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Opening Call:
Stock futures were lower on rate-cut pessimism. Asian stock benchmarks were mixed; the dollar and Treasury yields weakened; while oil futures and gold advanced.
Equities:
European stock futures edged lower on subdued sentiment after U.S. stock indexes fell deeper into negative territory for 2024 on Wednesday.
"The hopes are waning that we're going to see aggressive rate cuts," said Dan Genter, chief executive and chief investment officer at Genter Capital Management.
"People were talking about six rate cuts during the year. The numbers aren't there to really justify it."
"The data is suggesting that perhaps the Fed is more right than the market," said Hans Olsen, chief investment officer at Fiduciary Trust.
Forex:
The dollar weakened early Thursday but remains supported by waning Fed rate-cut prospects.
The greenback's short-term momentum could remain on the upside, said Phillip Wee, senior FX strategist at DBS Group Research.
Interest-rate futures have trimmed the probability for a Fed rate cut in March to 56.2% from 66.3% a day earlier, Wee noted.
Bonds:
Treasury yields were broadly lower after finishing at their highest levels since early December on Wednesday, on robust U.S. retail sales and as a pickup in U.K. inflation dampened enthusiasm over interest-rate cuts this year.
"Retail sales in December surprised on the upside," said Ian Lyngen, a rates strategist at BMO Capital Markets, adding that the report will function as a further pushback against March Fed cut expectations.
The Fed's beige book also mentioned "little or no change in economic activity" as well as in labor markets.
The weekly jobless claims due later today are forecast to accelerate to 208,000 from 202,000.
Energy:
Oil futures were higher early Thursday.
For now, oil's price actions suggest that markets are assuming that there won't be an escalation in the Middle East situation, ING commodities strategists said.
However, as a growing number of ships avoid the Red Sea, this is clearly disruptive for trade flows, the strategists added.
"A full breakout of the war against Israel from other Middle Eastern nations would disrupt the supply chain and send oil prices skyrocketing, " said Peter Cardillo, chief market economist at Spartan Capital.
Pakistan carried out airstrikes early Thursday inside Iranian territory, Pakistan's foreign ministry said, killing Pakistani militants there.
Metals:
Gold edged higher in a likely technical upward correction after front-month Comex gold for January delivery settled 1.15% lower on Wednesday.
Very strong buying activity in China is providing support for gold prices, said Daniel Ghali, senior commodity strategist at TD Securities.
The top ten traders on the Shanghai Futures Exchange have now added almost 10 tons to their net long positions since the New Year holidays, the strategist noted.
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Copper prices rebounded. Without clear signals on more aggressive fiscal and monetary policies from Beijing, market sentiment remains cautious on copper, Nanhua Futures analysts said.
Copper prices may remain weak in the short term until inventory demand gets a boost ahead of the Lunar New Year, the analysts added.
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Iron-ore futures were lower as weakness in China's property sector worsened.
New-home prices in 70 major cities fell at a faster pace in December, boding poorly for demand for construction materials.
Steel inventories are also growing, with an industry survey showing that 247 steel mills saw stockpiles rise over the past week, ANZ Research analysts said.
TODAY'S TOP HEADLINES
China Goes All In on Green Industry to Jolt Ailing Economy
China is doubling down on manufacturing to reboot its economy after a turbulent year, a strategy that risks igniting new tensions over trade as countries step up support for prized industries and global growth teeters.
The push for new growth drivers comes as figures showed the world's second-largest economy expanded in 2023 at its weakest rate in decades, aside from the three years when China was closed to the outside world during the Covid-19 pandemic. A drawn-out property crunch means Beijing can no longer rely on debt-fueled real-estate investment to power the economy, and officials have shown little appetite to shift activity decisively toward consumer spending.
Fed's Beige Book finds signs of a cooling labor market across most of the country
There were signs that the labor market was cooling in nearly all regions of the country, according to a Federal Reserve survey released Wednesday.
The survey, known as the Beige Book, is a collection of anecdotes from business contacts collected before Jan. 8.
Why the economy's health right now isn't as uncertain as you might think
Economic risk is merely average right now. I point this out to counter the many stock market analysts who have warned in their 2024 forecasts that the U.S. economy's current risk level must be at or near a record high.
