UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European stock markets posted solid gains Tuesday, partially rebounding from the previous session's selloff, as investors awaited the start of the Federal Reserve's two-day policy meeting and looked ahead to another batch of U.S. corporate earnings.

In London, the FTSE 100 was lifted by the oil majors as BP and Shell advanced following a rally in the price of Brent crude. Miners were also on the rise.

Stocks on the Move:

Shares in Royal Mail rose 5% as investors welcomed moves by the company to cut costs despite reducing full-year profit guidance.

The company now expects an adjusted operating profit of around GBP430 million for the year ending March, compared with previous guidance of GBP500 million, due to a restructuring charge.

"Royal Mail's latest update showed the firm is continuing to drive efficiencies with plans to cut a further 700 management jobs," said AJ Bell investment director Russ Mould.

"In streamlining the business, Royal Mail needs to ensure it doesn't go too far and diminish its operational capability or spark widespread industrial action, the threat of which has hung over the business in the past."

Economic Insight:

Germany's Ifo business climate index rose to 95.7 in January from 94.8 in December, and together with the increases in the purchasing managers index and ZEW surveys this month, suggest that while the economy is losing momentum, it may not fare as badly as it was feared in the first quarter, said Pantheon Macroeconomics.

The increase in the Ifo index, however, still leaves it pointing to a further slowdown in the first quarter, Pantheon said. "We will need to see at least another increase next month, across all surveys, to change our view that, the Germany economy will have barely expanded in first quarter after a probable 0.2% to 0.3% increase in GDP in the fourth quarter," said senior Europe economist Melanie Debono.

Oxford Economics said the Ifo index surprised to the upside. The uptick was driven by solid improvement in future expectations, while current conditions eased further amid coronavirus-related headwinds, said Oxford Economics' senior economist Ricardo Amaro.

Mobility data remains on a more disappointing footing and continues to justify a cautious view on the near-term performance of the German economy, he warned. Oxford Economics forecasts the German economy will avoid a technical recession, expecting a fourth-quarter GDP contraction followed by a 0.5% rise in the first quarter.

Market Insight:

Italy's presidential elections put focus on the country's political stability, but the situation today is significantly different from the years before the pandemic when political uncertainty in Italy spilled over into financial markets, said Katharine Neiss, chief European economist at PGIM Fixed Income.

"The difference is due to the dual supporting pillars provided by Next Generation EU funds flowing into the country, and continued flexibility coming from the European Central Bank in terms of its asset purchases," she said.

It might not stop markets from testing the boundaries "as we progress through the uncertain presidential election process period, but it should limit the extent to which political uncertainty in Italy feeds through to financial market volatility."

U.S. Markets:

After a wild day of trading that saw a 1,000-point swing by the Dow, U.S. stock futures fell early Tuesday, though they already moved off their overnight lows.

Monday's sharp selloff and surprise rally came amid market uncertainty stoked by rising inflation, disappointing earnings, anxiety about the Fed's expected policy changes, fears of a Russian invasion of Ukraine and the ongoing Covid-19 pandemic.

Still, Dan Eye, chief investment officer at Fort Pitt Capital Group in Pittsburgh, told MarketWatch on Monday that the market is acting normally - it's just that we're not used to it after such a long bull market.

"The volatility we're seeing is normal. As the Fed pivots toward fighting inflation, we're going to see an environment of more push-and-pull and drawdowns in the stock market than we've seen over the last two years," he said.

Forex:

The euro looks unappealing amid a stand-off between Russia and the West over fears of a Russia attack against Ukraine, said ING.

"Until events in Ukraine become clearer, we would presume the much greater exposure of European economies to the crisis and the fact that one is still charged for holding euros, does not make the euro a particularly attractive vehicle to ride out the current storm," said ING.

EUR/USD could fall to 1.1265 heading into the Federal Reserve's policy meeting on Wednesday, unless there is a substantial de-escalation of tensions over Ukraine, ING said.

ING also said that calls for U.K. Prime Minister Boris Johnson to resign are reaching "fever pitch" but sterling is likely to remain little moved by the political uncertainty.

"Should Johnson leave, his successor would likely be seen as a safe pair of hands and we do not see any political risk premium being built into GBP," ING said.

The prospect of the Bank of England raising interest rates further and general risk appetite are far more important for sterling, ING said, noting that the pound fell on Monday in reaction to Russia-Ukraine tensions.

Deutsche Bank expects the European Central Bank to initiate policy rate liftoff with a 25 basis point increase in December 2022, rising more and earlier than the previously expected 10bp rise in December 2023.

Deutsche Bank's latest inflation forecasts show that the liftoff criteria could be met as soon as December 2022 and as late as June 2023, expecting the ECB to act at the start of this window. Deutsche also expects a faster pace for the ECB's tightening, with the first 25bp rate increase in December 2022 to be followed by 25bp increases each quarter until rates reach 0.50% in September 2023.

