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MARKETS IN REAL TIME March is still a long way away for the Fed

MARKETS IN REAL TIME March is still a long way away for the Fed

Jan 15 - Welcome to the home for real-time coverage of markets that are brought to you by Reuters reporters.

MARCH IS STILL A LONG WAY AWAY FOR FED (1330 EST/1830 GMT)

The Federal Reserve will begin its tightening period as soon as March, despite a strong possibility of four deck hikes in 2022.

Lee Ferridge, the head of state Street Global Markets' macro strategy for North America, believes the market might be taking the lead.

Ferridge told Reuters that it's a matter of making a move in March two months ahead. "There are a lot of moving parts before we get (to March).")

As long as the Omicron-led increase in coronavirus cases dampens economic activity, he points to the fact that the labor market has not fully recovered from the Covid-19 incident.

Jobless claims in the United States have increased more than expected, and Ferridge highlights a decline in real average hourly earnings on a yearly basis, as well as a strong labor market. This isn't necessarily a case for a maximum of employment.

"At the time of March, we have about four hikes scheduled in 2022, so we will remove some of the pricing."

PGIM anticipates that markets' market pricing is rising slowly as the Fed prepares to hike.

"The Fed may consider it prudent to slow down its tightening later this year, particularly if it is launching an early start to quantitative tightening," said PGIM economist Ellen Gaske in a Thursday note.

According to Ferridge, the best way to play this "overconfident" trade is by the dollar. Especially if the Fed slows the rate rise when it introduces quantitative tightening, it will not change the pace of inflation.

"A lot of people started the year over the dollar because they are adjusting to the normalization of policy, and there's still room for more people to go," says the manager.

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SLIDES FOR FOUR-MONTH IN BULLISH: AAII SURVEY (1330 EST/1830 GMT)

The number of individuals who describe their stocks as "bearish" and "neutral" has increased, according to a recent survey from the American Association of Individual Investors.

Optimism was last lower on September 16 as stock prices expected for the next six months fell by 7.9 percentage points to 24.9%, according to the AAII Sentiment Survey taken in the seven-day period ending Wednesday.

The bullish economy is below its historical average of 38.0% for the eighth week in a row, while expectations stock prices will fall for the next six months, putting the bullish economy at 38.3%, while the stock market is above the 30.5% historical average for bearishness.

The stock price rise in the coming six months will be essentially unchanged, up 2.9 percent to 36.8%, the sixth week in a row when neutrality is above its 31.5% historical average.

The coronavirus, as well as the unreturning to normalcy, monetary and fiscal stimulus, and inflation are the main concerns about stocks' perspectives. Other factors include earnings, valuations and Biden administration's initiatives.

(Herbert Lash)

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LED BY 1% DOW DROP (1250 EST/1750 GMT) WALL ST FALLS, LED BY EST/1750 GMT

Major US stock indexes are down in afternoon trading on Friday, led by a more than 1% decline in the Dow, while Wall Street's fear gauge and the Cboe Volatility index are also down.

JPMorgan Chase is the largest drop on the S&P 500, according to the bank.

The S&P 500 bank index has been down 2.3 percent on the day due to mixed results from other major banks.

Here's the early afternoon market snapshot from the United States.

(Caroline Valetkevitch)

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EUROPE WEEK 2: 15% GAP BETWEEN TECH AND BANKS (1150 EST/1650 GMT)

The session finishes with a second week of losses for European stocks and a 1.4% decrease since the start of the year.

Despite the performance of the pan-European STOXX, the gap between winners and losers is real.

Stocks may be affected by an early inflation/monetary tightening cycle in 2022, according to reports.

Eurobanks are up 10% so far in 2022 while tech stocks are down 5.4 percent. This is a gap of over 15 percent in two weeks.

While many central banks are anticipating - and are hoping - that inflation will peak later this year, the sectors which are generally boosted by rising prices are expanding.

Oil & gas in 2022 is up 9.2 percent in early days, while miners are up 7.6 percent, and insurers are up 5.9 percent.

Autos are also up a handsome 8%, as the hype surrounding EVs is very much a challenge for European investors.

