MARKET WRAPS
Watch For:
EU retail trade; Germany manufacturing orders; trading updates from BP, UBS, Intesa Sanpaolo, Infineon Technologies, Norwegian Air Shuttle
Opening Call:
European stock futures were higher. In Asia, stock benchmarks were mixed. The dollar weakened; Treasury yields fell; while oil futures edged higher and gold declined.
Equities:
Stock futures were higher early Tuesday as investors digest Fed officials comments indicating no rush to cut rates.
Minneapolis Fed President Neel Kashkari on Monday said there was no need to quickly lower interest rates because the level wasn't high enough to push down growth very much.
"The current stance of monetary policy...may not be as tight as we would have assumed," Kashkari said in an essay published on his bank's website.
"I think investors were a little over their skis in anticipating the Fed cutting a lot," James Demmert, founder and chief investment officer of Main Street Research, said.
It would make sense for stocks to "take a breather" this week after a huge rally, but investors would be wise to use pullbacks to fill out their portfolios, Demmert said.
Investors would also be well-served by paying less attention to the Fed and more attention to solid earnings, which have been the real foundation for the rally, he added.
Forex:
The U.S. dollar was slightly weaker but may be supported by fading Fed rate cut prospects.
There are many regional Fed presidents slated to speak this week, who could "chip away" at near-term rate-cut bets, Westpac Strategy Group said.
Market pricing for the extent of Fed rate cuts by December 2024 has come in a long way to around 115bps, but can narrow further, it added.
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The Swiss franc remains strongly overvalued, according to UniCredit Research's equilibrium model and the bank expects the currency to weaken, partly because of two or possibly three rate cuts of 25 basis points each by the Swiss National Bank, said global FX strategist Roberto Mialich.
"The repricing we expect primarily in terms of ECB rate-cut expectations towards more-gradual easing is set to offer EUR/CHF and to a lower extent USD/CHF renewed support over the coming months," he said.
UniCredit Research estimates fair values for USD/CHF above parity versus the current level of 0.8707, and for EUR/CHF over 1.15 versus 0.9346 currently, he added.
Bonds:
Treasury yields declined early Tuesday.
Treasurys finished Monday with their biggest two-day losses since 2020 and 2022, after a batch of strong U.S. economic data and Fed Chair Powell's weekend comments about the need to "carefully" approach the timing of interest-rate cuts.
The U.S. government debt market needs to adjust to fewer interest rate cuts this year, Spartan's Peter Cardillo said after higher-than-expected employment and hawkish Fedspeak lowered the prospect since Friday.
Cardillo sees the 10-year yield potentially climbing to 4.20%.
In the CME's FedWatch tool, odds that in May the Fed will keep rates at the current level rose to 33% from 12% a week ago. A first cut in May remains the highest bet.
Energy:
Oil prices were a touch higher in Asia, extending gains after settling higher overnight.
Some analysts, however, said the markets remain unconvinced that conflict in the Middle East will expand in a way that threatens crude supplies, while traders are also keeping an eye on Chinese economic data amid concerns over the outlook for global crude demand.
As far as what to watch for this week, Tyler Richey, co-editor of Sevens Report Research said a rise in consumer demand for refined products metrics in the weekly Energy Information Administration report due out Wednesday would be a bullish development, while a return to record U.S. oil output would be "negative for prices in the near term."
Metals:
Gold edged lower early Tuesday after falling to a more than one-week low on Monday.
The rise in Treasury yields and dollar strength following Powell's hawkish weekend remarks have weighed on demand for the precious metal, Nanhua Futures analysts said.
Gold prices will likely be volatile near term as rate-cut expectations adjust, they say, adding that investors will be watching several key speeches from Fed officials this week for more hints on the path for rate cuts.
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Nickel edged lower in Asia amid worries over increasing supply.
Concerns about the rising Indonesian supply of nickel continue to be a drag on the market, ANZ Research analysts said.
Nickel futures on the LME are now down nearly 50% over the past 12 months, the analysts noted, adding that a risk-off tone has also weighed on sentiment across base metals.
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Iron ore prices were lower early Tuesday amid subdued sentiment.
Trading sentiment has cooled as demand winds down ahead of the Lunar New Year holiday, Huatai Futures analysts said.
Iron ore production is at a seasonally lower level and steel demand is weaker, the analysts added.
TODAY'S TOP HEADLINES
Fed's Kashkari: No need to quickly cut interest rates as they're not holding down growth much
There is no need to quickly lower interest rates because the level is not high enough to push down growth very much, Minneapolis Fed President Neel Kashkari said Monday.
