Morning Bid Americas: Rates angst, China cut and credit card deal

Allegion

20/02/2024 11:03

A look at the day ahead in U.S. and global markets from Mike
Dolan
Wall St returns from its long weekend to a mix of interest rate
cut doubts, retailer updates and the biggest U.S. corporate deal
of the year - while China's latest monetary easing was brushed
off by markets overseas.
    With the Federal Reserve releasing minutes of its January
policy meeting on Wednesday, the rates market has been dragged
kicking and screaming back closer to where the Fed had
originally indicated at the end of last year. 
    After sparky new year consumer and producer price readings
last week, two and 10-year Treasury  US2YT=RR  yields hit their
highest for 2024 on Friday and Fed futures pricing now has
little more than 90 basis points of cuts in the mix for the
year. 
    That's now within range of the 75bps of 2024 cuts indicated
by Fed policymakers in December. 
    Don't fight the Fed?
    The inflation backdrop won't have been helped by the latest
jump in oil prices  CLC1 , which hit their highest in more than
three months on Tuesday and crude is now back positive
year-on-year for the first time since October.
    Iran-aligned Houthis continued attacks on shipping in the
Red Sea and Bab al-Mandab Strait, with at least four more
vessels hit by drone and missile strikes since Friday. One of
them, British-registered and Lebanese-managed Rubymar cargo
vessel in the Gulf of Aden, was in danger of sinking, according
to Houthis -- raising stakes in their campaign to hit shipping
in solidarity with Palestinians in Gaza.
    Canada releases its January inflation numbers into that
scenario later too. 
    The cloudier inflation picture also comes alongside poor
U.S. retail and industrial soundings for last month. WalMart and
Home Depot results later on Tuesday may give a reality check on
the former and to what extent freezing January weather distorted
sales data.
    But bracing for two and 20-year debt auctions on Wednesday,
Treasury yields slipped back a touch from the year's highs ahead
of Tuesday's open - with China's latest monetary easing greeting
the new week.
    China's central bank surprised many with the size of the
25bp cut to mortgage references rates earlier, even though
fragile markets remained slightly underwhelmed by the
authorities' efforts to stimulate credit and revive the ailing
property market.
    The blue-chip CSI300 index  .CSI300  notched a sixth
straight daily gain - broken by the lunar new year holiday - but
its advance on Tuesday was a paltry 0.2%. Hong Kong's Hang Seng
benchmark  .HSI  did a little better and rose 0.6%.
    Despite the rate cut, the offshore yuan  CNH=  appreciated
slightly - though it was laced once again with suspicion of
state-back buying. The dollar  .DXY  was more mixed elsewhere -
a touch higher on the yen  JPY=  but lower on the euro  EUR= . 
    On the other hand, China optimists cling to more upbeat
lending and tourism data that show signs of domestic demand
re-emerging.
    But a potential crackdown in the financial sector will keep
markets on edge. China's top financial watchdogs vowed to ensure
 the sector adheres to 'Communist Party values' and serves the
economy while avoiding "excessive" and "reckless" risks, the
party's official newspaper said on Tuesday.
    Back on Wall St, S&P500 futures were in the red ahead of
Tuesday open but the long-weekend also brought the biggest
corporate merger of the year. 
    Warren Buffett-backed U.S. consumer bank Capital One plans
to acquire U.S. credit card issuer Discover Financial Services
 DFS.N  in an all-stock transaction valued at $35.3 billion to
create a global payments giant.
    The deal, which is expected to receive intense antitrust
scrutiny, would form the sixth-largest U.S. bank by assets and a
credit card behemoth that would compete with rivals JPMorgan
Chase  JPM.N  and Citigroup  C.N .
    Discover Financial's share price was up more than 10%
premarket.
    The other buzz of the coming week will be Nvidia's  NVDA.O 
hotly-awaited results on Wednesday -- as the artificial
intelligence chip boom sees investors scramble for all things
AI-related.
    Nvidia shares, up about 50% this year, could swing by about
11% in either direction, according to data from options
analytics service ORATS. That's the largest expected move
options traders have priced in ahead of Nvidia's earnings over
the last three years and well above the stock's actual average
earnings move of 6.7% over that period, ORATS reckoned.
    With Nvidia's market capitalization at $1.8 trillion, a move
of that size would make for a potential swing in market value of
about $200 billion. That would be greater than the market
capitalization of chipmaker Intel  INTC.O  and larger than the
respective market values of about 90% of S&P 500 constituents. 
    In Europe, Barclays shares  BARC.L  surged 7% as the British
bank laid out a three-year plan to revive its flagging stock
price, including axing 2 billion pounds of costs, returning 10
billion pounds ($12.6 billion) to shareholders and investing in
its high-returning UK bank.
    
Key diary items that may provide direction to U.S. markets later
on Tuesday:
* Canada Jan inflation, US Jan leading indicators, Philadelphia
Fed's Feb service sector business survey
* U.S. corp earnings: Walmart, Home Depot, Palo Alto Networks,
Allegion, Medtronic, Public Storage, Caesars Entertainment,
Celanese, International Flavors and Fragrances, Realty Income,
CoStar, Keysight Tech, Chesapeake Energy, Diamondback Energy,
CentrePoint Energy, Evonix  
* U.S. Treasury sells 3-, 6-, 12-month bills

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China cuts rate to revive property market    https://reut.rs/49J2JFt
Canada's headline inflation and interest rates    https://tmsnrt.rs/48wBnSM
Wall Street's favorite AI plays dominate trading    https://reut.rs/42FFGcj
Militant attacks affect shipping movement    https://reut.rs/4bKMWaG
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 (By Mike Dolan, editing by Ed Osmond
mike.dolan@thomsonreuters.com)
 ((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: mike.dolan.reuters.com@thomsonreuters.net))