MARKET WRAPS

Stocks:

European stocks were struggling for momentum on Friday in cautious trading ahead of the release of the Federal Reserve's preferred measure of inflation.

"On one side of the very narrow path to a U.S. soft landing lies a cliff edge into the recession abyss," SPI Asset Management said.

"Investors have been skirting that chasm thanks to favorable inflation trends. Hence to no small degree, the Fed's reaction function to inflation, with business surveys flashing red, suggests today's core PCE could be a significant market mover," SPI added.

CMC said that regardless of today's PCE data, "it seems almost certain that we will see the Fed raise rates by another 25bps next week, and judging by the rally in U.S. stocks yesterday, the market has increasingly priced in that outcome instead of what might have been a 50bps move."

Stocks to Watch

Airbus is expected to be within touching distance of its 2022 EBIT guidance when it reports its earnings next month, but its expectations for 2023 are unlikely to help shares, Jefferies said.

The brokerage downgraded its rating on Airbus to hold from buy and reduced its target price on the European plane maker's share to EUR130 from EUR135.

On the back of the company's 2022 delivery miss, Jefferies estimates Airbus will guide for 740 plane deliveries in 2023 and an EBIT range of between EUR5.9 billion and EUR6 billion.

"There may be further downside risks to this range if management assumes a significant cost ramp, but we believe past performance would limit consensus downgrades below this threshold."

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Siemens remains compelling on a multi-year view but it is likely to get harder for the German industrial company to beat market estimates in 2023, Berenberg said.

The German brokerage downgraded its rating on the stock to hold from buy and reduced its target price to EUR170 from EUR175.

"We think there is limited upside risk to near-term consensus estimates and the next leg of the re-rating story, at least relative to peers, likely requires further portfolio action," Berenberg said.

Central Banks

Both the Fed and the European Central Bank will want more reassurance about a downward trend in inflation and see their policy tightening actions as a "long-distance run, not a sprint," Societe Generale said.

SG considers the market pricing of ECB interest-rate rises as not-coherent as it expects the ECB to continue its long-distance race at least until the summer.

Given the more resilient-than-expected economy and sticky inflation, the ECB still needs to deliver interest-rate rises to tame inflation, SG added.

Besides a 50bp interest rate rise in February, SG expects the ECB to strongly push back against the market's dovish mood and excessive pricing of rate cuts.

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A 50 basis-point interest rate rise by the ECB is "baked in" for next week's meeting, and it is unlikely to be the last one, unless the updated March forecasts provide a dramatically different outlook for inflation and growth compared to December, Federated Hermes Limited said.

"Further down the line, downside risks to the growth outlook are still pronounced, primarily stemming from structurally higher energy prices and a slowdown--possibly a recession--in the U.S. later this year."

As central banks are slow moving and data provides a backwards-looking picture of the economic situation, there is a risk the ECB will end up over-tightening, Federated Hermes added.

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The eurozone is likely to avoid a recession this winter, and while this is good news in the short term, it also brings with it problems, Pimco said.

If the recent resilience continues, the prospect of a ECB raising interest rates for longer would become very real, and probably rates would increase more than is currently priced into the market, Pimco added.

"Admittedly, we still expect the economy to weaken as some of the support from order books fades and tighter monetary policy feeds through to the economy."

Markets are pricing in the ECB's peak deposit rate slightly below 3.30% in June versus the current 2%, according to Refinitiv data.

U.S. Markets:

Stock futures edged lower with fresh inflation data eyed and with chipmakers likely to come under pressure following Intel's bleak outlook.

Intel's warning that the data-center market would contract in the first half of this year was taken as particularly poor news for AMD and Nvidia, which compete heavily in the sector.

The yield on the benchmark 10-year Treasury note ticked up to 3.539%, from 3.491% Thursday.

Big-name earnings due today include Chevron, Colgate-Palmolive, and American Express are due to report quarterly results before the market opens.

Forex:

The euro is holding up well above key chart support at $1.0850, which looks to have "formed a buy-the-dip floor" as traders look ahead to next week's ECB meeting, ING said.

ING expects the ECB to raise interest rates by 50 basis points next week, and to "maintain a hawkish tone" by pushing back against any speculation about rates being cut later in the year.

The impact on the euro may be limited, however, while any recovery in the dollar in the run-up to or after the Fed decision--which also takes place next week--could potentially cause EUR/USD to break lower, ING added.

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Dollar selling has started to fade as investors gear up for decisions by the Fed, ECB and Bank of England next week, MUFG said.

The DXY dollar index has kept above 101.50 while EUR/USD stayed below 1.0930, MUFG added.

"After the optimism fuelled by China reopening and falling natural gas prices that weakened the dollar, some reversal of that sentiment should result in some renewed strengthening."

A dollar recovery is possible though moves will be limited ahead of the rate decisions, MUFG said.

Bonds:

As a result of opposite forces, eurozone government bond yields are expected to move sideways in the first half of 2023, SEB said.

