Futures Tick Higher Ahead Of Key PCE Print

US stock futures edged higher after Thursday’s slump as investors weighed strong job data and prospects of further policy tightening to cool inflation ahead of today's closely watched core PCE print which may reverse the negative sentiment (especially if it comes at 4.5% Y/Y or lower) and send stocks sharply higher (see here for more). Contracts on the Nasdaq 100 and the S&P 500 gained 0.3% by 7:30 am ET one day after the S&P 500 cash index plunged 1.5% on Thursday and was set for a third consecutive weekly loss, the longest losing streak since September. The index is also on pace for its second-worst December on record, while the Nasdaq 100 is on course for its steepest slump in the month since 2002.

In premarket trading Friday, Tesla Inc. shares rose after Elon Musk said he isn’t planning to sell any more shares for two years. Meme stock AMC Entertainment slid after the movie theater chain operator proposed converting preferred equity units into common shares. Meanwhile, avocado supplier Mission Produce reported fiscal fourth-quarter revenue and adjusted earnings per share that missed the average analyst estimates and predicted lower pricing in the first quarter.

Sentiment on Wall Street took a hit Thursday as jobless claims came in lower than expected, signaling the Federal Reserve has more work to do on inflation, while earnings disappointments sparked fears among investors of a recession. Technically, the set up isn’t looking good, according to Bloomberg intelligence strategist Gina Martin Adams, with a descent in equities that began at the start of 2022 looking set to persist into early 2023. “Momentum and breadth remain weak and industry cues hint at a prolonged struggle,” she wrote in a note.

With stocks sliding, global equity funds saw record weekly outflows of almost $42 billion in the week to Dec. 21, which were largely driven by US stock funds shedding $37 billion of assets, according to EPFR Global data. The outflows were mostly due to seasonal redemptions from US ETFs, Citigroup strategists said. And as a catastrophic year for stocks draws to a close, investors have also had a warning from strategists that they should brace for more pain heading into 2023.

“I think it’s going to be a very difficult year,” said James Athey, investment director at Abrdn. “The fact of the matter is that there’s been a significant monetary tightening we haven’t seen in a long time,” he said. “The effect of that on a global economy which is drowning in debt is highly likely to be deleterious.”

“Markets are in a state of flux at the moment, we have quite high inflation and interest rates that don’t quite seem able to catch up,” Richard Harris, chief executive officer at Port Shelter Investment Management, said in an interview on Bloomberg TV. “You have to be careful with equities, but they are still a better bet than bonds at the moment.”

Notable headlines overnight:

Joe Biden said it will take time to get inflation back to normal levels, according to Yahoo News.
Tesla CEO Musk said he will not sell any more Tesla stock for at least 18-24 months; waiting to see the extent of a recession before share buybacks, via Twitter Space. Musk said the economy will be in a "serious recession" in 2023, and demand will be lower.

Investors are now awaiting the PCE deflator, a key inflation measure tracked by the Fed. Analysts polled by Bloomberg expect a year-on-year 5.5% headline print, slowing from October’s 6%.

In Europe, the Stoxx 600 was on the rise, led by real estate, basic resources and retail stocks, and was headed for the first weekly gain in three as risk appetite returned before the Christmas holiday.

Earlier in the session, Asian stocks fell, on track for a second-straight weekly loss on concerns about aggressive US interest-rate hikes and the spread of the coronavirus in China. The MSCI Asia Pacific Index fell as much as 1.2%, with technology and energy stocks falling the most and dragging down South Korean and Taiwanese benchmarks. Trading was thin in much of the region ahead of year-end holidays. US economic growth in the third quarter was firmer than previously estimated, pushing a pause in the Federal Reserve’s policy tightening further out of reach. Investors are also wary that the core PCE deflator — a key US inflation measure — due later Friday may add to reasons for tighter policy. Meantime, a weaker sales outlook by memory maker Micron weighed on the chip sector. Friday’s decline put the MSCI Asia gauge on track for a 0.6% loss this week. While some strategists are optimistic that the year ahead could bring a rally after this year’s double-digit drop, the first half of 2023 looks riddled with challenges to profits as the global economy slows down and China’s path to reopening remains uncertain

“The Grinch selloff is firmly in place after Micron delivered a gloomy outlook and as better-than-expected US economic data supported the Fed’s case for more ongoing rate increases,” Edward Moya, a senior market analyst at Oanda, wrote in a note. “Global coordinated central bank tightening has yet to fully impact most of the economic readings for the major economies and that should have investors nervous over earnings downgrades and credit risks.” Key measures of Hong Kong and mainland stocks fell as the market digested China’s rising infection numbers and a sharp slowdown in economic activity.

