MARKET WRAPS
Watch For:
Federal Reserve Bank of New York Empire State Manufacturing Survey for January; Canada Housing Starts for December; Canada CPI for December; earnings from Goldman Sachs, Morgan Stanley
Today's Top Headlines/Must Reads:
- Microsoft Plans to Build OpenAI Capabilities Into All Products
- Activist Investor Ryan Cohen Takes Stake in Alibaba
- Pressure Rises on Bank of Japan for Further Policy Shift
- China's Economic Growth Fell to Near-Historic Lows as Covid Took a Bite
- Bonds Over Stocks: The New 60-40 Portfolio
- FTC Plan to Ban Noncompete Clauses Shifts Focus to Deferred Pay, Nondisclosure Agreements
Follow WSJ market coverage here
Opening Call:
Stock futures dipped on Tuesday as investors returned from the long weekend and eyed further corporate earnings updates.
The positive start to the year for stocks showed signs of fading.
"Markets have started off the year strong...While this can be an early sign of a sustained new uptrend, this type of move over the first two weeks after a bad year is not atypical," BTIG said.
For the time being the market's focus may turn away from macroeconomic drivers like perceptions of Federal Reserve policy trajectory and towards the microeconomic, as the fourth quarter earnings season picks up pace.
S&P 500 aggregate earnings are forecast to fall 2.3% in the fourth quarter, according to S&P Global Market Intelligence.
Stocks to Watch
AutoNation was falling 2% after shares of the car retailer were downgraded to Underweight from Equal Weight at Morgan Stanley.
Esports Entertainment Group filed plans for a stock offering with the SEC. Shares dived 10% in after-hours trading.
First Wave BioPharma said Friday that the FDA is reviewing an amendment for a planned Phase 2 clinical trial for adrulipase. Shares gained 20% in Friday after-hours trading.
Flex's subsidiary Nextracker filed for an initial public offering to list on the Nasdaq Capital Market, according to a Securities and Exchange Commission filing Friday. Shares of Flex increased 4.6% in after-hours trading.
Microsoft said it is allowing more customers access to the software behind popular artificial-intelligence tools made by OpenAI. Shares fell 0.2% premarket.
Tesla's Elon Musk is headed to court in a securities-fraud trial over tweets from 2018 in which he floated the possibility of taking Tesla private, with in-person jury selection poised to begin today. Shares were off 0.5% premarket.
Other Movers
Investor Ryan Cohen has taken a stake in Alibaba and is pushing for more share buybacks, WSJ reported. Alibaba's Hong Kong-traded shares rose 1% Tuesday, while its American depositary receipts fell 0.3% premarket.
XPeng ADRs were down 3.4% in premarket Tuesday. The Chinese electric-vehicle maker cut the price tag on its G3i base models by 12.5%, or about $22,000, bowing to pressure after Tesla announced price cuts earlier this month. Tesla was down slightly.
Goldman Sachs and Morgan Stanley are set to report results ahead of the opening bell. Shares were down 1% and 0.2% premarket, respectively.
United Airlines is scheduled to report quarterly earnings after the markets close.
Economic Insight
Global inflation is likely to have peaked but it remains to be seen whether the second-round effects will persist and thus contribute to keeping inflation at a sustained high level, above central bank targets, Degroof Petercam Asset Management said.
In the U.S., there is also the question of whether the cost of housing will remain high or whether it will normalize.
"The impact of central banks on wage dynamics is more direct, but we must be aware that it has a long lag time before it is reflected in the labor market and wages."
Forex:
Upcoming U.S. economic data could suggest the Fed will slow the pace of interest rate rises further at its next meeting but that's unlikely to move the dollar materially, Commerzbank said.
Any data that signal a 25 basis points rate rise instead of a 50 basis-point increase at the Fed's February 1 meeting will be "gratefully received by the market," Commerzbank said
However, the market has already lowered its rate expectations, meaning most is already priced into the dollar so the data could have limited impact on the currency.
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Sterling rose after data showed U.K. wage growth accelerated in the three months to November, supporting the case for the Bank of England to raise interest rates further.
Average weekly earnings excluding bonuses increased 6.4% in the three-month period compared with 6.1% growth from August to October. Economists polled by the WSJ expected 6.3% growth. The unemployment rate was unchanged at 3.7% versus forecasts of 3.8%.
The data "only add further weight to the case for the BOE to raise interest rates from 3.50% now, perhaps to 4.50% in the coming months," Capital Economics said.
