US EARLY MORNING: It's a flattish landscape ahead of key US jobs data and Services ISM

SNAPSHOT: US equity futures are trading with modest gains, Treasuries are mixed, with the short-end and belly slightly red, while the long-end is slightly green. The Dollar Index is a little better than flat. The tone of trading today will likely be shaped by Eurozone inflation data and the US jobs report, both to be released in premarket trade. We preview these events below.

GLOBAL STOCKS: Citi told its clients that it expects global equities to be range-bound this year, forecasting the MSCI AC World local index will trade between 680-780, vs current levels of around 730). The bank says that the good news is that interest rates should peak; the bad news is that it is modelling a 5-10% decline in global EPS. Citi favours European equities (where it says that more bad earnings news is priced) over the US, which it has cut to Underweight; it notes that consensus forecasts are looking for a mild recession and US inflation to fall to 3%. "This is expected to lead to slightly higher equities, slightly higher Fed Funds, lower 10yr UST yields, slightly lower USD, and lower oil and higher gold prices," it says. In terms of sectors, Citi likes defensives and cheap cyclicals (like Energy, Financials) over expensive cyclicals (Tech, Consumer Discretionary, Industrials). Meanwhile, in terms of fund flows at the start of the year, Citi's said that USD 4.6bln of outflows were seen from equity funds in the week ending January 4th, while bond funds saw inflows of USD 6.5bln. The equity redemptions were mostly from US funds, where USD 6.0bln of outflows was reported. Global funds, however, attracted inflows of USD 1.2bln, the bank says.

DAY AHEAD: In Europe, flash inflation metrics for December are expected to cool, as seen in regional updates from Germany, France, Spain and Italy; the consensus looks for the annual rate of HICP to pare back to 9.7% from 10.1%, while the core rate is seen cooling only moderately, to 6.5% Y/Y from 6.6%. European retail sales data, published at the same time as the inflation metrics, will largely be ignored given it is for November. EU sentiment surveys will be released around the same time. The US Day Ahead features the crucial US jobs data for December (our full preview can be accessed here); the expectation is for the headline rate of payrolls growth to cool, despite a few key labour market gauges suggesting the potential for upside; there will also be heavy attention on the unemployment rate and the average hourly earnings data, where the Fed wants to see wage pressures cool and the unemployment rate rise a bit to help manage inflation. The labour market report may take the sting out of the ISM services data due later in the afternoon as traders wind down for the week ahead of corporate earnings season getting into full swing next week when the banks begin reporting; traders will also be cognizant of the US CPI data due next week. On the speakers front, Fed’s Barkin (2024), Bostic (2024), and Cook (voter) will give remarks. Full Day Ahead schedule can be accessed here.

PREVIEW - US NONFARM PAYROLLS (08:30EST/13:30GMT): The rate of payrolls growth is expected to cool, with the street looking for the addition of 200k nonfarm jobs in December, which would be beneath the prior 263k rise as well as recent averages. The unemployment rate is likely to be unchanged at 3.7%, although regional Fed activity surveys suggest there are upside risks. The Fed forecasts unemployment will rise to 4.6% by the end of this year, and the central bank is comfortable with seeing the tightness in the labour market ease as it tries to bring rampant inflation back under control. On that note, the street expects average hourly earnings to cool on an annual basis (by 0.1ppts to 5.0%). Traders will interpret the data as hawkish – and therefore a negative for risk assets – if the headline and wages numbers come in above expectations, and conversely, would likely react dovishly (positive for risk assets) if they miss consensus. Our full preview can be accessed here.








06 Jan 2023 - 09:30- EquitiesData- Source: Newsquawk

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