Japan's Nikkei 225 posted its worst week since June on fears that the Bank of Japan has begun to exit its easy-money policy. On Friday, Japanese stocks declined as resilient US economic data renewed investor worries that the Federal Reserve will continue raising interest rates aggressively. The Topix fell 0.5% to close at 1,897.94, while the Nikkei declined 1% to 26,235.25. Toyota Motor Corp. contributed the most to the Topix decline, decreasing 1.2%. Out of 2,162 stocks in the index, 677 rose and 1,384 fell, while 101 were unchanged. US Third-Quarter GDP Revised Higher to 3.2% on Firmer Spending “How long the Fed maintains its hawkish stance will depend on inflation,” said Tatsushi Maeno, a senior strategist at Okasan Asset Management. “There may be a mood of restrained buying ahead of the US PCE data this evening,” which could provide the next clue on the Fed’s moves

In Fx, the Bloomberg Dollar Spot Index weakened for first time in three days. The dollar pulled back against a basket of currencies and was headed for a weekly decline, having risen for the two previous weeks. The yen firmed, bringing this week’s gains to almost 3%, thanks to the Bank of Japan’s sudden hawkish policy pivot announced on Tuesday.

In rates, Treasury yields grind higher, following similar price action in bunds where ECB hike premium has edged up over early London session on no immediate catalyst. US session focus includes a busy data slate which includes PCE deflator and University of Michigan sentiment. Early 2pm New York close for cash Treasuries, recommended by SIFMA. US 10-year yields around 3.71%, cheaper by 3bp vs. Thursday close and trading broadly inline with bunds and gilts. 2-year TSY yields are steady at 4.27% while 10-year yields gain 1.1bps to 3.69%. In Thursday’s trading session yields rose after stronger-than expected US economic data with 2-year tenor gaining 5bps while 10-year finished up 2bps. Spreads pare portion of Thursday’s flattening move with Treasury 2s10s, 5s30s curves steeper by 1.4bp and 1.2bp on the day.

In commodities, crude oil is firmer with WTI & Brent up by roughly $2.0/bbl, with WTI needing another USD 1.00/bbl of upside to test Thursday’s WTD peak of USD 79.90/bbl; early on Friday Russia said it could cut oil output by 5-7% early next year as a response to the Western price caps, according to RIA citing Deputy PM Novak; Spot gold/silver are incrementally firmer given the Dollar continues to languish, though the yellow metal remains capped by USD 1800/oz and as such is well within recent ranges.

Looking at today's busy calendar slate, we get Personal income and spending as well as the Fed's favorite inflation metric, core PCE; we also get Durable Capital goods and new orders as well as the UMichigan sentiment indicator and new home sales.

Market Snapshot

S&P 500 futures little changed at 3,848.50
MXAP down 1.0% to 155.37
MXAPJ down 1.1% to 503.74
Nikkei down 1.0% to 26,235.25
Topix down 0.5% to 1,897.94
Hang Seng Index down 0.4% to 19,593.06
Shanghai Composite down 0.3% to 3,045.87
Sensex down 1.6% to 59,868.93
Australia S&P/ASX 200 down 0.6% to 7,107.69
Kospi down 1.8% to 2,313.69
STOXX Europe 600 up 0.3% to 428.34
German 10Y yield little changed at 2.40%
Euro little changed at $1.0600
Brent Futures up 1.8% to $82.45/bbl
Gold spot up 0.2% to $1,796.18
U.S. Dollar Index little changed at 104.37

Top Overnight News from Bloomberg

Oil Pushes Higher as Russia May Cut Output in Response to Cap
Jan. 6 Panel Releases Report Blasting Trump for Capitol Assault
Tencent Rant, Sea Pay Freeze Hint at Deepening Gaming Crisis
Sea Dives After Pay Freeze, Bonus Cuts Suggest Tougher 2023
Biogen’s ALS Drug Raises Stakes in War Over Fast Drug Approvals
Trump Asked About Using Troops on Protesters, Esper Told Panel
Bankman-Fried’s $250 Million Bail Doesn’t Mean He Has Money
US Stocks Snap Two Days of Gains; Dollar Rises: Markets Wrap
Tech Bulls Face Worst December in 20 Years as Fed Anxiety Grows
Well-Timed Shorts See Value Investor Notching 40% Gains for 2022
Storm Upends Holiday Travel, Triggers White House Warning

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mostly lower but drifted off worst levels following a similar session stateside. ASX 200 saw all of its sectors in the red with losses led by Tech, Energy and gold miners. Nikkei 225 was dragged lower by its industrial sector, whilst Japanese Core CPI in November rose at the fastest annual pace since 1981. Hang Seng and Shanghai Comp were mixed in which the former succumbed to the regional losses and the latter briefly moved into the green, whilst the PBoC injected a net CNY 704bln in the week via OMO - the largest weekly cash in nearly two months, according to Reuters calculations.

Top Asian News

China reported zero new COVID deaths in the mainland on Dec 22nd vs zero a day earlier, according to Reuters.
PBoC injected CNY 2bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 203bln via 14-day reverse repos with the rate maintained at 2.15%; daily net injection CNY 164bln.
PBoC injected a net CNY 704bln in the week via OMO; the largest weekly cash in nearly two months, according to Reuters calculations.
Japanese PM Kishida could conduct a cabinet reshuffle as early as January 10th, according to ANN.
Japanese government official said the next wave of food inflation is likely to come in February 2023; effects of government subsidies to cushion energy bills will likely start affecting CPI from February 2023, according to Reuters.
BoJ October meeting minutes (two meetings ago): One member said the effects of BoJ's easing may be heightening as a moderate increase in inflation expectations push down real interest rates.
China reportedly estimates the COVID surge is affecting 37mln people per day, via Bloomberg.
Indian Health Minister says in the next week, planning to make COVID-19 negative test report compulsory for passengers from nations with a high case load.