For defensive sectors like healthcare, it's a different story of course.

Here are some of the most successful sectors of the STOXX 600 today and so far this year

(Julien Ponthus)

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BANKING ON IT: A VALUE STOCKS TOP PICK FOR THE LONG TERM (1130 EST/1630 GMT)

With multi-decade highs, bank stocks - which perform well during inflationary periods - are placed on investors' lists as they are expected to benefit from rising lending margins due to higher yields.

Despite the losses made on Friday, Dave Harden, the chief investment officer at Summit Global Investments, has chosen value stocks over growth in the long-term.

The S&P 500 banking industry gained 9.5 percent last week as Treasury yields increased by 1.9 percent from the benchmark index. Harden expects at least three Federal Reserve hikes with a higher chance of a fourth.

According to Vanda Research's weekly report on retail flows, retail investors have increased their exposure to lenders' markets.

According to the report, financials are among the most sought after equity sectors due to recent history, with small-time investors raising $289 million over the last week, compared to an average of $190 million over the past two years.

Harden told the Reuters Global Markets Forum on Thursday that JPMorgan and Bank of America continue to outperform in 2022.

"People are haters here," says Meta Platforms, who is very cheap -- the bottom quartile -- compared to other large Tech names. But their growth is above average and their margins are top quartile... I know this is not popular, but it's time."

(Sanjana Shivdas, Aaron Saldanha)

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RELEASE THE HOUNDS - ER, DATA: A FRIDAY ECON WRAP-UP (1100 EST/ 1600 GMT)

On Friday, a torrent of information was released on market participants like a pack of dobermans. It was packed full on mostly unpleasant surprises, indicating that Omicron is still causing concern among Americans and the economy, as well as a shortage of electricity.

According to the Commerce Department, recollections and retail prices in the United States decreased unexpectedly by 1.9 percent last month.

The decline was large based on the line, with non-store retailers (which includes online and catalog), and department stores experiencing the biggest declines, with the lowest declines expected to be 8.7% and 7.0% respectively.

COVID cases kept shoppers at home, but pandemic-related supplies kept goods scarce, and prices increased.

"The American consumer was a rough month," writes Anu Gaggar, a global investment strategist at Commonwealth Financial Network. "Between higher prices, empty shelves, consumers sick of omicron, and holiday shopping pulled forward, retail activity declined even more than anticipated, and November numbers were also revised lower."

In addition, many consumers - in response to those supply challenges - seem to have begun their holiday shopping sooner than usual, benefiting from the October number on December's expense.

Core retail sales, which excludes autos, gasoline, construction materials, and food services, have dropped by 3.1 percent, as well as as the closest proxy for GDP's personal consumption.

The consumer contributes about 70% of the United States' economic growth, particularly in the dour news.

This month, consumers' attitudes have slowed.

Consumer Sentiment, from the University of Michigan, gave a print of 68.8, just below the even 70 consensus.

Attitudes about the situation in the United States are down, but pessimism about near term expectations are the most common concern.

Inflation weighed the most serious concerns on consumers in the opening weeks of 2022, with near- and long-term inflation expectations increasing to 4.9 percent and 3.4 percent respectively.

"While the Delta and Omicron versions certainly contributed to this downward shift, it was also due to an increase in inflation," writes Richard Curtin, senior economist at UMich's Consumer Surveys. "Three-quarters of consumers ranked inflation... as the most serious problem facing the country."

The latter gives a clear segue.

According to the Labor Department, the prices Americans pay for imported goods also drew some consensus.

The lower fuel costs of petroleum prices were largely responsible for the decline, adding a new voice to the growing chorus that the persistent inflation wave, which has forced the Federal Reserve to shorten its monetary policy policy for the COVID-era, is at or near its peak.

Export price increases fell on average year on year, down from 1.3 percent to a still-low 10.4%.

As the Fed tries to tighten its monetary policy, Mahir Rasheed, a US economist at Oxford Economics, says "import prices should begin to unwind in Q2.

Despite the fall in December, the series remains so hot that other important indicators, all of which continue to cruise at an altitude far above the Fed's average annual 2% inflation target.

