Last checked at 
* Major U.S. indexes higher; Nasdaq out front, up ~1.8%
* All major S&P sectors green: tech leads
* Dollar ~flat; gold edges up; crude, bitcoin rise
* U.S. 10-Year Treasury yield dips to ~1.84%
Jan 20 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
ROCKY START FOR U.S. STOCKS, HSBC RECOMMENDS HIDING IN CHINA
[1238 EST/1738 GMT]
HSBC cut its overweight rating on U.S. stocks and suggested
looking at emerging markets "to hide out in the meantime."
The analysts particularly recommended China given that it is
in a different stage of the growth and liquidity cycle.
While investors are betting on the U.S. Federal Reserve and
other major central banks to start raising rates, China cut its
benchmark mortgage rates on Thursday, following a surprise cut
to the central bank's rate for one-year medium-term loans on
Monday, underscoring its diverging monetary and economic
picture.
On the U.S. front, HSBC is worried that rising real interest
rates could pressure stocks and lead to a toxic mix for risk
assets.
"The combination of disappointing global activity, inflation
peaking and hawkish central banks could quite likely result in
an environment of falling breakevens and higher real rates in
the next six to twelve months in our view," HSBC strategist Max
Kettner wrote in a note.
Nevertheless, HSBC retained its preference for risky assets
and is not cutting exposure to them as sentiment and positioning
remains too downbeat.
The analysts also reversed HSBC's underweight rating on
eurozone equities, praising UK equities that have benefited from
the performance by commodities, particularly oil, in the past
two months.
(Bansari Mayur Kamdar)
*****
DON'T FEAR THE FED HIKES (1209 ET/1709 GMT)
With stocks off to a sluggish start to the year, in large
part due to inflation worries and the anticipated tightening of
monetary policy by the Federal Reserve to combat the rising
prices, Scott Wren, senior global market strategist at Wells
Fargo Investment Institute notes investors shouldn't be that
rattled by rising rates.
Wren points out that the S&P 500 is still down less
than 5% from its January 3 record and hasn't seen a meaningful
pullback in the past 18 months, having not touched its 200-day
moving average since June 2020, which might make the recent
downside volatility feel worse to many market participants.
But even with the Fed largely expected to begin hiking rates
at its March meeting, Wren points out that equities can respond
positively to a rate hike cycle, with a median return of 30% for
the S&P 500 during the five rate hike cycles starting in 1989.
In addition, none of those periods posted a negative return
and while there was volatility as the central bank prepared the
market for rising rates, the overall performance was good.
Wren does note that a question among investors is if the Fed
will be too aggressive, leaving the federal funds target rate
too high, especially with many expecting inflation to decelerate
and growth to slow in the latter half of the year, which remains
a risk, and anticpates the Fed will hike rates four times this
year.
(Chuck Mikolajczak)
*****
JOBLESS CLAIMS, HOME SALES, PHILLY FED: FASTEN YOUR SEAT
BELTS (11145 EST/1645 GMT)
Data released on Thursday was the equivalent of the
seat-belt sign lighting up on a cross-country flight,
accompanied by reassurances that the turbulence should shortly
subside.
The number of U.S. workers filing first time applications
for unemployment insurance defied expectations last
week by jumping 24% to 286,000, the highest level in three
months.
Analysts expected claims to move in the other direction,
shedding 10,000 to 220,000.
"The rise in claims reflects both an increase in layoffs due
to the surge in Omicron cases as well as an added boost from
large seasonal adjustment factors," writes Nancy Vanden Houten,
lead U.S. economist at Oxford Economics, who expects "claims to
gravitate back toward the 200k level once the Omicron wave
passes."
Even with last week's surprise jump, initial claims remain
near the upper end of the range associated with healthy labor
market churn.
Ongoing claims, reported on a one-week delay,
also rose more than anticipated, growing by 5.4% to 1.635
million - a level which is still below the pre-pandemic level of
about 1.7 million.
Separately, the sales of pre-owned U.S. homes
tumbled in the last month of 2021 by 4.6% to a 6.18 million
seasonally adjusted annualized rate (SAAR), according to the
National Association of Realtors (NAR).
While demand remains robust, inventory of homes on the
market remains depleted, dropping to a record low 1.8 months
supply from 2.1 months in November.
Single homes on the market are even more scarce, dropping to
1.7 months supply.
"December saw sales retreat, but the pull back was more a
sign of supply constraints than an indication of a weakened
demand for housing," tweeted Lawrence Yun, chief economist at
NAR.
Wednesday's report from the Mortgage Bankers Association,
showing an increase in applications for loans to purchase homes
even as interest rates are on the rise, suggests potential
buyers are eager to ink the contract before rates drift any
higher.
"Anticipation of higher mortgage rates could provide a lift
to home sales over coming months but tight inventories and
elevated prices will remain a constraint for buyers," says
Rubeela Farooqi, chief U.S. economist at High Frequency
Economics.
