MARKET WRAPS
Watch For:
Wholesale inventories for November; Fed's Williams speech; EIA Weekly Petroleum Status Report
Today's Headlines/Must Reads
- The Fed Launched a Bank Rescue Program Last Year. Now, Banks Are Gaming It.
- Importers Face Surging Shipping Costs, Delays as Red Sea Diversions Pile Up
- AI Helps U.S. Intelligence Track Hackers Targeting Critical Infrastructure
Opening Call:
Stock index futures were mixed on Wednesday, as markets saw cautious trading ahead of the December inflation report on Thursday.
Inflation and its impact on bond markets and the Federal Reserve's monetary policy trajectory remains the primary focus for investors - at least until Friday, when some of the big banks will kick off the fourth-quarter 2023 earnings season.
Economists forecast that annual headline CPI inflation will inch up from 3.1% in November to 3.2% last month. The core reading, which strips out more volatile items like food and energy, is expected to fall from 4% to 3.8%.
"Early optimism seen throughout financial markets may be difficult to maintain given the uncertainty within markets as we head into a crucial second half of the week," Scope Markets said.
Fundstrat said it expected that "January should prove positive, but much of this strength might come about in the last week of January...the month might prove to be a bit choppier than either bulls or bears would like in the short run."
Overseas
Major stock indexes were mixed, although Japan's Nikkei 225 climbed 2% to a new 34-year high.
Premarket Movers
Hewlett Packard Enterprise reached an agreement to acquire Juniper Networks for about $14 billion. Juniper shares rose 0.8% after rising 22% on Tuesday.
Coinbase declined 1.6% and Marathon Digital fell 3.3% as Bitcoin traded about 2% lower. The SEC on Tuesday said its X account was compromised, disavowing a post from moments earlier that said the agency had approved the first Bitcoin exchange-traded funds to come to market.
Intuitive Surgical was up 4.9% after it said it expected fourth-quarter sales of $1.93 billion, higher than analysts' expectations of $1.87 billion.
Post-Close Movers
Aehr Test Systems said slowing electric-vehicle sales growth is weighing on orders of Aehr's silicon-carbide devices. Shares fell 16%.
Smart Global posted record margins in the first quarter. Shares rose 10%.
WD-40 reported higher sales and earnings for its fiscal first quarter. Shares rose 6.5%.
Forex:
The euro-dollar exchange rate looks comfortable at current levels, sticking to a narrow range around 1.0930 and showing few signs of moving too far away from this mark so far this week, DZ Bank Research said.
Until Thursday U.S. inflation data, EUR/USD "should hardly be able to be dissuaded from its sideways range" as focus centers on the likely timing and extent of interest-rate cuts by the Fed and the European Central, DZ Bank Research said.
Bonds:
Investors could demand more compensation for the risk of owning long-term bonds given rising public debt and a more uncertain inflation outlook, BlackRock said.
Markets are currently grappling with the prospect that neutral rates--the interest rate that neither stimulates nor restricts economic activity--could be settling higher following the Covid-19 pandemic.
"We think neutral rates are higher in both the U.S. and Europe, partly due to looser fiscal policy and the investment demands tied to the low-carbon transition."
Energy:
Oil futures edged higher following reports of a larger-than-expected crude inventories drawdown in the U.S.
"U.S. crude oil inventories fell by 5.2 million barrels, which is larger than the market was expecting," ING said, citing API data.
"However, large builds were once again seen on the products side, with gasoline and distillate stocks increasing by 4.9 million barrels and 6.9 million barrels, respectively."
Meanwhile, the EIA raised its 2024 U.S. crude oil production forecast to an average of 13.2 million barrels a day, and predicted a further increase to 13.4 million barrels a day in 2025.
Metals:
Base metals and gold were higher as investors awaited U.S. inflation data for hints on the timing of potential interest-rate cuts and China's trade data, which could offer more clarity on demand prospects.
"Metals prices are likely to struggle to make up ground unless this week's U.S. inflation data comes in significantly lower and/or Chinese import data is much stronger than expected," Commerzbank Research said.
Still, "the downside potential for prices is likely to be limited by expectations of interest rate cuts, which are likely to be reinforced by a weakening U.S. economy."
Metals Demand
Investors are possibly too excited about the impact of the energy transition on metals demand , while underappreciating the impact from growth in India and Southeast Asia, Jefferies said.
"We agree that renewable energy infrastructure and EVs will contribute to global demand, but we would also argue that demand related to the urbanization and industrialization of India and Southeast Asia will be at least as important."