Another unwelcome surprise was received courtesy of the Federal Reserve's industrial production report, which showed output unnoticeably decreased by 0.1 percent in the last month of 2021.

Manufacturers are disappointed even more, with factory production falling 0.4 percent in response to concerns raised by the 0.8 percent growth economists.

"We anticipate a soft headline, because we were less concerned about heating electricity, and natural gas extraction has dropped by 7.9%," says Ian Shepherdson, the CEO of Pantheon Macroeconomics. "The softness in manufacturing is disappointing, and it can't all be blamed on the ongoing supply problems in the automotive industry, where production has decreased by 1.3 percent.

Capacity utilization zagged as it was expected to zig, lowering nominally to 76.5% instead of increasing to 77%.

In the same vein, capacity usage, coupled with a measure of economic slack, remains substantially above what it was just before a global health catastrophe hit the market.

The Fed's report is a powerful reminder of the fragileness of the global supply chain, which has continued to fall apart due to a surge in demand, limited materials, and a lack of workers.

In a more ancient report, the value of goods in the store rooms of local businesses in the United States increased by 1.3% in November, bucking the trend by hitting the bulls eye.

The Commerce Department's data proves to be helpful in accelerating economic growth in the fourth quarter, implying that private inventories' contribution may stay out of the negative column, where it sat in the first half of 2021.

In morning trading, data wolves, along with a mixed set of big bank earnings from JPMorgan Chase, Citigroup, and Wells Fargo make investors a sell-off.

All three important stock indexes in the United States were red, with cyclicals and economically sensitive transports down the most.

(Stephen Culp)

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AS Q4 EARNINGS GATE OPENS (1005 EST/ 1505 GMT) BANK STOCKS STUMBLE

JPMorgan's 4.8 percent drop, while Citigroup's stock market falls 2.4% as some of the largest banks in the United States close the week on Friday.

The S&P 500 bank index was last trading down 2.0 percent on the day after hitting an intraday high in the previous day's session. It ended up up Thursday 10.4% so far for 2022, following a 32.3% increase.

Despite JPMorgan - the largest US bank that is a barometer of the economy's health - beat Wall Street's expectations even as it reported a 14% profit decline due to a slowdown in trading which offset a stellar performance in investment banking.

Due to a bumper deal, trade revenue increased by 13% and investment banking revenue increased by 28%.

Erika Najarian, an UBS analyst, wrote in a note ahead of the conference call that JPM's projection for $77 billion in expenses is 6% higher than consensus.

"This does not match the "beat and raise" stereotype investors expect for banks in 2022," said the bank's vice president.

On Friday, Citigroup reported a 26% drop in quarterly earnings, owing to increased costs and weaker consumer banking.

Wells Fargo topped analyst profit predictions in the quarter as a rebound in US economic growth encouraged more customers to take loans and the bank kept a tight lid on costs.

The news also reassured investors about other big banks' reports next week, with Morgan Stanley falling 2.6% and Goldman Sachs falling 2.4%.

(Sinead Carew)

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RISK-OFF IN WALL STREET IS RELATED TO (0915 EST/1415 GMT)

Stock futures on Wall Street traded lower on Friday after retail sales in the United States fell in December instead of remained stable and banking results at the start of earnings seasons failed to provide a motivation for improving risk-off sentiment.

Retail sales fell 1.9 percent in November after a 0.2 percent rise, according to the Commerce Department, while Reuters economists found retail sales in dispersion.

JPMorgan Chase & Co's stock price dropped by 14% due to a slowdown in its trading division. But analysts' estimates are based on exceptional results from its investment banking division.

Citigroup slid as the bank reported a 26% decrease in quarterly earnings, but the firm exceeded market expectations as strong gains in its investment banking business cushioned the blow from higher expenses.

After a greater-than-expected profit in fourth quarter, Wells Fargo & Co sped up in pre-market transactions.

Futures for the Dow Industrials, the S&P 500, and the Nasdaq were all down 0.8 percent prior to the opening bell.

Here's a recap of the market:

(Herbert Lash)

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