Read UK Jobless Rate Stabilizes But Wage Growth Accelerates
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The near-term macro-economic backdrop remains supportive for the euro given an improved China demand outlook and falling European gas prices, ING said.
China's zero-Covid reversal will spark resurgent Chinese demand, boosting pro-cyclical currencies like the euro, ING added.
"That better outlook for the eurozone could appear in today's German January ZEW investor survey, where the expectations component is expected to have improved from -23 to -15."
European gas prices continue to fall, which remains a positive development for the eurozone trade balance and the euro, ING said.
Bonds:
The peak in developed market bond yields was established last year, thus curve steepening is the next big move, HSBC Research said.
The Fed may have become frustrated by lower yields and the loosening of financial conditions but this does not mean the market is wrong, HSBC added.
"We expect that, as forward markets establish a peak for policy rates, the backdrop will turn more benign for fixed income and curves will steepen."
Bank of Japan
Citi has a non-consensus call for the BOJ, expecting it to abolish its yield-curve control on Wednesday, amid large purchases of Japanese government bonds, distortions on the JGB curve and high inflation.
"If realized, the obvious risk for European rates is that of repatriation outflows as JGB yields become more attractive to JPY investors."
Citi added that foreign assets already look unappealing on a three-month FX-hedged basis for JPY-denominated investors.
"This suggests that whilst an abolition of YCC by the BOJ might drive a knee-jerk cheapening of European rates, the impact to be relatively small and short-lived."
Energy:
Oil markets were mixed in Europe as investors weighed macroeconomic data from China against Wednesday's U.S. producer price index reading.
Lower economic growth and rising Covid-19 cases are worrying some investors, SPI Asset Management said.
However, the first half of 2023 is likely to see a rebound in activity, helping spur demand in Asia, with "high-frequency indicators of economic activity such as subway usage and domestic passenger flights picking up" in the near term, SPI added.
Oil Outlook
UBS has lowered its oil price forecasts for 2023 citing weaker-than-expected demand and supply disruptions in the near term.
It cut its 2023 Brent forecast to $90 a barrel from $95 a barrel but stuck to its view that prices will sit at $85 a barrel, $80 a barrel and $75 a barrel in 2024, 2025 and 2026, respectively.
"The EU embargo on Russian oil and associated sanctions have been less restrictive than initially envisaged and Russian production has held up until now," UBS said.
Oil prices will continue to be volatile this year but Brent should trade in a narrower range than in 2022, which UBS puts at between $80 and $100 a barrel.
Metals:
Base metals and gold were pushing lower in London on concern over Chinese growth and its effects on demand.
"Covid outbreak in the fourth quarter dragged down China's economic performance," Marex said.
Meanwhile, house prices in 55 of China's 70 cities have declined year-on-year, with weak, albeit better-than-expected, GDP economic data reported for 2022, Marex added.
"To stimulate the economy, the preferential personal income tax policies will be extended in 2023."
TODAY'S TOP HEADLINES
FTC Plan to Ban Noncompete Clauses Shifts Focus to Deferred Pay, Nondisclosure Agreements
Businesses and lawyers are beginning to assess what the Federal Trade Commission's proposed ban of noncompete clauses in employment contracts could mean for worker mobility, wages and the way future compensation agreements are structured.
While a full or partial ban could expand the pool of potential hires, it also would weaken a tool that employers have come to rely on to retain talent and protect trade secrets and other proprietary information, lawyers say. More companies likely would turn to a patchwork of alternative mechanisms to keep people from leaving and taking valuable information with them, including nondisclosure agreements and employment contracts that reward longevity, they say.
Microsoft Plans to Build OpenAI Capabilities Into All Products
DAVOS, Switzerland-Microsoft Corp. plans to incorporate artificial-intelligence tools like ChatGPT into all of its products and make them available as platforms for other businesses to build on, Chief Executive Satya Nadella said.
Speaking Tuesday at a Wall Street Journal panel at the World Economic Forum's annual event here in the Swiss mountains, Mr. Nadella said that his company will move quickly to commercialize tools from OpenAI, the research lab behind the ChatGPT chatbot as well as image generator Dall-E 2, which turns language prompts into novel images. Microsoft was an early investor in the startup.
Diageo to Buy Premium Rum Brand Don Papa
Diageo PLC has agreed to buy Don Papa Rum, a high-end dark rum from the Philippines, in a deal worth up to about $473 million, as the liquor giant bids to move further upmarket.
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01-17-23 0611ET
