MARKET WRAPS
Watch For:
Federal Budget for November; Oracle earnings
Opening Call:
Today's Headlines/Must Reads
- Amgen Nears Deal to Buy Horizon Therapeutics
- Microsoft Buys Stake in London Stock Exchange
- Rivian Pauses Talks With Mercedes on Joint Van Factory in Europe
- Investors Grow More Confident of a Soft Landing
- Interest-Rate Paths for U.S., Europe Set to Diverge
- Bond Investors Swap Mutual Funds for ETFs
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Equity index futures were struggling to gain traction at the start of a week in which inflation, and the monetary authorities' campaigns to combat it, will be to the fore.
The caution follows a poor performance over the past several sessions as investors continue to fret about higher borrowing costs and their impact on the economy and company earnings.
"The recovery in global risk appetite faltered last week, especially in the U.S., where the major indices suffered their biggest setback since September. This week's agenda is packed with major macro updates that will test sentiment further," Peel Hunt said.
Most important will be the consumer prices data on Tuesday, followed the day after by the Federal Reserve's interest rate decision, when the central bank is expected to hike rates by another 50 basis points to a range of 4.25% to 4.50%.
Equity bulls will be hoping inflation can show further signs of cooling, thereby helping the Fed shift to a less aggressive tightening cycle.
However, some analysts warned that after last week's producer prices report came in hotter than expected there is a danger investors may be caught out by a stronger-than-forecast consumer prices index.
Traders also have rate announcements from the European Central Bank and Bank of England to consider, both due on Thursday.
Stocks to Watch
Coupa Software shares rose 23% premarket after Bloomberg News reported that Thoma Bravo was in advanced talks to buy the technology platform.
Amgen is in advanced talks to buy drug company Horizon Therapeutics, according to people familiar with the matter, in a takeover likely to be valued at well over $20 billion. Horizon shares rose 14% premarket.
Rivian said it has paused negotiations with Mercedes-Benz over a planned tie-up to produce electric vans in Europe. Rivian shares fell 3.5% ahead of the bell.
Forex:
This week's Fed decision and CPI print could be decisive for the dollar's outlook, ING said, with the currency likely to perform well if the central bank's forecasts suggest rates will stay high as inflation remains "sticky."
Market consensus "underappreciates the risk of inflation staying higher longer" and is "dangerously second-guessing the Fed" in predicting rate cuts in the second half of 2023, ING said.
On the other hand the dollar will fall if 2023 starts with "a focus on the inflation battle being won and the prospect of stimulative, reflationary policy coming through."
Separetly, ING said the euro may rise if the ECB raises interest rates by a further 75 basis points on Thursday, although any gains are likely to be limited, with the currency's moves also dependent on the outcome of the Fed's meeting and the U.S. inflation data.
"Given the 10% EUR/USD correction off the late September lows, our preference would be that EUR/USD struggles to hold any gains over 1.06 this week and could end the week lower should U.S. events oblige."
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Sterling could fall as the U.K. economic outlook looks weak, Commerzbank said.
Lower temperatures are having a "pretty dramatic effect" on the energy market, which adds to the "dire overall situation the U.K. is currently in," Commerzbank said.
"In addition, there are the strikes of nurses, train staff, mail workers and border officials and that is unlikely to improve the situation." The accumulation of bad news from the U.K. justifies a weak sterling, Commerzbank said.
Central Banks
Pictet Wealth Management said major central banks meeting this week face different macroeconomic conditions but a similar challenge.
"They will need to balance the need for a more gradual approach, following one of the fastest monetary tightening cycles in history, with lingering inflation risks, including concerns over wage growth and second-round effects."
Pictet expects the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank to raise their policy rates by 50 basis points, with their communication remaining hawkish, consistent with higher terminal rates and no early rate cuts.
Bonds:
The inversion of the Treasury yield curve, and its perception as a recession indicator, continues to generate headlines but the inversion may be excessive, PGIM FI said.
"We're contemplating whether the curve has become too inverted considering the environment of moderate growth, low unemployment and above-target inflation."
In PGIM's view, short rates may be slightly too high and long-rate forwards may be too low, indicating that nominal yields five years and out may also be too low.
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LBBW said an easy and uneventful year-end rally for the major bond markets is far from certain, as this week poses potential stumbling blocks, with multiple interest rate decisions by central banks and U.S. inflation data.
