MARKET WRAPS
Watch For:
Retail Sales for November; Federal Reserve Economic Projections, Interest Rate Decision; EIA Weekly Petroleum Status Report; Canada CPI for November
Opening Call:
Stock futures paused and oil prices fell ahead of a highly-anticipated Federal Reserve policy decision that is expected to clarify the central bank's plans to unwind stimulus measures.
"What's really coming in context is that inflation is hotter for longer than expected and the Fed is acknowledging it," said Esty Dwek, chief investment officer at FlowBank. "There's also the view that new variants are not just a concern for growth, but a concern for inflation."
This comes as more information is emerging about the Omicron variant. The first large real-world study showed that the efficacy of two Pfizer shots declined against the strain, both for infection and hospitalization. The variant currently accounts for about 3% of cases in the U.S.
"Companies and consumers have become very good at adapting to these variants," Ms. Dwek said. The key risk is supply-chain disruptions lasting longer than expected because of China's zero Covid policy, she added.
Retail sales for November are slated to go out at 8:30 a.m. Wednesday.
Overseas, the pan-continental Stoxx Europe 600 rose 0.4%, while in Asia, most major benchmarks closed down.
Market Insight:
With the market focus on the outcome of the Fed's policy meeting, Commerzbank expects Jerome Powell to officially remove the "transitory" reference to inflation pressures. This should pave the way for the Fed to start raising rates in June, said rates strategists Michael Leister and Hauke Siemssen.
They said the market will focus on the dot plot, where the median dots should move up notably. "With second-round effects increasingly visible, the labor market running hot and longer-term inflation expectations above target, Powell should accelerate the exit today." The strategists expect the Fed to finish tapering during the first quartyer of 2022.
Stocks to Watch:
Arena Pharmaceuticals has told employees it will pay the 2021 bonus early and adds Pfizer has agreed to offer for a year an annual base salary or wage rate and annual cash bonus opportunity "that are no less favorable" for continuing employees.
In an SEC filing, Arena said it will pay the bonus on Dec. 31 for U.S. employees and Jan. 25 for employees in Switzerland. Arena said Pfizer, which is acquiring Arena for $6.7 billion, has agreed to provide employees who stay benefits "that are no less favorable in the aggregate" than current Arena benefits or benefits provided to similarly situated Pfizer employees for one year.
All unvested, time-based vesting restricted stock units that were granted before Dec. 12 and stock options will vest at the close of the transaction.
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Campbell Soup is open to tuck-in acquisitions to expand its snacking or its meals and beverage business, said Chief Financial Officer Mick Beekhuizen.
"We are not looking to add a third leg to the stool," said Beekhuizen, pointing out that the food manufacturer would seek assets that are complementary to its existing portfolio, ideally in the U.S. Campbell, which held an investor day on Tuesday, is also allocating cash toward increased capital expenditures during its Full-year 2023, financing the dividend and repurchasing shares, said Beekhuizen.
Capex could increase to 4% to 5% of net sales, up from currently 3% to 3.5%. "It's really to make sure that we support the growth that we laid out for our business."
Forex:
The dollar edged down in early European action but is poised to rise after the Fed policy statement and is unlikely to fall due to a "sell the fact" reaction by traders who are widely expecting an acceleration in asset-purchase tapering, said UniCredit.
This is due to the likelihood that the European Central Bank will be much more cautious than the Fed at its meeting on Thursday. How much the dollar rises, however, will depend on the tone used in the statement and by Jerome Powell during his press conference, UniCredit added. The greater the focus on the recent rise in inflation, the "the larger the margin for USD appreciation."
Cryptocurrency dogecoin stabilized after Tuesday's surge, edging down 4.2% compared with its level at 5 p.m. Bitcoin also ticked down, trading at around $48,000.
Bonds:
Treasury yields dipped slightly in Europe after 2- and 10-year yields posted their biggest gains in about a week on Tuesday ahead of the Fed.
"Apart from an accelerated taper, [Powell's] message on policy tightening going forward will be important," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
"In the past, Powell has said that tapering does not send a signal about tightening. But a relatively quick change in thinking on tapering - the initial taper was announced following the Nov. 2-3 FOMC meeting, and Powell signaled an acceleration in the pace at the end of the month - will also have implications about how quickly policy will be normalized going forward."
