Marketmind: Keeping counsel ’til CPI

A look at the day ahead in U.S. and global markets from Mike Dolan.

No news from the Fed appears to be good news these days.

Markets breathed a collective sigh of relief that Tuesday’s first 2023 outing from Federal Reserve chairman Jerome Powell sidestepped any signal on policy rates and that he didn’t double down on more hawkish messages from his colleagues the day before.

Powell instead riffed on central bank independence from political influence and how the Fed should stay out of issues like climate change that are beyond its congressionally established mandate.

Perhaps wisely, the Fed chair held his counsel ahead of Thursday’s critical U.S. consumer price inflation report for December – now the main focus of the week for world markets.

Stocks around the world were higher on Wednesday, with Wall St futures marginally positive ahead of the open there. Ten-year Treasury yields ticked lower ahead of an auction of new paper later on Wednesday and the dollar was flat.

Fed runes aside, the economic picture for the year ahead improved little overnight with some trepidation about the unfolding corporate earnings season also a factor this week.

The World Bank almost halved its 2023 growth forecasts on Tuesday to the brink of recession for many countries – citing the impact of rising interest rates and inflation and energy problems related to Russia’s war in Ukraine.

It now sees global GDP growing 1.7% next year, the third worst outcome in 30 years and only eclipsed over that period by the slump in 2009 after the global banking crash and the pandemic shock in 2020. Its previous forecast from June had put 2023 growth at 3.0%.

While Thursday’s U.S. CPI release is expected to reinforce a picture of disinflation, there were signs of how sticky price rises can be elsewhere in the world.

Australian consumer prices showed annual inflation re-accelerated to 7.3% in November, after a surprise dip to 6.9% the previous month as the cost of holiday travel and accommodation picked up.

While U.S. investors await fourth quarter corporate readouts from the big banks this Friday, some of the early European earnings reports were eye-catching.

Shares in British insurer Direct Line crashed almost 30% after it scrapped its final dividend for 2022 following a surge in claims. Its peer Admiral also dropped 15%.

The UK Christmas retail picture was better, however. JD Sports stock climbed 4.8% after the clothes and footwear retailer reported total revenue growth of more than 20% for six weeks in the run-up to Christmas. Grocer Sainsbury also raised it profit outlook due to holiday sales.

Although easier energy prices and a mild winter have improved the economic picture in the euro zone somewhat, the problems remain clear. German engineering companies’ orders posted a double-digit fall for a second month in a row in November, with demand from the eurozone taking a particularly sharp dive, the VDMA engineering association said on Wednesday.

In corporate news, Bayer rose 2% after Bloomberg reported that activist investor Bluebell is pushing for a breakup of the giant pharmaceutical company.

Hong Kong stocks rose to another six-month high on hopes of a strong economic rebound from the COVID-19 pandemic and discounted values.

Copper prices hit another 6-1/2-month high, helped by hopes of better Chinese demand for the metal and the recent dollar decline. Gold prices hit their highest since May.

China introduced transit curbs for South Korean and Japanese nationals on Wednesday, in an escalating diplomatic spat over COVID-19 curbs that is marring the grand re-opening of the world’s second-largest economy after three years of isolation.

In banking, staff at Goldman Sachs are bracing for news on whether they will keep their jobs on Wednesday, as the U.S. investment bank begins a sweeping cost-cutting drive that could see its 49,000-strong global workforce shrink by thousands.

Diaried events and data releases that may provide direction to U.S. and world markets later on Wednesday:

* U.S. Treasury auctions 10-year notes

(By Mike Dolan, editing by Tomasz Janowski mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)