Increasing government bond issues, banks' repayment of loans taken via the ECB's targeted longer-term refinancing operations and balance-sheet reduction will push bond yields slightly higher, the bank said.

However, an anticipated downtrend in Treasury yields, as well as a likely increase in market pricing of ECB rate cuts later will limit the upside in long EUR rates, it added.

SEB expects the 10-year Bund yield to trade mostly between 2.00% and 2.50% in 1H.

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Eurozone sovereigns on aggregate have completed almost 12% of their annual bond issuance targets in January, Landesbank Baden-Wuerttemberg said.

LBBW's forecast for the eurozone's gross government bond issuance in 2023 is EUR1.245 trillion.

Including German and Italian bond auctions on Jan. 31, eurozone sovereigns will have issued EUR143 billion in government bonds this month, LBBW said.

This is higher than the previous January record of EUR136 billion in 2021, it added.

The highest monthly volume of government bond issuance in the eurozone was in June 2020, with EUR149 billion, LBBW said, as countries raised their initial bond issuance targets to cope with the economic impact of Covid-19.

Energy:

Oil prices edged higher but are set to end the week flat as the market awaited clues on Chinese demand and the focus turned to OPEC.

An OPEC+ advisory committee is set to meet next week and is likely to recommend the cartel keeps its production levels unchanged, ANZ said.

The cartel is likely to await clarity on Chinese demand for oil this year after its reopening and the impact of fresh sanctions on Russia set to come into force early next month, ANZ added.

Metals:

Base metals were mixed, with gold lower, ahead of China and other Asian markets returning to trading next week following the Lunar New Year break.

China's return is set to boost metal demand, particularly after strict Covid-19 lockdown restrictions tapered buying.

"Bullish sentiment is swaying prices,with metals markets enjoying strong upward momentum ever since Beijing shifted its strategy on Covid-19," Fitch Solutions said.

Fitch expects a further uplift in both physical demand and prices from the second quarter amid a weaker U.S. dollar.

DOW JONES NEWSPLUS EMEA HEADLINES

H&M Profit Battered by Rising Costs, Russia Exit

H&M Hennes & Mauritz AB reported a sharp drop in annual profit as rising costs and its decision to exit Russia hampered the fast-fashion giant's efforts to rebound from the Covid-19 pandemic.

H&M on Friday reported a net profit of 3.6 billion Swedish kronor, equivalent to $349 million, for the 12 months ending Nov. 30, a 68% decline on the previous financial year.

Israel's Tech Sector Says Judicial Overhaul Could Hurt Economy

TEL AVIV-Israel's technology sector is pushing back against the new government's planned judicial overhaul, saying the proposed changes are spooking investors worried about economic stability, the independence of the courts and a right-wing legislative agenda.

This week, a large Israeli software company said it would move its money out of Israel and the general partner of two venture-capital firms said future money raised could be kept abroad.

Bestway Group Buys Around $240 Mln of Shares in J Sainsbury

Bestway Group Ltd. said Friday that it has bought or agreed to buy shares worth 3.45% of J Sainsbury PLC's issued share capital, or around 193.4 million pounds ($240.0 million).

The family-owned multinational business said it acquired or agreed to acquire a total of 80.8 million shares in the British grocer, which based upon Sainsbury's closing price of 239.4 pence, would be worth around GBP193.4 million.

JCDecaux Shares Climb After 4Q Adjusted Revenue Rise Beats Guidance

Shares in JCDecaux SE rose Friday after the French outdoor-advertising company said adjusted organic revenue grew 5.1% in the fourth quarter, ahead of its guidance.

At 0813 GMT, JCDecaux shares jumped 5.9% higher to EUR22.44.

Remy Cointreau 3Q Sales Fell as US Consumption Trends Normalize

Remy Cointreau SA on Friday posted lower sales for the third quarter of fiscal 2023 as consumption trends in the U.S. normalized following years of pandemic-fueled growth.

The Paris-based owner of Remy Martin cognac said sales for October through December slipped to 437.6 million euros ($476.6 million) from EUR440.5 million in the third quarter of fiscal 2022. Overall, sales were down 0.7% on a reported basis and 6% organically.

SSAB Swung to 4Q Net Loss on Goodwill Impairment; Lifts Dividend

Swedish steelmaker SSAB AB on Friday swung to a fourth-quarter net loss after posting a hefty goodwill impairment, but reported a bigger-than-expected rise in revenue and raised its dividend.

SSAB made a goodwill impairment of 33.3 billion Swedish kronor ($3.24 billion), which includes all the goodwill related to the previous acquisitions of Ipsco and Rautaruukki.

Vestas Says Full-Year Earnings Hit by Impairment and Provisions

Vestas Wind Systems AS on Friday warned that full-year 2022 results have come in below expectations after project delays, an impairment and provisions all weighed in the fourth quarter.

The Danish wind-turbine maker pre-announced 2022 results with revenue of 14.49 billion euros ($15.78 billion), versus its guided EUR14.5 billion-EUR15.5 billion, with a negative earnings before interest and tax margin before special items of 8.0% versus the guided minus 5%.