Commodities:

Oil prices rallied on tensions in Eastern Europe and the Middle East that pose a risk to supply in a tight market.

"The potential sources of geopolitical crisis such as the Russia-Ukraine conflict and the tense security situation in the Middle East, and the associated risks to supply, are likely to preclude any more pronounced price slide," said Carsten Fritsch, an analyst at Commerzbank.

European gas prices were steady as continued tensions in Ukraine balanced a moderate increase in gas supplies from Russia.

While the threat of conflict between Ukraine and Russia lingers, flows of gas through the Velke Kapusany gas station on the Ukrainian-Slovak border were expected at 454,175.179 MWh/day Tuesday, the highest amount since Jan. 1, according to data from operator Eustream.

Still, gas flows remain well below normal levels, and a smaller gas metering station on the Polish-German border continues to register gas supplies flowing eastward, rather than the usual westward direction into Western Europe.

DOW JONES NEWSPLUS

EMEA HEADLINES

Credit Suisse Investment Bank Set for Loss after Legal Hit

Credit Suisse is set to post a loss for its investment bank for the final three months of 2021, as a slow down in trading revenues and a CHF500m (GBP405m) hit from legal costs prove to be another blow to the Swiss bank after a series of crises.

The bank said that provisions for legal costs of CHF500m, more "normal trading conditions" and the closure of its prime services unit would hit profits in its investment bank in the fourth quarter. Credit Suisse is due to report its results on 10 February.

Ericsson Posts 4Q Net Profit Beat as 5G Momentum Continues

Ericsson AB on Tuesday posted a fourth-quarter net profit that beat expectations, as strong sales of 5G equipment in North America, Europe and Latin America helped offset a hefty sales decline in mainland China.

The telecommunications-equipment company reported net profit attributable to shareholders of 10.08 billion kronor ($962.4 million), compared with SEK7.52 billion a year earlier.

Rio Tinto Reaches Deals to Break Mongolia Copper Logjam

ADELAIDE, Australia-Rio Tinto PLC renegotiated agreements with the Mongolian government to advance a delayed and costly expansion of the Oyu Tolgoi copper mine, a sign of resource nationalism's impact on the mining sector.

Mongolia, Rio Tinto and Turquoise Hill Resources Ltd., the Toronto-listed, Rio Tinto-controlled company that owns most of the Oyu Tolgoi operation, have been in fighting for years over how to split the cost of an underground expansion that is several years late and more than $1 billion over budget.

German Business Sentiment Rises After Half a Year of Declines

German business sentiment has brightened at the beginning of the year, despite inflation, supply bottlenecks and rising coronavirus cases.

The Ifo business-climate index increased to 95.7 points in January from 94.8 points in December, data from the Ifo Institute showed Tuesday. This rise follows six consecutive decreases of the indicator after it peaked at 101.8 in June.

Remy Cointreau Posts Higher 3Q Sales; Backs Guidance

Remy Cointreau SA said Tuesday that sales rose in the third quarter of fiscal 2022, and it backed its full-year views.

Revenue came to 440.5 million euros ($498.9 million) for the three months to Dec. 31, up 21% on an organic basis from EUR350 million a year earlier, it said.

Swatch Swung to 2021 Profit as Sales Rise

Swatch Group AG swung back to profit in 2021 after a tough 2020 as sales rose on year, though didn't fully reach 2019 levels before the pandemic hit.

The Swiss watch maker on Tuesday posted net profit for the year of 765 million Swiss francs ($837 million) compared with a loss of CHF51 million the previous year, on sales which grew to CHF7.31 billion from CHF5.60 billion in 2020.

Modern Times Group Sells ESL Gaming to Savvy Gaming Group in $1.05 Bln Deal

Swedish gaming group Modern Times Group MTG AB said late Monday that is selling esports company ESL Gaming to Savvy Gaming Group in an all-cash deal worth $1.05 billion.

Following the sale, MTG will focus fully on accelerating growth in its pure-play gaming business, it said.

Royal Mail Downgrades FY 2022 Guidance on Plan to Cut Around 700 Manager Jobs

Royal Mail PLC said Tuesday that it plans to cut 700 manager jobs, and that it is reducing its guidance for fiscal 2022 because of the launch of a consultation process for its restructuring.

The British letter-and-parcel courier said that on a year-to-date basis, it has spent more than 340 million pounds ($458.7 million) on overtime, additional temporary staffing and sick pay during the coronavirus pandemic, which has been a headwind to delivering its productivity targets.

Unilever Plans Job Cuts as Activist Investor Trian Takes Stake

Unilever PLC plans to cut thousands of jobs as part of a reorganization aimed at speeding up its decision making, according to a person familiar with the matter, a move that comes as the Ben & Jerry's owner looks for ways to jump-start growth.

