.S. central bank, a
government entity, as are U.S. paper dollar bills and coins.
Senate Panel Approves Antitrust Bill Restricting Big Tech
Platforms
WASHINGTON-A Senate panel approved antitrust legislation
forbidding the largest tech platforms from favoring their own
products and services over competitors', scoring a win for backers
of stricter Big Tech regulation against fierce industry
opposition.
The American Innovation and Choice Online Act moves next to the
Senate floor, where several senators said they wanted to see
additional changes before backing the measure. Thursday's 16-6 vote
in the Senate Judiciary Committee showed the bill had bipartisan
support but also raised bipartisan concerns.
China Evergrande's International Bondholders Threaten Legal
Action
A group of China Evergrande Group's international bondholders
threatened to move forward with a legal enforcement plan that could
potentially include liquidation of the company's assets, after
being unable to engage substantively with the troubled property
developer for months.
Advisers to the group on Thursday released a strongly worded
statement accusing Evergrande of withholding crucial information
about its liabilities and failing to engage with its creditors
despite the company's recent pronouncements to the contrary. The
bondholders, which include global funds, asset managers and
distressed investors that hold Evergrande debt, are being advised
by investment bank Moelis & Co. and law firm Kirkland &
Ellis LLP.
Turkey's Erdogan Meets El Salvador's Bitcoin-Boosting Leader
Amid Economic Crisis
ISTANBUL-Turkish President Recep Tayyip Erdogan met Thursday
with the leader of El Salvador, the first country to make bitcoin
legal tender, while the Turkish central bank kept interest rates on
hold in a move that will likely do little to arrest the country's
currency crisis.
With El Salvador planning to launch a $1 billion bitcoin-backed
bond, Turks and foreign investors closely watched to see if the
meeting between Mr. Erdogan and President Nayib Bukele in Ankara
would mark a shift in how Turkey's government views
cryptocurrencies, despite the past month's slump in bitcoin's
dollar value.
Biden Seeks to Reassure Ukraine, Vowing a Strong Response to
Russia and Transferring Weapons
President Biden said Thursday that any Russian troop movement
into Ukraine would be considered an invasion, seeking to clear up
confusion over his position on a potential incursion as the
administration gave approval for U.S.-made weapons to be
transferred to Kyiv.
"I've been absolutely clear with [Russian] President [Vladimir]
Putin. He has no misunderstanding," Mr. Biden said at a White House
event. "If any-any-assembled Russian units move across the
Ukrainian border, that is an invasion."
Rio Tinto Reviewing Serbia's Move to Revoke Lithium Project
Licenses
Rio Tinto PLC said Thursday it was reviewing the legal basis and
implications of a decision by Serbia's government to revoke
licenses for the mining company's lithium project.
"Rio Tinto is extremely concerned by the statement from the
prime minister, Ana Brnabic, about cancelling the spatial plan and
revoking licences related to the Jadar project," a company
spokesman said.
U.K. Consumer Confidence Drops to a Near Year-Low on Inflation,
Omicron Worries
British consumers turned more pessimistic in January as the
spread of the Covid-19 Omicron variant and high inflation weighed
on households' outlook of the economy and spending plans, according
to a survey by the research firm GfK.
GfK's consumer-confidence barometer fell to minus 19 in January
from minus 15 December, the lowest level since February 2021.
Economists polled by The Wall Street Journal expected the
confidence index to retreat slightly to minus 16.
BHP Shareholders Approve Unification Resolutions
BHP Group Ltd. said shareholders have approved a plan to end its
dual listing in London.
The company still needs approval from a U.K. court, a hearing
for which is expected to be held on Jan. 25, BHP said.
Peloton Warns Staff of Layoffs, Changes to Production
Peloton Interactive Inc.'s chief executive said the company is
reviewing the size of its workforce and resetting production levels
as the company adapts to more seasonal demand for its exercise
equipment.
A note from Chief Executive John Foley was sent to Peloton
employees Thursday following a news report that Peloton was
temporarily halting production of its connected-fitness products.
The report caused shares of the company to sink 24%.
Netflix Shares Sink as Company Sees Subscriber Growth
Slowing
Netflix Inc. said it expects to add a much smaller number of
subscribers this quarter than it did a year ago as it adjusts to
growing competition and lasting disruptions from the coronavirus
pandemic, sending the video streamer's shares down sharply.
The company on Thursday forecast an increase of 2.5 million
subscribers in the current quarter, compared with four million a
year earlier. It also slightly missed its subscriber estimate for
the fourth quarter, adding 8.3 million subscribers instead of the
projected 8.5 million.
Write to paul.larkins@dowjones.com
Expected Major Events for Friday
00:01/UK: Jan UK Consumer Confidence Survey
07:00/DEN: Jan Consumer expectations
07:00/UK: Dec UK monthly retail sales figures
08:00/SPN: Nov Industrial Orders & Turnover
09:00/POL: Dec Average gross wages
09:00/POL: Dec PPI
09:00/POL: Dec Industrial Production Index
11:00/IRL: Dec WPI
14:00/BEL: Jan Consumer Confidence Survey
15:00/EU: Jan FCCI Flash Consumer Confidence Indicator
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(END) Dow Jones Newswires
January 21, 2022 00:41 ET (05:41 GMT)
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