Mining Stocks
The biggest risk to miners this year is a potential U.S. recession, Jefferies said. "We have heard arguments as to why commodity prices might rise even if there is a recession, but we are very skeptical about this view. History is on our side on this."
TODAY'S TOP HEADLINES
Boeing CEO Says Company Needs to Acknowledge 'Our Mistake'
Boeing CEO David Calhoun said the company needs to acknowledge its mistake as the aircraft maker reels from a door-plug failure that has resulted in roughly 170 of its planes being grounded and spooked its customers.
In his first remarks since the accident, Calhoun indicated a misstep by the aircraft maker played a role. "We are gonna approach this-No. 1-acknowledging our mistake," Calhoun said Tuesday in an address to employees just days after the incident on an Alaska Airlines flight.
U.S. Battery Producer Enticed to Set Up Shop in the EU
An American startup says it can cut reliance on China for key parts of electric vehicle batteries. European Union money means it will build its first factory in Europe instead of the U.S.
Rochester, N.Y.-based GDI will announce on Wednesday it is getting a EUR20 million, or $21.8 million, loan from the European Investment Bank, the lending arm of the European Commission. The battery-part manufacturer said the funds will allow it to build its first manufacturing plant in Lauenförde, Germany, which is expected to start producing from 2025 and be scaled up to a gigafactory by 2028.
Walmart Expands Drone Delivery in Dallas as It Races Amazon
Drones are more likely to be buzzing overhead this year if you live in Dallas.
Walmart plans to offer drone delivery to most of the region this year, a major expansion of its effort in recent years to provide the delivery option to some customers in several states.
Global Economic Growth to Slow for Third Straight Year, World Bank Says
The World Bank expects global economic growth to decelerate for the third year in a row to a "sorry record by the end of 2024," hampered by tight monetary policy, restrictive financial conditions, and "feeble global trade and investment."
It sees the global economy expanding 2.4% in 2024, slowing from last year's growth rate of 2.6%-and nearly three-quarters of a percentage point lower than the average pace between 2010 and 2019, the World Bank said in its latest Global Economic Prospects report, released Tuesday.
Spending Bill Won't Be Done in Time, Senate Republicans Warn
WASHINGTON-Congress may need to pass another short-term bill to avoid a partial government shutdown in less than two weeks, potentially forcing House Speaker Mike Johnson (R., La.) to break a vow he made to GOP colleagues swearing off such measures.
Senate Minority Leader Mitch McConnell (R., Ky.) said the dwindling days left before the deadline meant Congress would have to take up a stopgap bill, known as a continuing resolution or CR, to keep the government open as work continues on full-year fiscal 2024 legislation. The current interim spending law funds some parts of the government through Jan. 19 and the rest through Feb. 2.
What to Watch in the Iowa Republican Presidential Debate
The fifth GOP presidential debate could be the most contentious and meaningful yet as Ron DeSantis and Nikki Haley have just days before the Iowa caucuses to make the case they are best positioned to challenge Donald Trump for the nomination.
Only DeSantis and Haley will be on the CNN stage Wednesday night in Des Moines because the former president and Republican front-runner is again skipping the debate. This time, he will compete for attention at the same time during a Fox News forum, also in Iowa.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
Aritzia 3Q
Economic Calendar:
Nothing scheduled
Stocks to Watch:
Fairfax Financial Holdings Prices Private Offering of an Additional $200M of Its 6.000% Senior Notes Due Dec. 7, 2033
Hydro One Prices C$800M Offering of Medium-Term Notes Under Sustainable Financing Framework; Prices C$550M of 4.39% Notes Due 2034; Prices C$250M of 3.93% Notes Due 2029; Expects Offering to Close Jan. 12
Lucara Diamond Signs Amended Documentation in Relation to $220M Senior Secured Project Financing Debt Package Executed in July 2021; Karowe Underground Expansion Project Remains Fully Financed; Repayment Profile Has Been Extended in Line With the Rebase Schedule Released July 17; Lucara Diamond's Largest Shareholder, Nemesia, Has Agreed to Enter Into a Shareholder Guarantee and an Amendment to Shareholder Standby Undertaking
Expected Major Events for Wednesday
07:45/FRA: Nov Industrial production index
08:59/JPN: Nov Provisional Labour Survey - Earnings, Employment & Hours Worked
09:00/ITA: Nov Retail Sales
12:00/US: 01/05 MBA Weekly Mortgage Applications Survey
15:00/US: Nov Monthly Wholesale Trade
(MORE TO FOLLOW) Dow Jones Newswires
01-10-24 0609ET
