Powell better heed history, else he may be doomed to repeat it -Cresset
Main U.S. indexes fall: Nasdaq down most, off >1.5%
All S&P 500 sectors red: comm svcs weakest, health off least
Euro STOXX 600 index rises ~0.3%
Dollar, gold little changed; crude up; bitcoin off ~1.6%
U.S. 10-Year Treasury yield edges up to ~3.68%
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POWELL BETTER HEED HISTORY, ELSE HE MAY BE DOOMED TO REPEAT IT -CRESSET (1154 EST/1554 GMT)
In his quest for credibility, some say that Federal Reserve Chairman Jerome Powell has been beating a hawkish drum.
Indeed, as Jack Ablin, chief investment officer and founding partner of Cresset, sees it, Tuesday's Q&A session at the Economic Club of Washington, which was Powell’s first public appearance since last Friday’s blowout jobs report, is just "the latest hawkish example of the Fed’s Open Mouth Policy."
Ablin says that the hot jobs report "prompted a cavalcade of arm-flapping monetary policymakers" to argue that rates need to go higher, and stay there for longer, to address today’s inflation environment.
According to Ablin, "the Fed’s 'get tough' sound bites are meant to hem in investor expectations," because Fed governors have been frustrated with investor expectations of rate cuts later this year. Fed Fund futures trading continues to forecast lower short-term rates in the second-half of 2023.
But to Ablin, the disconnect between the markets and the Fed has to do with the lag between policy, overnight rates and economic results, and specifically in this case, inflation.
Ablin says that history shows the time between a peak in the Fed Funds rate and the subsequent inflation trough can range anywhere from 17 months to more than three years. Thus, he believes if history is any guide, a May or June rate peak would correspond to an inflation bottom somewhere between November 2024 and August 2026.
Ablin's bottom line is that "a Federal Open Market Committee that expects to crush inflation this year would not only be disappointed, but they would likely raise rates too much and hold them there too long – resulting in unnecessary damage to economic growth, profits and jobs. If Jay Powell is a Volcker acolyte, then he needs to pay attention to history, lest he repeat it."
(Terence Gabriel)
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MICROSOFT'S BING, GOOGLE DUKE IT OUT IN ESCALATING CHATBOT WAR (1119 EST/1619 GMT)
Armed with the technology behind the viral chatbot ChatGPT, Microsoft MSFT.O has fired the first salvo in its battle to take share from Google GOOGL.O in the lucrative search market.
But analysts don't expect swift gains for the Windows maker because as artificial intelligence-powered Bing is going to run into competition from Alphabet Inc's Bard and will have to convince advertisers to switch away from a platform that holds an 85% share of the search market.
"It will take time to bring users back to Bing and they will need a crowbar to pry away advertisers from Google," analysts at brokerage Jefferies said.
There are lessons for Microsoft in its rival's success.
Google, a minor search player at the turn of the century, was able to wrestle market control from then-dominant Yahoo in the mid-2000s by using an algorithm that provided a more streamlined experience to users.
Still, artificial integration into software products could be a higher margin opportunity for Microsoft, analysts said.
It took about nine years for Microsoft's cloud business to hit revenue of $40 billion, but it is plausible for Microsoft AI to reach that milestone in half the time, said Piper Sandler.
AI-powered Bing could help Microsoft grow its share of the digital ad market to 7% from 3% in 2026, the brokerage added.
In any event, in Wednesday trade so far, MSFT is gaining around 0.6%, while GOOGL is sliding 8%.
(Akash Sriram)
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WALL STREET IS RED WITH EYES ON FED, EARNINGS (1017 EST/1517 GMT)
Wall Street's major indexes opened in the red on Wednesday but pared losses in the first half hour of trading as investors took some profits after Tuesday's rally and worried about earnings while they were encouraged by a less hawkish tone from Federal Reserve chair Jerome Powell on Wednesday.
