U.S. Federal Reserve Chairman Jerome Powell will deliver a speech amid growing signs of openness to a smaller rate hike this year. Brazil arrested hundreds more supporters of Jair Bolsonaro after a failed attempt to cancel last weekend’s presidential election. The U.S. stock market is set to open lower, with financial companies and chip makers under pressure after a pair of disappointing updates from Jefferies and TSMC. Oil prices are lower ahead of the release of U.S. oil inventories data and the government’s latest update on the oil market.
1. POWELL’S SPEECH ON SUPPORTING HOPES IN FAVOR OF SMALLER RATE HIKE
US Federal Reserve Chairman Jerome Powell will get a chance to support an idea that is gaining supporters by the day: namely, that the Fed’s next interest rate hike should be just 25 basis points.
San Francisco FRB head Mary Daly said at a Wall Street Journal event on Monday that there is a case for returning to the smaller steps the Fed preferred to use after the 2008 crisis, given signs that the “overheated” labor market is starting to cool a bit.
Atlanta FRB head Raphael Bostic took a more hawkish tone in a separate speech on Monday, saying the federal funds rate should rise to 5.25 percent by the second quarter and then remain at that level for a long time to come.
Powell is scheduled to speak at the conference, which will also feature the governors of the Bank of England and the Bank of Japan, as well as ECB board member Isabel Schnabel, at 09:00 ET (14:00 GMT).
2. BRAZIL INTENSIFIES CRACKDOWN ON PRO-BOLSONARO RIOTERS
Brazilian police detained hundreds more supporters of former President Jair Bolsonaro after they attempted to storm a government neighborhood in the capital Brasilia on Sunday.
More than 1,500 people were arrested in the unrest, which was the country’s worst since returning to democratic rule in 1985. The governor of Brasilia province was suspended after failing to prevent what happened.
President Luiz Inácio Lula da Silva, who took office just over a week ago, renewed criticism of his right-wing predecessor, who he said still encouraged such acts on social media. Authorities have shut down numerous other social media accounts they accuse of spreading anti-democratic content.
Brazilian assets held up relatively well on Monday on speculation that Lula will be able to restore order relatively quickly. The Bovespa index rose slightly, while the real weakened only slightly.
3. U.S. STOCK MARKET TO OPEN LOWER; JEFFERIES REPORT DISAPPOINTMENT PUTS WALL STREET IN FOCUS
U.S. stock indexes are set to open lower after a reversal on Monday that saw the major money indices trade mixed throughout the day. Comments from the Fed’s Bostic and Daly were a reminder that the central bank is in no hurry to end its tightening cycle.
By 06:25 a.m. ET, Dow Jones futures were down 99 points, or 0.3 percent, while S&P 500 futures and the Nasdaq 100 were down about 0.2 percent each.
Wall Street will likely be in focus later after Jefferies reported a decline in deal activity in the final quarter of the year, sending its shares down 2.0% in the premarket. Also in focus will be Bed Bath & Beyond (NASDAQ:BBBY), which reported fourth-quarter data just days after warning that it may have to file for bankruptcy. Virgin Orbit (NASDAQ:VORB) is also under pressure after a failed attempt to launch its first spacecraft into space from the United Kingdom.
Oil tanker company Frontline (NYSE:FRO), on the other hand, is expected to rise 20% after rejecting the controversial takeover of rival Euronav (NYSE:EURN).
4. TSMC MISSES SALES FORECASTS AND SUBSTITUTION FEARS HIT OTHER CHIP MAKERS
The chip sector has also seen some movement after Bloomberg reported that Apple (NASDAQ:AAPL) intends to replace Broadcom’s cellular modem chips with its own designs by 2025.
This news pushed Broadcom (NASDAQ:AVGO) back to losses in the premarket, continuing the decline that began on Monday, and also raised doubts about the extent to which Apple will be able to replace chips from other suppliers.
Taiwan Semiconductor Manufacturing (NYSE:TSM), the world’s largest contract chip maker, reported that its fourth-quarter earnings were 2% lower than expected, due in part to disruptions at Foxconn’s iPhone manufacturing plant in Zhengzhou, China, in November and December.
The news reinforced fears that a reversal in the semiconductor manufacturing cycle is looming after Samsung’s weak results last week.
5. CRUDE OIL PRICES STABLE AHEAD OF STEO AND API DATA RELEASE
Crude oil prices stabilized after rallying earlier in the week, helped by strong fuel demand data from India on Monday amid sharp signals of oil buying in China, the world’s biggest importer.
By 06:40 ET, WTI futures were up 0.6% to $75.05 a barrel, while Brent crude rose 0.4% to $79.98 a barrel and they struggled to stay above the $80 level.
Later in the session, the American Petroleum Institute (API) will release its weekly oil inventory data and the US government will release its latest Short-Term Energy Outlook (STEO). The US oil market is clouded by uncertainty about how quickly and at what price the strategic oil reserve can be replenished. So far, sellers are refusing to lower prices to the government’s suggested level of around $70.