Commodities:
Oil was slightly lower in Europe and with an Iran nuclear deal--and the lifting of oil export sanctions that would follow--looking increasingly distant and some impact from Omicron expected, prices could slip further from their current levels, said Swissquote.
Gold prices ticked lower ahead of the conclusion of the Fed's policy meeting, with investors anticipating the central bank will accelerate its tapering of asset purchases and open the door to rate rises sooner.
Deutsche Bank expects the Fed will double the pace of tapering, meaning their stimulus measures should end around March and rate increases could come in June or as early as May. Higher interest rates tend to weigh on gold.
Base metals prices dropped on the underwhelming Chinese economic data. Industrial production edged up but remained at depressed levels, while fixed asset investments fell and retail sales came in below estimates. Commerzbank said that metals' losses were likely capped as investors are betting the data will prompt Beijing to put in place measures to shore up the economy.
TODAY'S TOP HEADLINES
In a Bad Year for Biotech Stocks, Deals and Vaccines Were Winners
Biotech stocks have crumbled this year and a number of prominent hedge funds have suffered deep losses.
But some biotech investors are thriving by focusing on mergers, short selling and Covid-19 stocks. Some analysts and investors say these three strategies will prove successful for biotech investors once again in 2022.
Hong Kong-Listed Chinese Biotech Stocks Slide on U.S. Sanction Fears
Shares of Hong Kong-listed biotechnology companies fell sharply Wednesday after media reports of imminent U.S. sanctions against some companies in the sector.
Wuxi Biologics (Cayman) Inc. skidded 19% to 79.10 Hong Kong dollars, its lowest closing level in a year, while WuXi AppTec Co. slid 19%. BeiGene Ltd., which made its trading debut in Shanghai with a third global listing, retreated 7.6% in Hong Kong. Innovent Biologics Inc. declined 9.9% and Genscript Biotech Corp. lost 11%.
Fed Prepares Faster End to Stimulus, Making Earlier Rate Increases Possible
Federal Reserve officials are likely to quicken the wind-down of their bond-buying stimulus program at the conclusion of their two-day policy meeting on Wednesday, opening the door to interest-rate increases in the first half of next year.
The move to end the stimulus program sooner than officials planned at their meeting last month offers the most concrete sign of how Fed Chairman Jerome Powell's focus is shifting toward preventing higher inflation from becoming entrenched and away from fostering a rapid rebound in hiring.
Holiday Spending Expected to Be Strong, Fueled by Solid Demand, Rising Inflation
The holiday shopping season is likely off to a strong start, with consumers showing robust demand for gifts, dinners out and other products even amid the highest inflation in decades.
Sales at U.S. retail stores, online sellers and restaurants are estimated to have risen by a seasonally adjusted 0.8% in November from the previous month, according to economists surveyed by The Wall Street Journal. The Commerce Department will release its report on Wednesday morning.
China's Economic Activity Slowed in November on Property Slump, Weak Consumption
HONG KONG-China's economic activity decelerated in November amid a prolonged property slump and sluggish consumption recovery, adding urgency for Beijing to step up efforts to support the world's second-largest economy.
Leading indicators of consumption and investment activity weakened further from October, while factory production rose at a faster pace in November as a power crunch eased, according to China's National Bureau of Statistics on Wednesday.
House Approves Increase in Debt Ceiling, Sending Measure to Biden
WASHINGTON-Congress passed a measure raising the government's borrowing limit by $2.5 trillion, sending to President Biden's desk legislation that is expected to push the next debt-ceiling standoff past the midterm elections.
The Senate voted 50-49 to approve the legislation in the afternoon, and the House later passed it 221-209. The Treasury Department, which has been taking such steps as suspending certain investments to conserve cash, has warned lawmakers that it could be unable to meet the country's obligations as soon as Wednesday if the debt ceiling isn't raised.
U.S. Covid-19 Deaths Top 800,000
Reported Covid-19 deaths in the U.S. have surpassed 800,000, with the coronavirus pandemic set to continue into the new year.
Data from Johns Hopkins University on Tuesday showed the U.S. has exceeded 800,000 Covid-19 fatalities, close to two years after the first deaths from the disease were recorded in the country in February 2020.
California Population Loss Accelerated During Pandemic
(MORE TO FOLLOW) Dow Jones Newswires
12-15-21 0554ET