And many of you are convinced they're right.
The analysts' recitation of current risks will be familiar: The war in the Middle East could escalate into World War III. The Ukraine war could spiral out of control too. Then there's the possibility of higher U.S. inflation and interest rates, along with a possible recession. The list goes on.
War, Politics Eclipse Economics on Davos Leaders' Minds
Never mind interest rates, inflation or recession. The economic concerns that usually preoccupy the global elite at their annual gathering in Davos are taking a back seat to hot war in Ukraine and the Middle East, cold war between the West and China and watershed elections from India to the U.S.
For government and business leaders, it is a disorienting departure from a world in which fortunes were mainly driven by financial forces. The World Economic Forum, which hosts the meeting, is now the de facto world geopolitical forum.
U.S. Likely to Levy Higher Penalties for Export-Control Violations
A top U.S. official said businesses should expect much higher penalties for violations of export controls, the use of which has expanded as the U.S. seeks to curb the ability of Russia and China to obtain certain technology.
U.S. penalties for export-control violations could begin to approach the size of those meted out for foreign bribery, Matthew Axelrod, the Commerce Department's assistant secretary for export enforcement, said Tuesday evening at an event at New York University School of Law.
The U.S. Plan for a Postwar Middle East Isn't Gaining Much Traction
WASHINGTON-Biden administration officials say the path toward a more stable Middle East goes through the ruins of Gaza. But that goal keeps running into the harsh realities of a region plunged into conflict.
The latest blows to the White House plans are the persistent attacks by Houthi forces in Yemen against international shipping in the Red Sea-a show of Arab support for Palestinian militants in Gaza against Israel that has prompted the U.S. and its allies to hit dozens of areas controlled by the Iran-backed Houthis with air and missile strikes. The exchanges are pulling the U.S. into a wider conflict and threaten to worsen regional tensions.
Pakistan Conducts Airstrikes in Iran
ISLAMABAD, Pakistan-Pakistan carried out airstrikes early Thursday inside Iranian territory, Pakistan's foreign ministry said, killing Pakistani militants there.
The action was taken in retaliation for an Iranian airstrike inside Pakistan on Tuesday, which had targeted Iranian insurgents.
Updates to follow as news develops.
Sovereign-Wealth Giant Pursues Goldman Sachs, KPMG and Others Over SVB Collapse
The world's largest sovereign-wealth fund is going after the now-defunct Silicon Valley Bank, its management and the Wall Street advisers that aided its rise.
Norges Bank Investment Management, which manages Norway's $1.5 trillion wealth fund, and other former SVB shareholders attacked the failed bank in a legal filing late Tuesday. The filing accused SVB and its executives of concealing the lender's ailing health from public view, while also ignoring warnings about risks from rising interest rates.
BHP Reviews Nickel Plans Amid Market Rout
The world is awash in nickel, one of the key ingredients in batteries for electric vehicles. That's roiling many miners that produce it.
BHP Group, the world's largest miner by market value, on Thursday joined several other producers in saying it will rethink plans for its nickel business to help it ride out the industry downturn. Prices of nickel have halved since the start of last year, as demand for the metal, including from EV makers, has failed to keep pace with new supply coming from countries including Indonesia.
Putin's Warped Wartime Economy, as Seen Through a Carton of Eggs
For a microcosm of how the war in Ukraine has warped Russia's economy, look no further than a carton of eggs.
The grocery staple has been in short supply in recent months and prices have skyrocketed, prompting Russians from Belgorod to Siberia to form lines reminiscent of Soviet times. President Vladimir Putin has publicly apologized, blaming the egg shock on the government. Last month, a poultry-farm boss known as "the Egg King" survived an assassination attempt shortly after authorities started investigating his farm due to high prices.
Iraq Prime Minister Says U.S.-Led Military Coalition in Iraq Is No Longer Needed
Iraq's prime minister said the U.S.-led military coalition that has been helping his country fight Islamic State militants is no longer needed, though he still wants strong ties with Washington.
"We believe the justifications for the international coalition have ended," Prime Minister Mohammed al-Sudani told The Wall Street Journal, as the war in Gaza frays Iraqi relations with Washington.
(MORE TO FOLLOW) Dow Jones Newswires
01-18-24 0015ET