Unilever's chief executive, Alan Jope, has been under pressure to buoy sales growth for months but that has ratcheted up in recent weeks. The Wall Street Journal and others reported over the weekend that Nelson Peltz's Trian Fund Management LP had acquired a stake in Unilever, just days after the company abandoned its $68 billion bid for GlaxoSmithKline PLC's consumer-healthcare business, after being rebuffed on price.

NATO to Send Ships, Jet Fighters to Eastern Europe Amid Standoff With Russia

BRUSSELS-NATO allies are bolstering the alliance's eastern flank in response to Russia's military buildup around Ukraine, as the European Union set out plans for loans and grants for Kyiv worth more than $1.3 billion and the Pentagon ordered thousands of troops to prepare for possible deployment.

The moves are part of efforts by the U.S. and its allies to gird for what they believe could be an imminent military invasion of Ukraine, which Russia denies it is planning. President Biden held a videoconference with European leaders Monday afternoon to coordinate the trans-Atlantic response to the Russian troop buildup.

Differences Splinter U.S. Team Negotiating With Iran on Nuclear Deal

With talks to restore the 2015 nuclear agreement with Iran reaching a critical phase, differences have emerged in the U.S. negotiating team over how tough to be with Tehran and when to walk away, according to people familiar with the negotiations.

U.S. officials confirmed over the weekend that Richard Nephew, the deputy special envoy for Iran, has left the team. Mr. Nephew, an architect of previous economic sanctions on Iran, had advocated a tougher posture in the current negotiations, and he hasn't attended the talks in Vienna since early December.

GLOBAL NEWS

Treasury Wants Banks to Loop in Foreign Affiliates on Suspicious Transactions

The U.S. Treasury Department's Financial Crimes Enforcement Network has proposed a new rule that would allow banks to share so-called suspicious activity reports more readily with foreign affiliates.

The proposed rule, which FinCEN announced Monday, would create a pilot program to allow banks to share SARs with foreign branches and affiliates, a bid to improve financial institutions' ability to counter money laundering. The new program was mandated under the Anti-Money Laundering Act, which came into force in January 2021.

Investors Lose Appetite for Stocks of Unprofitable Companies

The prospect of rising interest rates has been especially hard on the Russell 2000 small-cap index, in large part because of the high proportion of small-caps that aren't making money.

During the market selloff of recent weeks, investors have been shedding speculative investments from tech stocks to cryptocurrencies. Speculative investments with their promise of higher returns thrived in the ultra-low-rate environment of 2021. Now that the Federal Reserve may raise interest rates as soon as March to combat inflation, investors are less comfortable with risk.

Glynn's Take: RBA Set to Entertain Interest Rate Rise in 2022, Exit QE in Feb

SYDNEY-In a significant rethink of the economic outlook, the Reserve Bank of Australia is set to concede that an interest-rate increase is now highly possible by late 2022, but reject money-market bets that it will keep pace with U.S. interest rate increases.

The RBA's first policy meeting for 2022 on Feb. 1 will also see its program of government bond buying wound up entirely, as it publishes revised economic forecasts that include the unemployment rate soon falling below 4.0%, its lowest since the 1970s.

Singapore Central Bank Tightens Policy in Surprise Move

Singapore's central bank on Tuesday unexpectedly tightened its currency policy as a pre-emptive move to stem the inflationary impact of supply-side constraints and rising commodity prices.

In an announcement before its scheduled policy meeting in April, the Monetary Authority of Singapore said it would slightly raise the rate of the Singapore dollar's appreciation against a basket of currencies.

SEC Looks to Bolster Market's Cyber Defenses

WASHINGTON-The Securities and Exchange Commission is exploring ways to improve cybersecurity in capital markets, including by extending compliance obligations to companies that currently don't have to meet them, Chairman Gary Gensler said Monday.

"The economic cost of cyberattacks is estimated to be at least in the billions, and possibly in the trillions, of dollars," Mr. Gensler said in a virtual speech to the Northwestern Pritzker School of Law's annual Securities Regulation Institute conference. "We at the SEC are working to improve the overall cybersecurity posture and resiliency of the financial sector."

North Korea Launches Suspected Cruise Missiles

SEOUL-North Korea launched two suspected cruise missiles on Tuesday, South Korea's military said, in what would be the Kim Jong Un regime's fifth weapons test of the month.

The missiles were believed to be launched from an unspecified inland location, South Korea's military said, without providing further details. North Korea's state media didn't immediately comment.

Biden Curses at Fox News Reporter After Inflation Question

WASHINGTON-President Biden called a reporter who asked him about the potential political consequences of inflation a "stupid son of a bitch" at a White House event on Monday.

Mr. Biden's comments came after Peter Doocy, a White House correspondent for Fox News, asked the president if inflation would be a political liability ahead of the midterm elections.

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(END) Dow Jones Newswires

January 25, 2022 06:07 ET (11:07 GMT)

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