Five things you need to know before the market opens on Tuesday January 10:
1. — Stock Futures Slip Lower On Hawkish Fed Signals
U.S. equity futures slipped lower Tuesday, extending a move from late yesterday that pared gains on Wall Street as investors continue to worry that a hawkish Federal Reserve will challenge market consensus of slowing inflation and 2023 rate cuts.
Fed Presidents Mary Daly and Raphael Bostic doubled down on the central bank’s view that inflation remains too far from its preferred 2% target to consider easing rates, with Daly telling the Wall Street Journal that she could provide arguments “for either side” in the debate as to whether a 25 basis point or 50 basis point rate hike would be appropriate for the Fed later this month, and stressing he need to ensure inflation doesn’t become imbedded into the economy.
Curiously, the CME Group’s FedWatch continues to suggest a 77.2% chance of a 25 basis point rate hike at the end of this month, a move that would take the Fed Funds rate to a range of between 4.5% and 4.75%, and bond markets continued to rally in the wake of Bostic and Daly’s comments.
Benchmark 2-year Treasury note yields were last seen holding at 4.231% in overnight trading, and trending towards their September low of 4.15%, with 10-year notes falling to 3.552%.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, rose 0.14% from yesterday’s levels — the lowest in six months — to change hands at 103.143 in overnight dealing.
Stocks, however, were quick to react, and remain sensitive to headline risk linked to both Fed policy and inflation prospects heading into Thursday’s CPI reading and a speech from Fed Chairman Jerome Powell prior to the start of trading.
On Wall Street, futures tied to the S&P 500 are priced for a 3.5 point opening bell deceline while those linked to the Dow Jones Industrial Average are set for a 60 point dip. The tech-focused Nasdaq, which is on pace for a fifth consecutive weekly decline, is looking at a 2 point pullback.
In overseas markets, the the region-wide MSCI ex-Japan index fell 0.27% into the close of trading, while Europe’s Stoxx 600 was marked 0.74% lower in early Frankfurt dealing. London’s FTSE 100 was down 0.27%.
2. — Powell Speech In Focus As Rate Bets Test Tightening Path
Federal Reserve Chairman Jerome’s Powell’s speech at a central banking conference in Sweden, just two days prior to a key reading on domestic inflation, is likely to be a key focus for traders heading into the start of trading Tuesday.
Powell, who is slated to address the Sveriges Riksbank International Symposium on Central Bank Independence in Stockholm at 9:00 am EST Tuesday, has stressed the need for ‘data dependence’ in tracking both inflation dynamics and the Fed’s reaction function, arguing last month that allow price pressures to become more deeply imbedded in the economy would be more damaging than the rate hikes needed to tame it.
Core inflation rates, however, are forecast by some to fall to as low as 2.5% by the end of June, just one month after the Fed has essentially promised to raise if benchmark Fed Funds rate to a range of between 5% and 5.25%.
That path, alongside slowing growth and a weakening labor market, could compel the Fed to change tact, but Powell has remained steadfast in previous months with respect to the Fed’s inflation goals and has leaned against market expectations of policy easing.
“Our focus right now is really on moving our policy stance to one that is restrictive enough to ensure a return of inflation to our 2% goal over time, it’s not on rate cuts,” Powell told reporters in Washington last month.
3. — Pfizer May Sell Covid Treatment in China Through Local Partner
Pfizer (PFE) – Get Free Report shares edged higher in pre-market trading, eating into heavy declines for the stock on Monday, after the drugmaker said it could work with a local partner in China to sell its Covid antivral treatment Paxlovid.
Speaking at the JPMorgan healthcare conference in San Francisco, CEO Albert Bourla said that while the drugmaker isn’t in discussions with Beijing to sell Paxlovid directly, it could sell the treatment into the world’s biggest market through a local manufacturing agreement.
China’s Healthcare Security Administration said Sunday that it won’t include Paxlovid in the list of medicines it will cover through basic health insurance, saying Pfizer’s quoted prices were too high. Pfizer is likely to book $22 billion in annual Paxlovid sales over the whole of last year.
Pfizer shares were marked 0.1% higher in pre-market trading, following yesterday’s 4.97% slump, to indicate an opening bell price of $48.430 each.
4. — Oak Street Health Soars On $10 Billion CVS Takeover Report
Oak Street Health (OSH) – Get Free Report shares soared higher in pre-market trading following a report that suggested the primary care center operator is ready to agree a $10 billion takeover by CVS Health (CVS) – Get Free Report.
Bloomberg reported late Monday that CVS, which has been expanding into the healthcare sector as its retail sales growth slows, has been in talks with the Chicago-based Oak Street, which went public in 2020.
The deal, for both Oak Street’s equity and debt, would likely rise past $10 billion if completed, and added to CVS’s recent acquisition of Signify Health and its game-changing $69 billion Aenta deal in 2017.
Oak Street Health shares were marked 35.1% higher in pre-market trading to indicate an opening bell price of $30.49 each, a move that would peg the group’s equity value at around $7.4 billion.
5. — Microsoft Said To Eye $10 Billion OpenAI Investment
Microsoft (MSFT) – Get Free Report shares edged higher in pre-market trading following reports the tech giant is looking to take a major stake in OpenAI, an artificial intelligence group founded by Tesla TSLA CEO Elon Musk.
Semafor reported the Microsoft will invest $10 billion in OpenAI, which makes the ChatGPT chatbot, in a deal that values the San Francisco-based group at around $29 billion.
Microsoft would recoup cash from OpenAI’s profits under terms of the deal, Semafor reported, and then ultimately own a 49% stake in the group.
The investment would mark the second time Microsoft has pumped cash into OpenAI, following a $1 billion infusion in 2019, and other media reports has suggested the ChatGPT could be used in a new version of the tech giant’s Bing search engine.
Microsoft shares were marked 0.26% higher in pre-market trading to indicate an opening bell price of $227.70 each.