"This could even set the tone for the entire trading week on the financial markets," VLBBW said, adding that in three out of the last four months U.S. inflation data proved to be a significant driver of the subsequent yield trend on the Treasury market.
Energy:
Oil prices gave up earlier gains to trade lower in Europe as weak economies in the West and concerns about China's reopening weighed on demand hopes.
While China's reopening was hoped to boost demand for crude, concerns have built that it could send Covid-19 cases sharply higher, which could be negative for oil demand.
"An expected bumpy China reopening coupled with the scenario of a mild recession in Europe and the U.S. could lead to a harsher economic climate for oil markets," SPI Asset Management said.
Metals:
Copper prices edged lower in London but remained close to a six-month high as expectations of China's reopening have lifted prices, although analysts have cautioned that the process could be bumpy.
China's metal demand might actually underwhelm, JPMorgan said. "Reopening is going to likely be a process of starts and stops."
TODAY'S TOP HEADLINES
Americans Flock to Europe for Holiday Shopping Binge
PARIS-Americans are descending on luxury boutiques across Europe for holiday shopping, taking advantage of the strong dollar and helping brands such as Gucci and Louis Vuitton make up for the loss of big-spending Chinese tourists.
Spending by American tourists in the region rose more than 40% during the week of Black Friday compared with the same period in 2019, before the pandemic, according to value-added-tax refund data from payments company Planet. The average transaction amount by U.S. tourists in European stores this year-at 1,244 euros, equivalent to $1,313, according to Planet-is also significantly higher than EUR500 in 2019.
Amgen in Advanced Talks to Buy Horizon Therapeutics
Amgen Inc. is in advanced talks to buy drug company Horizon Therapeutics PLC, according to people familiar with the matter, in a takeover likely to be valued at well over $20 billion and mark the largest healthcare merger of the year.
The U.S. biotechnology company was the last of three suitors standing in an auction for Horizon, the people said, after French drugmaker Sanofi SA said Sunday it was out of the running.
Microsoft Buys Stake in London Stock Exchange
Microsoft on Monday said it was investing in the London Stock Exchange in a deal that will see the stock exchange use the software giant's data and cloud infrastructure.
Microsoft MSFT, -0.80% is going to buy a 4% stake in the London Stock Exchange LSEG, 4.00% - valued at GBP1.5 billion ($1.8 billion) using Friday's closing price - from Blackstone BX, -0.72% and Thomson Reuters TRI, -0.14%, which hold a stake from the Refinitiv deal. In addition, Scott Guthrie, who is an executive vice president of cloud and artificial intelligence, will join the LSE as a board member.
Rivian Pauses Talks With Mercedes on Joint Van Factory in Europe
Electric-vehicle startup Rivian Automotive Inc. said it has paused negotiations with Mercedes-Benz Group over a planned tie-up to produce electric vans in Europe, as part of a wider effort at the SUV and truck maker to conserve cash.
In September, both companies said they were starting negotiations on a potential joint venture at a Mercedes plant in Poland, which would have produced commercial vans for both auto makers. At the same time, Rivian executives have been cautious about overextending operations in the wake of tightening capital markets and concerns over the economy.
FTC's Tussle With Microsoft Puts Spotlight on Cloud Gaming
Gaming in the cloud is a small part of the current videogame market, but it is a key piece of the Federal Trade Commission's lawsuit to block Microsoft Corp.'s purchase of Activision Blizzard Inc.
Cloud gaming is an emerging technology that allows people to stream videogames to nearly any internet-connected device, similar to how movies and shows are viewed on Netflix, Hulu and other streaming platforms.
Orlando Airport Asks Airlines to Carry Additional Fuel to Avoid Flight Disruptions
Airlines flying to Orlando International Airport are having to carry extra jet fuel after bad weather disrupted supplies heading there.
Low fuel warnings for the Florida airport began emerging during bad weather along the Gulf Coast last week, delaying ships carrying additional fuel reserves that were bound for the airport. A notice flagging the issue was published by the Federal Aviation Administration on Friday.
Twitter's Advertising Truth Hurts
Elon Musk is probably telling the truth about advertising pressure on Twitter-but not all of it.
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12-12-22 0617ET
