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Marketmind: Jockeying for position

[December 13, 2022] (Reuters) - A look at the day ahead in U.S. and global markets from Mike Dolan.

With headlines dominated by the arrest in the Bahamas of failed crypto boss Sam Bankman-Fried, the regular investment world jockeyed for position before the week's defining U.S. inflation readout and obstacle course of central bank decisions.

FTX founder Bankman-Fried was arrested at the behest of U.S. prosecutors late on Monday, the day before he was due to testify before Congress about the abrupt collapse of one of the world’s largest cryptocurrency exchanges.

And the year's near existential crypto implosion continued to reverberate more widely, with the world's biggest crypto exchange Binance on Tuesday halting the withdrawal of major stablecoin USDC. Binance itself is awaiting the outcome of a series of Department of Justice investigations.

Broader markets were more concerned with the first of the week's big macro events - the release of November U.S. consumer price data. Headline inflation is expected to have dropped to 7.3% from 7.7% in October, with core rates ticking down to 6.1%.

Coming a day before the Federal Reserve's expected 50 basis point interest rate hike, the CPI number will be difficult to trade on.

Some analysts feel any surprises from the release may not register until the Fed decision and guidance is out of the way - with that complicated too by Thursday's policy meetings at the European Central Bank, Bank of England and Swiss National Bank.

Implied volatility gauges were pumped up as a result.

Despite the S&P500 registering its best day of the month so far on Monday, the VIX volatility gauge hit its highest in four weeks.

Other markets appeared in more of a holding pattern. U.S. 10-year Treasury yields hovered around 3.60%. The Fed's implied terminal rate is stuck just under 5%, even as futures markets continue to price almost a half percentage point cut from there by the end of 2023.

With icy weather snaps across the Northern Hemisphere, oil prices firmed after their recent swoon - but Brent crude remains below $80 per barrel.

Despite the week's big macro events, there was considerable individual stock movement and deal activity on Monday - with Microsoft rising after news of a stake in the London Stock Exchange Group grabbed most headlines.

Rivian Automotive slumped more than 6% after the company paused partnership discussions with Mercedes-Benz Vans on electric van production in Europe. Biotech firm Horizon Therapeutics surged 15.49% following a buyout offer from Amgen, while Coupa Software soared 27% after selling itself to private equity firm Thoma Bravo.

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A man shops at a Target store during Black Friday sales in Chicago, Illinois, U.S., November 25, 2022. REUTERS/Jim Vondruska/File Photo

Weber climbed 23% after the outdoor cooking firm agreed to be taken private by controlling shareholder BDT Capital Partners.

Chip wars were also in focus.

The United States said it has spoken with its partners, including Japan and the Netherlands, on tightening exports to China of equipment used to make semiconductors. The Biden administration aims to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment, in a bid to slow Beijing's technological and military advances.

China is responding by working on a more than 1 trillion yuan ($143 billion) support package for its semiconductor industry, sources told Reuters, in a big step towards self sufficiency in chips and to counter U.S. moves.

China stocks fell on Tuesday, as optimism over easing COVID-19 restrictions started to fade amid signs of a spike in infections in major cities including Beijing. Hong Kong announced that from Wednesday international passengers arriving in the territory would no longer face COVID-19 movement controls or be barred from certain venues.

With one eye on widening labor unrest across Britain, the UK jobless rate rose for a second month and there were other signs that some of the inflationary heat in the labor market is cooling as the economy stumbles, including an increase in older people looking for work.

But regular pay rose by a stronger-than-expected 6.1% in the August-to-October period, the biggest gain since records began in 2001, excluding jumps during the pandemic which were distorted by lockdowns and government support measures.

Key developments that may provide direction to U.S. markets later on Tuesday:

* U.S. Nov consumer price inflation report. Cleveland Fed issues Median CPI for Nov, NFIB U.S. small business survey

* U.S. Federal Reserve's Federal Open Market Committee starts 2-day meeting, policy decision on Wednesday

* U.S. Treasury auctions 30-year bonds

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

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