Stock futures lower, dollar steady, as China data check gains; Week Ahead: retail sales, earnings in focus as inflation debate shifts; Goldman Sachs earnings on deck after banks top street forecasts; Microsoft defends Activision takeover amid reports of EU challenge and debt ceiling debate triggers funding measures from U.S. Treasury.
Five things you need to know before the market opens on Tuesday January 17:
1. — Stock Futures Lower, Dollar Steady, As China Data Check Gains
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U.S. equity futures edged lower Tuesday, while the dollar traded near seven month lows against its global peers, as investors prepared for a ramp-up in fourth quarter earnings reports while eyeing moves in the bond market as Federal Reserve rate bets continue to fade.
Stocks are holding on to solid gains so far this year, with the S&P 500 rising just over 4% since the beginning of January, as softer-than-expected inflation figures, a still-expanding jobs markets and early signs of a robust earnings season add to investor optimism.
A big pullback in bond yields, a well, is helping power stock gains as traders trim bets on near-term Fed rate hikes, suggesting a peak Fed Funds rate of under 5% by the early spring, with the potential for rate cuts later in the year if the economy slips into recession.
Tuesday early moves, however, could be more-tightly linked to overnight data from China showing the weakest full-year economic growth in more than five decades as the country’s Covid crisis careens from strict lockdowns to swift reopening.
Fourth quarter GDP was pegged at 2.9%, firmly ahead of forecasts, but the 2022 pace was reported by the National Bureau of Statistics as just 3%, well below the government’s official 5.5% target. Parallel data released by the NBS showed China’s population fell by 850,000 last year, the first decline since 1961, to around 1.412 billion.
In U.S. markets, benchmark 10-year note yields, which move in the opposite direction of prices, were marked 5 basis points higher at 3.55% in overnight dealing while 2-year notes were pegged at 4.244%.
The CME Group’s FedWatch now indicates a 91.2% chance of a 25 basis point rate hike from the Fed on February 1, up from around 76.7% this time last week, with traders expecting the Fed Funds rate to peak at a range of between 4.75% and 5% in the early spring.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.17% higher at $102.381, near to the the lowest since early June.
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 are priced for a 15 point opening bell decline while those linked to the Dow Jones Industrial Average are set for a 90 point dip. The tech-focused Nasdaq, which is on its best four-day run since November, is looking at a 66 point pullback.
In overseas markets, the the region-wide MSCI ex-Japan index fell 0.36% into the close of trading, while Tokyo’s Nikkei 225 slumped 1.23% as the yen traded at seven-month high against the U.S. dollar amid reports of tighter monetary policy next week from the Bank of Japan.
Europe’s Stoxx 600 was marked 0.19% lower in early Frankfurt dealing, while London’s FTSE 100 was down 0.18%.
2. — Week Ahead: Retail Sales, Earnings In Focus As Inflation Debate Shifts
Corporate earnings and a key reading of December U.S. retail sales are likely to steer direction on Wall Street this week as investors look for confirmation that inflation pressures are easing in the world’s largest economy.
A pullback in gas prices will likely keep a lid on December retail sales gains, but may also provide some relief for a boost in discretionary spending over the final month of the year. That said, analysts are looking for a 1.3% year-on-year decline for the headline figure when its published at 8:30 am EST on Wednesday.
S&P 500 earnings are expected to fall 2.2% from last year to a share-weighted $446.9 billion, according to Refinitiv data, although that tally weakens to a decline of 6.6% once the energy sector and its $47.2 billion contribution is stripped away.
3. — Goldman Sachs Earnings On Deck After Banks Top Street Forecasts
Goldman Sachs (GS) – Get Free Report shares moved lower in pre-market trading ahead of the investment banking group’s fourth quarter earnings prior to the opening bell.
Goldman, which will round-out the wave of big bank earnings which began Friday with a better-than-expected update from JPMorgan Chase (JPM) – Get Free Report, is expected to post a bottom line of $5.48 per share on revenues of $10.833 billion, a 14.3% slump when compared to last year’s levels.
A big drop in dealmaking fees, linked to last quarter’s M&A decline, will likely clip investment banking revenues, but trading volumes could get a boost given the solid end-of-year rally in both the U.S and European bond markets.
Last week, JPMorgan, Citigroup (C) – Get Free Report and Wells Fargo (WFC) – Get Free Report all set aside a larger portion of their capital base to absorb potential losses in their loan books, a move that Goldman is likely to echo, given its decision to cut around 3,600 jobs and the mounting losses in its ‘Platform Solutions’ business that houses Apple Card.
Tesla shares were marked 1.03% lower in pre-market trading to indicate an opening bell price of $370.16 each.
4. — Microsoft Defends Activision Takeover Amid Reports of EU Challenge
Microsoft (MSFT) – Get Free Report shares edged lower in pre-market trading amid reports that the tech giant’s proposed takeover of video game maker Activision Blizzard (ATVI) – Get Free Report is likely to receive an antitrust warning from competition authorities in Europe.
Reuters reported over the weekend the European Commission, the region’s executive, is preparing a so-called ‘statement of objections’ outlining its concerns over the deal, which was first unveiled by Microsoft early last year. Officials in the U.K. are also looking into the deal, and the U.S. Federal Communications Commission is suing to block the acquisition on the grounds it would “harm competition in high-performance gaming consoles” by denying or degrading access to its gaming content by rival console makers.
Microsoft CEO Satya Nadell, meanwhile, told an audience at the World Economic Forum in Davos, Switzerland, that he feels certain views held by competition officials are “short sighted”, adding that
if you believe in competition, you should believe in this deal”.
Microsoft shares were marked 0.25% lower in pre-market trading to indicate an opening bell price of $238.63 each. Activision shares were marked 0.53% lower at $76.25 each.
5. — Debt Ceiling Debate Triggers Funding Measures From U.S. Treasury
The U.S. Treasury will begin taking so-called ‘extraordinary measures’ to prevent the government from breaching the debt ceiling limit, the White House said late Friday.
With Republican lawmakers now in control of the House of Representatives, Speaker Kevin McCarthy is looking to leverage the current debt ceiling, pegged at $31.4 billion, to extract spending cuts from President Joe Biden and his Democratic allies.
Treasury Secretary Janet Yellen said Friday that a host of measures could begin this week, including the reprioritization of federal funds, in order to prevent she described as the “irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability” that would result from a U.S. default.
The measures are likely to buy the government several months, but won’t likely change the tenor of negotiations between Republican leaders and their rivals in the House and Senate.
“A day of reckoning is coming. It’s long past time for Washington to end the reckless spending of taxpayer dollars and start living within its means,” said Florida Senator Rick Scott.
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