Waller’s spicy speech, ISM, chipmaker updates – what’s moving markets

(C) Reuters

By Geoffrey Smith

Investing.com — Central bank watchers get more than they bargain for as they tune in to Federal Reserve Governor Chris Waller’s latest warnings on inflation. Two-year bond yields are set for their highest weekly close since 2007. The ISM releases its non-manufacturing survey. Broadcom and Marvell offer starkly diverging views of the outlook for chipmakers, but VMWare and C3.AI surprise positively. Rajiv Jain rides to the rescue of Gautam Adani, and Russia’s armed forces claim they’re close to capturing the town of Bakhmut, the focal point of fighting in Ukraine for the last four months. Here’s what you need to know in financial markets on Friday, 4th March.

1. Fed’s Waller, Bostic warn on rate path

Benchmark 2-year U.S. bond yields are set for their highest weekly close in over 15 years, at the end of a week stamped by fears that inflation isn’t coming down as quickly as hoped.

Two Federal Reserve officials – Governor Chris Waller and Atlanta Fed President Raphael Bostic – said on Thursday that they’re open to raising rates by more than they previously thought would be necessary, pushing market expectations of the ‘terminal’ fed funds rate in this cycle ever closer to 5.5%.

Bostic stressed that he’s still in favor of “slow, steady” increases rather than reverting to hikes of 50 basis points. Waller’s prepared remarks indicated he still sees a terminal rate of between 5.1% and 5.4%, but would revise that higher if economic data continue to come in hotter than expected.

“Hotter than expected” was one way of describing Waller’s comments in general. The speech, which was due to be delivered remotely – ended up being canceled after one user’s device was hacked and used to broadcast pornography to the rest of the participants.

2. Mixed fortunes for chipmakers

Chipmakers Broadcom (NASDAQ:AVGO) and Marvell (NASDAQ:MRVL) offered starkly contrasting outlooks for the year ahead as the semiconductor industry grapples with a looming glut.

Broadcom stock edged up in premarket after it forecast a “soft landing” in the second half, cushioned by an order book that still looks amply stocked and by strong demand for chips powering the rapid expansion in artificial intelligence applications. That echoed with a strong outlook from C3.AI (NYSE:AI), which rose over 16% in premarket.

By contrast, Marvell Technologies stock fell nearly 9%, putting it on course to test a five-week low when it opens later, after the company forecast earnings in a range around 29c a share in the current quarter, around 30% below consensus.

3. Stocks set to extend rebound; ISM Non-manufacturing survey due

U.S. stock markets are set to extend their gains after rebounding on Thursday, putting them on course for a weekly gain that looked unlikely a couple of days ago.

By 06:45 ET (11:45 GMT), Dow Jones futures were up 62 points, or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.4%, with Broadcom’s outlook giving support to most of the rest of the chipmaking sector. Solid reports from VMware (NYSE:VMW) and Hewlett Packard Enterprise (NYSE:HPE) also reassured as to the strength of business investment, although Dell (NYSE:DELL) and Zscaler (NASDAQ:ZS) both slumped after giving weak outlooks.

Early attention is likely to focus on the ISM’s non-manufacturing survey due at 10:00 ET, with the market on the lookout for any further evidence of ‘sticky’ inflation.

4. Rajiv Jain gives Adani some breathing space

Embattled Indian tycoon Gautam Adani got a shot in the arm, as GQG – a U.S.-based investment firm founded by Indian-born Rajiv Jain – injected $1.9 billion into various parts of his struggling empire.

The move was the biggest external vote of confidence in Adani’s group since it was hit by a short-selling report from Hindenburg Research, which accused it of using excessive debt and shell companies to inflate the value of its portfolio companies’ stocks.

Adani Enterprises (NS:ADEL), the group’s flagship holding company, rose nearly 17%, although it’s still down more than 50% year-to-date. Adani Ports and Special Economic Zone (NS:APSE) stock rose 10% and Adani Transmission (NS:ADAI) rose 5%.

5. Russians close in on Bakhmut

The battle for Bakhmut appeared to be nearing its end, as Russian forces claimed they had all but surrounded the town that has been the focal point of fighting in Ukraine for the last four months. Ukrainian authorities acknowledged that a bridge on the last serviceable road out of Bakhmut had been destroyed, further undermining the position of the remaining defenders.

The fall of Bakhmut would in theory allow Russia to resupply its forces further south in Ukraine more easily, making it harder for Ukraine to recapture the provinces that the Kremlin annexed last year. That in turn could provide a fresh test of U.S. and European resolve to continue supporting Kyiv.

Recent reports have suggested that France and Germany, in particular, have urged President Volodymyr Zelensky to consider peace talks – something that Zelensky and (at least in public) all of Ukraine’s western allies reject.