European bourses are marginally firmer, Euro Stoxx 50 +0.2%, with the Stoxx 600 on track to end the week with upside of circa. 0.6%. Sectors are, after a mixed open, mostly in the green though Utilities and Travel & Leisure remain incrementally softer.
Stateside, futures are similarly supported, ES +0.3%, though we await US monthly PCE metrics for another factor into the Fed's deliberations. TSMC (TSM/2330 TT) is said to be in talks with suppliers over its first European plant, according to FT sources; Senior executives are heading to Germany early next year for discussions.

Top European News

Janus Henderson’s New CEO To Expand In Latin America, Asia
Meet the Improbable Stars of Turkey’s Year of Inflation Infamy
Russia Says It May Cut Daily Oil Output by 700,000 Barrels
Japan Begins Defense Upgrade With 26% Spending Increase for 2023
Russia’s Novak: Decisions on Turkey Gas Hub May Be Taken in 2023
Poland Sues EU Over Mounting Fine in Rule-of-Law Dispute

Geopolitical

Senior Chinese Diplomat Wang Yi spoke to US Secretary of State Blinken and said US must stop supressing China's development and should not challenge China's red lines, according to Reuters.
Chinese Foreign Ministry announced sanctions on Yu Maochun and Todd Stein as countermeasures to US’ sanction on two Chinese officials, citing human rights issues in Xizang (Tibet), according to Global Times.
N. Korea has fired what could be a ballistic missile, via Japanese Coast Guard; Yonhap reports this as being a ballistic missile; landed outside of Japan's EEZ.

Dollar wanes after GDP and IJC boost as the focus switches to PCE amidst a partial recovery in risk appetite, DXY roams from 104.160 to 104.510.
Kiwi claws back losses vs Aussie and Buck as AUD/NZD retreats through 1.0650, NZD/USD breaches 200 DMA and AUD/USD scales 100 DMA with a slight lag.
Pound, Euro and Loonie take advantage of softer Greenback, but Yen hampered by high yields, Cable firmer on 1.2000 handle, EUR/USD resilient around 1.0600, USD/CAD probing 1.3600 and USD/JPY hovering above 132.50.
PBoC sets USD/CNY mid-point at 6.9810 vs exp. 6.9885 (prev. 6.9713)

Fixed Income

Debt remains in virtual freefall, with Bunds extending losses sub-135.00, Gilts towards 100.00 and the T-note rooted within a 113-09+/15+ range
Curves re-steepen marginally as the spotlight turns to US PCE data as the last potential macro market mover before the Xmas break

Commodities

Crude benchmarks are firmer on the session with magnitudes more pronounced than across other asset classes; currently, WTI & Brent Fed’23 are firmer by just shy of USD 2.0/bbl, with WTI needing another USD 1.00/bbl of upside to test Thursday’s WTD peak of USD 79.90/bbl.
Spot gold/silver are incrementally firmer given the Dollar continues to languish, though the yellow metal remains capped by USD 1800/oz and as such is well within recent ranges.
Russia could cut oil output by 5-7% early next year as a response to the Western price caps, according to RIA citing Deputy PM Novak; Russia may cut oil output by 500-700k BPD, according to Tass citing Deputy PM Novak
Colorado Interstate Gas Co. declared force majeure at CIG Wamsutter compressor station, according to Reuters.
Phillips 66 (PSX) Wood River, Illinois (380k BPD) refinery reports a unit upset.

US Event Calendar

08:30: Nov. Durable Goods Orders, est. -1.0%, prior 1.1%; -Less Transportation, est. 0%, prior 0.5%
- Cap Goods Orders Nondef Ex Air, est. 0%, prior 0.6%
- Cap Goods Ship Nondef Ex Air, est. -0.3%, prior 1.5%
08:30: Nov. Personal Income, est. 0.3%, prior 0.7%
- Personal Spending, est. 0.2%, prior 0.8%
- Real Personal Spending, est. 0.1%, prior 0.5%
08:30: Nov. PCE Deflator MoM, est. 0.1%, prior 0.3%
- PCE Deflator YoY, est. 5.5%, prior 6.0%
- PCE Core Deflator MoM, est. 0.2%, prior 0.2%
- PCE Core Deflator YoY, est. 4.6%, prior 5.0%
10:00: Dec. U. of Mich. Sentiment, est. 59.1, prior 59.1
U. of Mich. Current Conditions, est. 60.3, prior 60.2
- U. of Mich. Expectations, est. 58.5, prior 58.4
- U. of Mich. 1 Yr Inflation, est. 4.6%, prior 4.6%; 5-10 Yr Inflation, est. 3.0%, prior 3.0%
10:00: Nov. New Home Sales, est. 600,000, prior 632,000
- Nov. New Home Sales MoM, est. -5.1%, prior 7.5%

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