"The current stance of monetary policy...may not be as tight as we would have assumed," Kashkari said in an essay published on his bank's website.
How a Delay in Rate Cuts Could Stifle Home Buyers
The housing market looks set to begin its busy season the same way it ended last year: with high home prices and rising mortgage rates.
The 10-year Treasury yield, a benchmark for mortgage rates, rose to 4.163% on Monday, according to Dow Jones Market Data. Combined with Fridays' increase, it was the largest two-day gain since June 2022. The yield's rise follows hotter-than-expected jobs and ISM price data that suggest the Federal Reserve's long-awaited rate cuts might be further away than expected.
Novartis to Buy MorphoSys for $2.9 Billion; Deal Seen Closing in 1H
Novartis entered into an agreement to acquire biopharmaceutical company MorphoSys for 2.7 billion euros ($2.9 billion).
Swiss drug giant Novartis said that under the agreed transaction, approved by the boards of both companies, it would make a voluntary public takeover for all no-par value bearer shares of MorphoSys for 68 euros a share. The deal is expected to close in the first half of 2024.
Luxury Retailers Are Buying Out Their Landlords
Luxury retailers, flush with cash, are spending big on real estate in the world's most expensive and exclusive shopping corridors.
In New York City, Prada recently agreed to buy the building that houses its Fifth Avenue store as well as the building next door for more than $800 million. Gucci's parent company, Kering, is also paying nearly $1 billion for a 115,000-square-foot retail space a few blocks south.
Why London's Wealthy Are Renting Instead of Buying
With London luxury real-estate prices on the slide and a collapse in high-end deal volume, it has been a tough year for prime central London real estate.
But the prime rental market is thriving.
King Charles III Diagnosed With Cancer
King Charles III has been diagnosed with cancer and will postpone public engagements while he receives treatment, Buckingham Palace said Monday, sidelining the relatively new monarch less than 18 months into his reign.
The 75-year-old monarch, who acceded to the throne in 2022 after his mother Queen Elizabeth II died, "remains wholly positive about his treatment," the palace said. The cancer was detected after the king underwent a separate procedure on an enlarged prostate. He began outpatient treatment on Monday, it added.
Iran-Backed Groups Continue to Target American Bases as U.S. Plans Further Strikes
A strike near a U.S. base in Syria killed six members of a U.S.-allied militia Monday, the group said, despite the U.S. pounding Iran-allied militia sites with airstrikes over the weekend, underscoring the challenge Washington faces in its goal of keeping the conflict in the Middle East contained.
A U.S. military official confirmed that there were fatalities from an attack on the al-Omar oil field, part of a complex that includes a U.S. base and is jointly controlled with the American military. The official declined to comment further.
Toyota Motor Reports Rise in Quarterly Net Profit as Sales Grew
Toyota Motor reported higher third-quarter net profit as sales grew thanks partly to strong demand and an easing semiconductor shortage, as it raised its fiscal-year earnings forecast.
The Japanese carmaker said Tuesday that net profit increased 87% from a year earlier to 1.358 trillion yen ($9.13 billion) for the three months ended Dec. 31.
Virgin Galactic Reports Flight Issue to FAA
Virgin Galactic Holdings said Monday it notified the U.S. Federal Aviation Administration on Jan. 31 that an alignment pin detached during its most recent spaceflight, "Galactic 06."
Four private astronauts and two crew members were aboard the flight, the company said. It added that "at no time did the detached alignment pin pose a safety impact to the vehicles or the crew on board."
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Expected Major Events for Tuesday
00:01/UK: 1Q CBI SME Trends Survey
00:01/UK: Jan BRC-KPMG Retail Sales Monitor
00:01/UK: Jan Scottish Retail Sales Monitor
01:01/IRL: Jan Ireland Services PMI
07:00/ROM: Dec Retail trade
07:00/GER: Dec Manufacturing orders
07:00/GER: Dec Manufacturing turnover
07:00/FIN: Dec Foreign trade
07:30/HUN: Dec Retail Sales
07:30/HUN: Dec Preliminary Industrial Production
08:00/SVK: Dec Internal trade, incl Wholesale & Retail
08:00/CZE: Dec External trade
08:00/CZE: Dec Industry, Construction
09:00/ITA: Jan Business Confidence Survey
09:00/ITA: Jan Consumer Confidence Survey
09:30/UK: Jan S&P Global UK Construction PMI
10:00/EU: Dec Retail Trade
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02-06-24 0015ET
