MARKET WRAPS

Watch For:

U.S. Leading Indicators for December; Canada New Housing Price Index for December.

Opening Call:

Stock futures were mixed Friday, but the Nasdaq was poised to push deeper into correction territory as technology stocks remain under pressure on multiple fronts.

Wall Street looks to end the week after a tumultuous few days of trading. Wednesday and Thursday both saw the Nasdaq rise more than 1% and then end down more than 1%, which is the first time a back-to-back rise and fall like that has happened in almost a year.

The index entered correction territory earlier in the week -- down more than 10% from its high in mid-November -- and was heading deeper into the red Friday.

One of the latest catalysts for a move lower among tech stocks, which have a weighting with more influence in the S&P 500 and Nasdaq than the Dow, was downbeat news about Peloton. Underwhelming financial results from Netflix after the bell Thursday haven't helped the picture.

"The bears took control of the ball," said Jim Reid, a strategist at Deutsche Bank. "The S&P 500 is on track for a third consecutive weekly decline for the first time since September 2020."

Stocks have been under pressure over the last couple of weeks, as investors worry about tightening monetary policy from the Federal Reserve against the backdrop of high inflation. The market is pricing in three or four interest-rate increases this year, with the first hike in March.

These factors have helped bond yields spike. After closing out 2021 at 1.51%, the yield on the benchmark 10-year U.S. Treasury note neared 1.9% earlier this week. Higher bond yields discount the present value of future cash, and have a negative influence on tech stocks, many of which have valuations that bank on profits years into the future.

But the declines among stocks seen Thursday, continuing Friday, have happened even as yields fell. The 10-year note's yield was down further Friday.

"Investors couldn't even blame a rise in yields," said Michael Hewson, an analyst at broker CMC Markets. "The inability of U.S. markets to hold on to yesterday's move higher is a worry and could well indicate the potential for further losses in the coming days."

Forex:

The dollar has been under pressure for most of January with favorable interest rate differentials failing to prop up the currency, RBC Capital Markets said.

The rally in commodity prices and U.S. equity weakness have been a more important driver for the dollar in the last month, RBC's George Davis said.

"With U.S. equities recently posting a series of bearish long-term trend reversals, further declines could undermine the USD via shifts in asset allocation." U.S. equity declines may trigger outflows from U.S. assets, thereby hurting the dollar, he said.

The Turkish lira is likely to weaken this year following a temporary stabilisation as Turkey's central bank looks set to resume its interest rate cutting cycle after leaving rates unchanged Thursday, Capital Economics said.

"We think that falling inflation towards the end of the year will provide the motivation for the CBRT to press ahead with further rate cuts amounting to 100 basis points placing renewed downward pressure on the lira," Capital Economics economist Joseph Marlow said.

Meanwhile, very low foreign exchange reserves mean policymakers won't be in a position to intervene in the currency market to bolster the lira, he says. Capital Economics expects USD/TRY to rise to 16.00 by year-end from 13.3994 currently.

Cryptocurrencies, already pressured by market sentiment away from risk assets, tumbled. Bitcoin was 7.5% lower over the past 24 hours to below $39,000, according to data from CoinDesk. Smaller peer Ether dropped around 8.5% over the same period to below $2,900.

The fall can mostly be blamed on Russia, where cryptocurrencies are popular among citizens and the country is a hub for mining -- the process that generates new digital currency tokens. The Russian central bank has proposed banning crypto mining as part of a wider prohibition that includes preventing people from trading or transacting with the likes of Bitcoin.

"The pessimism continues to grow among investors and traders when it comes to riskier assets and this is chiefly influencing the price of equities and bitcoin," said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients.

"The thing with bitcoin is that when it begins to fall, the price action drops like there is no tomorrow," said Aslam, who added that January also tends to be a volatile month for the cryptocurrency on a historical basis.

Bonds:

Prices for benchmark government bonds rose, partially reversing a recent selloff that has helped put pressure on the shares of highly valued tech stocks. That pushed down yields, with the yield on the 10-year U.S. Treasury note falling to 1.783%, according to Tradeweb, from 1.833% Thursday.

The rise in government bond yields won't be a linear process, DZ Bank analyst Christoph Kutt said. "The trajectory of inflation rates may involve downside as well as upside surprises, which the central banks will have to address as part of their exit strategies," he said.

The Fed's approach toward policy normalization will be "far more forceful" than that of the European Central Bank, Kutt said. The ECB has to be vigilant against inflation risks and the threat of eurozone fragmentation, he said.

Commodities:

Oil's rally should continue as OPEC struggles to meet its production targets and winter weather keeps demand strong, said TD Securities. Demand expectations have risen this week, the firm noted, pointing to upward revisions to forecasts from the IEA.

At the same time, signs that OPEC is struggling to meet supply targets are building. Add to that the possibility of cold winter weather in the Northern Hemisphere and oil's outlook is bullish, said Bart Melek, the firm's head of commodity strategy.

"As the winter continues, strong demand across the energy complex will add to bullish sentiment. There is a very real possibility that colder-than-usual weather due to La Niña weather patterns will drive demand higher, pushing the market into a deficit sooner, rather than later."

A shortage of nickel worsened in November, according to data from the International Nickel Study Group. The global nickel market had a 3,000-metric-ton deficit in November, 1,400 tons larger than in the previous month, the INSG said.

In the 11 months through November, the shortage of nickel totaled 167,000 tons, compared with a surplus of 92,500 tons in the same period during 2020. Nickel prices have soared this month as stocks have dwindled.

Reports that Indonesia, a major producer, is considering a tax on nickel exports have put additional upward pressure on prices. Three-month nickel on the LME fell 0.7% to $23,680 a ton, but remains more than 14% higher for the month.

Gold edged lower in early European trade on position adjustment ahead of the weekend. The focus of gold traders is shifting to next week's FOMC meeting, with Russia-Ukraine tensions probably factored into the prices of precious metals, 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.

Copper prices have seen choppy trading this week with demand concerns presenting headwinds while falling inventories have offered support. That range-bound trading is likely to continue with prices averaging $9,690 a metric ton this year, said analysts at BNP Paribas.

Weakness in China's construction sector is likely to drag on copper demand in the first half of the year while rising mine supply should also add to headwinds, the bank said.

Three-month copper on the LME is currently down 0.8%, joining a rout in global markets that comes as investors slash their exposure risk assets on fears of slowing economic growth. For the week, the metal is on course to end with a modest 2.2% gain.


TODAY'S TOP HEADLINES


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01-21-22 0615ET