Stock futures are little changed this morning as investors braced for the latest commentary Jerome Powell today. Markets interpreted Powell’s comments last week as dovish, however, that may change after Friday’s blowout jobs report. In any case, Powell will get the opportunity to offer more clarity on where rates are heading, and clarify some comments made after last week’s 25 bps rate hike. Earnings reports and geopolitical concerns are also on the market’s radar this morning, as the U.S. attempts to recover remains of the Chinese balloon it shot down over the weekend.
It took a huge jobs report for the bond market to stop doubting the Fed. The peak level priced into the U.S. swaps curve for the Fed’s benchmark rate around midyear is now 5.12%, up from 4.91% as of Thursday’s close, matching the median view of Fed officials. Friday’s stronger-than-expected jobs numbers ignited the jump in front-end yields, while a slide in European bonds further fueled the rise yesterday. Before the release of the jobs report, investors were expecting a central bank pause, however now an increase in March, May, and June looks like a possibility. Still, the market is holding onto the belief that the central bank will begin cutting rates in the second half of the year, while the Fed is adamant that they will hold rates above 5% at least until next year.
The devastating earthquakes that shook parts of southern Turkey and Northern Syria has claimed the lives of over 5000 people, with thousands more injured or unaccounted for. In Syria, regional conflict may slow down rescue efforts as the country’s Northern region is already occupied by millions displaced by the country’s long waged civil war. In Turkey, a massive snowstorm and damage to infrastructure including airports and roads, has hampered rescue efforts. According to Turkey President Erdogan, assistance from 45 countries, the EU, and NATO (of which Turkey is a member) have offered aid or assistance. Just this morning Erdogan declared a three-month state of emergency for the southern parts of his country.
Flows into sustainable funds fell last year as political blowbacks and the general market decline shifted investor sentiment towards ESG funds. Despite the market rallying in January, ESG funds have continued to see outflows. In January, ESG ETFs in the U.S. saw net outflows of $772 million, a drastic drop when compared with the $953 million of inflows for the first month in 2022. Many ESG funds underperformed the market last year due to their high allocations to technology and growth stocks and limited exposure to the energy sector (the best-performing sector in the S&P 500 index in 2022). In total, sustainable mutual funds and ETFs took in a net $3 billion compared with $70 billion in 2021 and with investors remaining cautious considering recent economic data, these outflows may continue.
Joe Biden will speak at the State of the Union address to Congress today. It is widely expected that Biden will announce a bid for re-election next year, and today’s speech will provide a high-profile platform for him to make his case. If his recent speeches are any indication, he will likely celebrate his handling of the economy, citing low unemployment, slowing inflation rates, and robust GDP growth. Critics will be quick to point out that inflation remains high, and he will be under intense pressure to address the issue that has literally been hovering over the country since last week, the Chinese spy balloon and his handling of it.
Make some room ChatGPT, Bard is on the way. In a blog post published yesterday, Alphabet chief executive Sundar Pichai shared details of the company’s own conversational artificial-intelligence service called Bard, already launched to a select set of testers, with a broader public launch expected in the coming weeks. Google has faced criticisms due to its slow launch despite being a pioneer of some of the tools used to build ChatGPT which Microsoft-backed OpenAI launched late last year and quickly went viral. In response, Pichai noted that the company’s testing period is to ensure that Bard meets the “high bar for quality, safety and groundedness in real-world information.” Perhaps a slight dig at ChatGPT for some of its perceived less-than-high-quality responses. The technology aims to generate detailed answers when given simple prompts, such as what to make for lunch or how to plan a friend’s baby shower. We wonder if its first question to Bard was “how to beat ChatGPT?”
Nintendo is cutting the outlook for its Nintendo Switch console and games sales and slashed its profit outlook for its current fiscal year. They now expect to sell 18 million Switch units for the fiscal year ending March 2023, down from a previous forecast of 19 million. Nintendo also expects sales of 205 million software units, down from a previous projection of 210 million units. Its new Pokemon Scarlet and Pokemon Violet games, which were released on Nov. 18, sold 18.2 million units in the seven weeks after release, marking the “fastest start of any title for a Nintendo dedicated video game platform.” Nintendo is also gearing up for the May release of Legend of Zelda: Tears of the Kingdom, one of its most popular franchises, which analysts said could help the company.
Sounds like airplane seating. AMC announced the launch of "Sightline at AMC” with ticket pricing based on movie-screen sightlines within the auditorium. The ticket-price initiative offers three different options: standard seats are the most common seats in an auditorium and are available for the traditional cost of a ticket; value seats are in the front row, as well as select ADA seats, and are available at a lower price than standard-sightline seats; and lastly the coveted preferred-sightline seats which are typically in the middle of an auditorium will be priced at a slight premium to standard seats.
Cineplex Inc. reported a profit of $10.2 million in Q4, compared with a loss of $21.8 million a year earlier as its revenue increased more than 15%. The movie theatre company says its net profit amounted to 16% diluted share for the quarter ended Dec. 31 compared with a loss of 34 cents per share in the last three months of 2021. Revenue totalled $350.1 million, up from $300.0 million a year earlier while theatre attendance totalled 9.2 million customers, down from 10.2 million in the fourth quarter of 2021.
The world should end this season with its first sugar surplus in four years, but you wouldn’t know from how prices have surged. Sugar futures hit a six-year high last week, threatening more inflationary pain by increasing the cost of making baked goods, candy and soft drinks. While top exporter Brazil is set to collect a much bigger crop, those supplies won’t arrive until harvesting starts around April — and right now the market is tightening. Looking ahead to the end of the season, weaker output will likely force India to cap exports, while European production has been hit by drought and now faces uncertainty after a pesticide ban. Plus, Indian mills are diverting more cane to make ethanol and China’s reopening could lift demand. There are already signs that sugar’s rally is feeding through to higher retail prices for goods in grocery stores in the US and Europe.
European natural gas has fluctuating with the end of a short-lived cold spell in sight while ample inventories are helping tackle any boost in demand. Benchmark futures swung between small gains and losses, after falling as much as 2.3% earlier. The ongoing chilly weather in parts of western and central Europe, coupled with low wind output, is raising gas consumption. Prices have declined more than 20% this year, and are hovering near levels seen before the Russian invasion of Ukraine. Reduced consumption by industries and a mostly mild winter have decreased the need to tap into underground storage, which remains well above the average levels of the last five years.
Fixed income and economics
North American benchmark bond yields are higher, continuing from its upward pop after Better-than-expected U.S. jobs data last Friday. Across the pond, European bonds sold off comments from ECB and Bank of England policymakers pushed home the need for further interest-rate hikes. A heavy dose of US$ corporate deal flow added to the pressure as the issuance pipeline started to build in the morning session. U.S. Treasury auctions will resume today with a 3-year note sale, followed by 10- and 30-year offerings later this week.
Even Russia is getting a bit dovish. President Putin’s government is pressuring the Bank of Russia to be more upbeat about the outlook for the economy and signal it’s ready to loosen monetary policy as his invasion of Ukraine heads for its second year. This comes ahead of the central bank’s first board meeting of the year on Friday and officials want to message that interest rates may come down later this year. Official borrowing costs haven’t changed since the central bank paused its steep monetary easing cycle that more than reversed an emergency hike after the invasion. At stake in the dispute is the direction of policy at a time when plunging oil revenue and increases in defense spending strain the budget. The economy is heading for its first consecutive years of contraction this century.
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Contributors: A. Innis, A. Nguyen, P. Kwon, M. Letchumanan
Charts are sourced to Bloomberg unless otherwise noted.
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