Brighter economic news came courtesy of the Philadelphia
Federal Reserve, which showed manufacturing activity expanding
at a more robust pace than economists anticipated.
The Philly Fed Business index jumped 7.8 points
to a reading of 23.2, leap-frogging past the even 20 consensus.
The surge was driven by new orders and shipments, but the
headline was held in check by slower delivery times and
employment.
Perhaps the worst bit of news in the report was the 6.4
point increase in prices paid, suggesting that while supply
chain issues might be on the wane, the resulting inflation is
still peaking.
"The uptick in the Philly Fed index is a pleasant surprise
after the plunge in the Empire State index," says Ian
Shepherdson, chief economist at Pantheon Macroeconomics.
"On the supply side, unfilled orders rebounded but failed to
reverse all the December drop, while the delivery times index,
which is less volatile, fell to a four-month low," Shepherdson
added. "Supply-chain pressures remain intense, but they appear
not to be worsening further."
As Shepherdson points out, the report stands in stark
contrast with Tuesday's Empire State print, which showed
manufacturing in New York plunging into contraction territory
for the first time in since June 2020.
A Philly Fed/Empire State reading above zero indicates
expanded activity over the previous month.
Wall Street is in recovery mode in late morning trading. All
three major U.S. indexes are sharply higher, with the tech-laden
Nasdaq enjoying a comfortable lead.
(Stephen Culp)
*****
EUROPEAN BANKS: GREAT EXPECTATIONS AHEAD OF Q4 (1011
EST/1511 GMT)
Betting on the recovery of European banks has proved a
mighty popular and lucrative trade, with the sector's index
doubling since the November 2020 vaccine breakthrough, and then
most of the world's central banks entering a tightening cycle.
The consensual "buy" rating on the sector seems here to stay
unless a dramatic and nasty trend emerges from the earnings
season.
Most of the banks listed on the pan-European STOXX are
expected to report Q4 2021 results in February and the prospects
are pretty good.
The broad financial sector as defined by Refinitiv is
expected to show profits jumped 61.9% year-over-year, even
higher that the average 48.6% seen for the STOXX 600.
In a note published today, Citi analysts provided clients
with a rather long list of reasons to believe in European
lenders:
1) The Fed will hike rates this year and the ECB should
follow suit from 2023.
2) The direction of travel for yields is up
3) Rotation towards value stocks should provide a boost
4) Banks are trading on a discount both on their own
historic average and against the broader market
5) Return on tangible equity is rising toward the cost of
capital
6) Dividends and buybacks are on the way up
Here's the latest Refinitiv data for the different sectors
of the STOXX 600:
(Julien Ponthus)
*****
U.S. STOCKS SNAP BACK IN EARLY TRADE (0957 EST/1457 GMT)
Wall Street's main indexes are higher on Thursday as results
from American Airlines and Travelers kept the positive momentum
going for the fourth-quarter earnings season, a day after the
tech-heavy Nasdaq index plunged into correction territory.
This, as the U.S. 10-Year Treasury yield, has
now deflated to the 1.8300% area after hitting a high of 1.9020%
on Wednesday. With this, growth is enjoying its best day
vs value in more than a month.
Indeed, tech, and FANGs are among
outperformers in the early going. NYFANG index member Netflix
will be reporting earnings after the close.
Meanwhile, as the Nasdaq Composite attempts to
recover, it faces resistance at its 200-day moving average,
which now resides at about 14,750.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
S&P 500: ENOUGH ALREADY? (0900 EST/1400 GMT)
In the 11 trading days from its January-3 record close, the
S&P 500 index has declined 5.5%.
Meanwhile, the 5-day moving average of the CBOE equity
put/call (P/C) ratio, which can be viewed as a contrarian
measure of sentiment, rose to 59% on Wednesday, or its highest
level since a 59.2% reading on May 14 of last year. That high
was just after the SPX completed a 4% slide, although in that
case, over just three trading days:
So far, in premarket trade on Thursday, equity index futures
are higher, and the P/C measure is ticking down to 58%.
Of note, since bottoming at 40.2% in June 2020, the P/C
measure has ranged between high-30% and low-60% readings. If
this pattern is to continue, then the measure could now be
signaling that market sentiment may have become sufficiently
bearish. If so, the SPX may have found, or could be very close
to, a low of some form.
However, also of note, for around 20 years, from 2000 to
2020, the measure's range was mostly in the 50% to 90% area. It
has only been post the COVID-crash, that the P/C measure's range
has shifted down to similar levels that led up to the
tech-bubble peak in 2000.
Therefore, traders will be watching to see if the P/C
measure is to oscillate back down toward, or below, 40%.
A breakout much above the low-60% area, however, may signal
panic. The measure peaked at 105% on March 17, 2020, in what
would prove to be a more than 30% S&P 500 collapse.
(Terence Gabriel)
*****
FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