Also in the mix was investor excitement over Tuesday's product announcement from Microsoft MSFT.O, which was last up 2%, helping the technology sector along with moves in U.S. Treasury yields and the dollar.
"Stocks are off their lows because Treasury yields have come down a bit and the dollar weakened on expectations the Fed will not be as hawkish as people feared before," said Gene Goldman, chief investment officer at Cetera Investment Management in El Segundo, CA.
Goldman also described fourth quarter earnings reports so far as "kind of lackluster at best" and said estimates for 2023 need to be revised further down due to "rising interest rates and still stubborn inflation which will lead to a decline in profit margins and weaker sales volumes."
Chipotle Mexican Grill CMG.N late on Tuesday reported quarterly comparable sales and profit that missed expectations as customers pulled back on expensive delivery orders and traffic stalled in December. The stock was last down 3%.
Here is a snapshot of the market from 1008 GMT:
(Sinéad Carew)
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SEMIS RALLY STILL HAS LEGS, SG SAYS BET ON ASIAN OPTIONS (0900 EST/1400 GMT)
Semiconductor stocks have rallied sharply this year after a rough 2022 and Societe Generale (SG), in a note, argues that there is potential for more upside even as fears of a U.S. recession continue to haunt investor psychology.
The MSCI's world semiconductor index .MIWO0SE00PUS has bounced 25% since the start of 2023, after falling 37% last year.
"If this is indeed a new semiconductor cycle, we should have a long run ahead of us," said Jitesh Kumar, derivatives strategist at Societe Generale.
Easing of U.S. financial conditions (FCs) has been one of the drivers of semi performance, Kumar added, with tighter credit spreads, a weaker dollar and lower equity volatility all contributing to the mix.
Semiconductor stocks which are positively correlated with inflation have also benefited from China's credit expansion.
"We believe positioning for some upside exposure via options makes for a sensible strategy given the potential for outsized returns in case a recession is delayed (as we expect)," he said.
Asian indexes like the Korea SE Kospi 200 index .KS200 and the Taiwan Stock Exchange Weighted Index .TWII offer better value for upside optionality compared to the Philadelphia SE Semiconductor Index .SOX, Kumar said.
Options liquidity also favors Korean markets, he added.
(Bansari Mayur Kamdar)
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NASDAQ COMPOSITE: SIX IN THE MIX? (0845 EST/1345 GMT)
The Nasdaq Composite .IXIC is attempting to rise for a sixth-straight week. With this, however, it faces a number of significant resistance hurdles:
The IXIC last rose six-straight weeks in January 2020. The Composite last gained for seven-straight weeks in November 2019.
The Composite closed Tuesday at 12,113.786, putting nearly 1% above last Friday's finish at 12,006.955.
Despite building bullish internal momentum, the tech-heavy index does have a number of resistance hurdles to overcome.
Last week the IXIC stalled within decimals of its mid-September high at 12,270.189. The Composite hit 12,269.555 before backing away.
If the IXIC can overwhelm this barrier it will then face the 38.2% Fibonacci retracement of the March 2020-November 2021 advance which can now act as resistance at 12,552. The resistance line from the November 2021 record high now comes in around 12,575 on a weekly basis.
Of note, last week, the Composite did manage its first weekly finish back above its descending 55-week moving average (WMA), a Fibonacci-based moving average, since mid-January of last year. That moving average is now support around 11,965.
However, given its weekly win streak, the IXIC may be getting stretched to the upside.
More solid support may reside around the 50% retracement of the March 2020-November 2021 advance at 11,421. The 40- and 200-WMAs are currently packed in tight zone around 11,465 to 11,410.
(Terence Gabriel)
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FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0845 EST/1345 GMT - CLICK HERE
IXIC02082023https://tmsnrt.rs/3JUVzEf
Wall Street redhttps://tmsnrt.rs/3Yx5hkj
Google owns significant chunk of the search engine markethttps://tmsnrt.rs/3HNIQAy
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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