GLOBAL NEWS

Consumer Spending, Inflation Data Due in Commerce Department Report

A report Friday will give details on the economic health of U.S. consumers at the end of a year, when they faced elevated inflation and rising interest rates.

The Commerce Department will release December spending, income and inflation figures at 8:30 a.m. ET. The report will offer a picture of the closing month of 2022 as the holiday season wrapped up, including spending on travel, medical care and other services.

Debt Ceiling Clash Revives Dispute Over Paying Bondholders First

The latest fight over raising the federal debt limit has renewed a debate over whether the government should pay some bills and delay others if the White House and Congress fail to raise the cap before it is breached.

Some Republicans say the Treasury Department can and should give priority to paying holders of U.S. government securities to prevent a default on the debt and to minimize any harm to the financial system. That would mean delaying payment of other government obligations, such as bills for transportation, agriculture and education programs.

Fed set to deliver quarter-point rate hike along with 'one last hawkish sting in the tail'

The Federal Reserve will downshift to a 25 basis point rise in its policy interest rate at their upcoming interest-rate meeting and will work overtime to make sure that the market doesn't get the idea that rate increases are finished, economists said.

"Despite the good news on inflation and being one step closer to done, it's likely too soon for the Fed to stop raising rates and likely too soon to signal a stop is imminent," said Jonathan Pingle, economist at UBS.

Israel's Tech Sector Says Judicial Overhaul Could Hurt Economy

TEL AVIV-Israel's technology sector is pushing back against the new government's planned judicial overhaul, saying the proposed changes are spooking investors worried about economic stability, the independence of the courts and a right-wing legislative agenda.

This week, a large Israeli software company said it would move its money out of Israel and the general partner of two venture-capital firms said future money raised could be kept abroad.

Republicans to Pick Party Leader as Some Call for Ousting Ronna McDaniel

DANA POINT, Calif.-The Republican National Committee on Friday is set to resolve a leadership fight that has revealed party divisions and opposition to incumbent Ronna McDaniel from both the grass-roots and some of the GOP's rising stars.

Interviews at the luxury Southern California resort where members are meeting this week suggest Ms. McDaniel is favored to win re-election as party chair following a contentious campaign within the traditionally clubby RNC.

Lawmakers Press for Access to Biden, Trump Classified Documents

WASHINGTON-Senate Intelligence Committee lawmakers are weighing how to force the intelligence community to turn over the classified documents that ended up in the personal possession of two presidents.

Special counsels are probing the discovery of classified documents in the home and former office of President Biden and the Mar-a-Lago residence of former President Donald Trump, and classified documents were also found recently at former Vice President Mike Pence's home. The Senate panel has been unable to obtain access to the underlying Biden and Trump material, thwarting its ability to assess the threat to national security, the extent of any damage, and the potential need for changes to procedures and laws.

Biden Administration Blocks Mining Near Minnesota Wilderness Area

The Biden administration moved Thursday to block mining upstream of the Boundary Waters Canoe Area of Northern Minnesota for 20 years, opting to protect a pristine wilderness over allowing production of minerals that could help fuel a potentially cleaner future.

The administration last year canceled two federal mineral rights leases held by Twin Metals Minnesota LLC, a unit of Chilean mining firm Antofagasta Minerals SA. The latest move could kill the company's planned underground copper-nickel mine, although Twin Metals said it would continue to fight the cancellation.

California Bar Seeks to Revoke Trump Adviser John Eastman's Law License

WASHINGTON-The State Bar of California is seeking to revoke the law license of John Eastman, saying the one-time lawyer for former President Donald Trump is unfit to practice law in light of his efforts to overturn the 2020 presidential election.

In a press release issued on Thursday, the state licensing body said it had launched a disciplinary proceeding against Mr. Eastman after determining that he violated an ethics rule prohibiting acts of "moral turpitude" and dishonesty.

U.S. Forces Kill Senior Islamic State Militant in Somalia

WASHINGTON-Nearly a dozen operatives with the Islamic State group in Somalia were killed in a U.S. military assault operation, including a senior militant who the U.S. had intended to capture but instead killed, U.S. officials said.

The raid, which took place in a mountainous cave complex in northern Somalia late Wednesday, killed Bilal al-Sudani, a key operative and facilitator of ISIS's global network who has been under U.S. sanctions. Ten other operatives were also killed. The operation resulted in no U.S. or civilian casualties, officials said, adding that the only injury suffered by an American servicemember was a dog bite from a U.S. military canine.

California to Provide More Water to Farmers and Residents After Recent Storms

The recent deluge of rain in California will mean increased water deliveries to cities and agricultural regions after years of cutbacks caused by the long-running drought.

The California Department of Water Resources said Thursday it expects to deliver at least 30% of the water supplies requested by agencies that serve 27 million people and nearly a million acres of farmland.

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(END) Dow Jones Newswires

January 27, 2023 06:22 ET (11:22 GMT)

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