By Geoffrey Smith
Investing.com — Bond yields and oil prices march higher on signs of what Goldman Sachs (NYSE:GS) CEO David Solomon called “wage inflation everywhere” as he presented a disappointing set of fourth-quarter earnings on Tuesday. Procter & Gamble (NYSE:PG) will cast more light on that phenomenon when it reports earnings later. U.S. bond yields grind higher, dragging their German 10-year counterpart above 0% for the first time in nearly three years. U.K. inflation hits a 30-year high too. And Sony (NYSE:SONY) is in shock after Microsoft (NASDAQ:MSFT) swooped to snap up Activision Blizzard (NASDAQ:ATVI), transforming its position in the videogames market. Here’s what you need to know in financial markets on Wednesday, 19th January.
1 Inflation, inflation everywhere
Bond yields across the developed world hit fresh highs amid further evidence that inflation is rising faster and staying around for longer than central banks had expected last year.
The yield on the U.S. 10-Year Treasury bond edged up another 2 basis points to 1.90% overnight, its highest level in more than two years. That came a day after Goldman Sachs CEO David Solomon complained of “wage inflation everywhere” – not least at his own bank, where higher compensation ate into profits and sent its stock down 7%.
Elsewhere, the yield on the 10-Year German bond rose above 0% for the first time since May 2019 as German inflation was confirmed at 5.3% in December, while U.K. inflation also rose more than expected to a near-30-year high of 5.4%. Two senior Bank of England officials will speak later and may give clues as to the likelihood of another BoE rate hike at its meeting in early February.
2. Ready, Player 2?
Sony (NYSE:SONY) stock plummeted 13% in Tokyo trading in response to Microsoft’s acquisition of video games publisher Activision Blizzard. The $69 billion deal, Microsoft’s largest ever, will pose a serious challenge to the Japanese company’s status as the world’s second-largest video gaming company by revenue.
Whether or not the deal will end up restricting access to Activision’s games on Sony’s PlayStation console – the big rival to Microsoft’s Xbox – is yet to be seen. Antitrust regulators are certain to review the deal. Traders in Tokyo weren’t waiting for regulators to tell them how bad it would be for Microsoft’s competitors, however.
3. Stocks set to open with dead-cat bounce; P&G earnings eyed, ASML shines
Earnings season broadens out in scope on Wednesday, with reports due from UnitedHealth (NYSE:UNH) and, of special interest given the current focus on inflation, consumer giant Procter & Gamble. They report before the start of trading, while Dutch-based ASML already posted a big increase in profits and dividends.
United Airlines, Prologis (NYSE:PLD) and pipeline operator Kinder Morgan (NYSE:KMI) are also due to report, while Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) will flesh out the details of Wall Street’s fourth quarter.
Stocks in general are set to recover only a little of their heavy losses on Tuesday. By 6:20 AM ET (1120 GMT), Dow Jones futures were up 62 points, or 0.2%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were up 0.3%.
The data calendar is relatively light, with housing starts and building permits for December the only data of note.
4. Blinken to meet Lavrov as war clouds gather
U.S. Secretary of State Anthony Blinken will meet his Russian counterpart Sergey Lavrov for talks later this week in an effort to avert another Russian invasion of Ukraine.
Talks so far at more junior level have yielded scant results, and German Foreign Minister Annalena Baerbock also returned home from Moscow empty-handed on Tuesday.
Fears of a Russian invasion and occupation were stoked on Tuesday by news that Russian forces would conduct joint maneuvers in southern Belarus, less than 100 miles from the Ukrainian capital Kyiv.
5. Oil hits new highs after Iraq-Turkey pipeline blast; API eyed
Crude oil prices remained close to seven-year highs despite easing slightly on the back of news that a key export pipeline that takes oil from Iraqi Kurdistan to the Mediterranean has resumed limited operations.
The Kirkuk-Ceyhan pipeline, which runs through what has been one of the world’s most unstable regions for the last 20 years, was damaged by a mystery blast on Tuesday. Capable of carrying 450,000 barrels a day to world markets, it is currently operating at 75,000, according to Turkish officials quoted in newswire reports.
By 6:30 AM ET, U.S. crude futures were still up 1.2% on the day at $85.83 a barrel, while Brent crude was up 1.0% at $88.35 a barrel. The American Petroleum Institute releases its weekly estimate of U.S. stockpiles at 4:30 PM ET, a day later than usual owing to Monday’s holiday.
“Inflation Everywhere”, P&G Earnings, Sony in Shock – What’s Moving Markets