MARKET WRAPS

Stocks:

European stocks were lower on Tuesday in a cautious session as investors anticipated further interest rate rise from central banks this week.

Further significant interest-rate rises are likely to be on their way after the European Central Bank delivers what is widely expected to be a 50 basis-point increase on Thursday as policymakers focus on reducing high levels of inflation.

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Stocks to Watch

European and U.S. hot-rolled coil steel prices are recovering, spurred by confidence from Chinese policy announcements, which ought to lead to a rebound of steelmaker margins in 2023, Deutsche Bank said.

"Although the environment remains fragile, we expect a further recovery and believe marginal EU capacity is likely to act as a backstop should prices correct again."

Steel stocks are still attractive, based on valuation and underlying cash generation, and Luxembourg-based ArcelorMittal is among the bank's top picks in carbon steel due to its non-European exposure and raw-material integration, DB said.

So too is Voestalpine due to the Austrian company's intrinsic quality, defensive end-market exposure and solid cash generation.

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Leonardo's exposure to the Italian, U.K and U.S. markets as well as the helicopters segment could hamper growth at the Italian aerospace-and-defense company, UBS said as it downgraded the stock to neutral from buy.

The company makes more than 55% of sales in those markets, which "in our view have more limited growth potential given current fiscal pressures and already high share of GDP spent towards defense," UBS added.

Leonardo's portfolio also has high exposure to the helicopters segment, which account for more than 30% of sales, but have received little attention under new defence spending programs, UBS said.

Central Banks

Inflation prints coming this week will prove crucial in navigating the road ahead in the ECB's policy, NatWest Markets said.

"We think the ECB is more likely to land at terminal rates around 3-3.25% (we forecast +25bp in both March and May, with risks to 50bp-25bp) than 3.5%, attempting to find a soft landing ."

NatWest Markets expects the ECB to both acknowledge the change in market pricing since December and lower gas prices, but at the same time to upgrade the growth outlook.

A 50 basis point interest-rate rise this week is all but certain, in line with market expectations, NatWest Markets added.

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As a 25 basis point interest-rate rise by the Fed this week is perfectly anticipated by the markets, investors may instead focus on Jerome Powell's communication for the next steps, Allianz Global Investors said.

However, core inflation remains high in a context where economic activity continues to show some resilience even if recent trends validate that the inflation peak is behind in the U.S., it added.

"As a result, we do not expect any complacency from the Fed," Allianz said, expecting the Fed to reaffirm its willingness to keep rates high for a long time to come, in order to ensure a sustainable decline in inflation towards its price stability objective.

U.S. Markets:

Stock futures edged lower, ahead of a spate of corporate earnings and the start of the Fed's two-day meeting.

The yield on the benchmark 10-year Treasury note ticked down to 3.527% from 3.550% Monday.

Earnings are due ahead of the market open from United Parcel Service, Spotify, Exxon Mobil, Caterpillar, General Motors, Pfizer and McDonald's.

Mondelez, Advanced Micro Devices and Snap are due to report earnings after the market close.

Forex:

The dollar should perform well in a cautious environment as traders await tomorrow's Fed decision, ING said.

The dollar should be able to continue yesterday's gains into the meeting, with high-beta currencies remaining main underperformers in the risk-off environment, it said.

"Our view...is that the Fed still has an interest in hanging on to a hawkish rhetoric and pushing back against speculation of an early peak and--above all--rate hikes in 2023.," ING added.

"The net result for the dollar may be positive."

Bonds:

Income is finally back in fixed-income thanks to higher yields and coupons, BlackRock Investment Institute said.

Short-term government bonds and investment-grade credit now offer some of the highest yields in the last two decades, it added.

BlackRock's preference for earning income right now is from high-quality fixed income assets as rates rise and stay high.

"Fixed income's appeal remains intact the longer central banks keep rates near their peak."

The lack of duration--or the sensitivity of bond prices to interest rates--in short-term paper also helps preserve income even if yields rise anew, BlackRock said.

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The government bond market rally this year was a little overdone, UniCredit Research said, adding that it came as no surprise that the mood has scaled down prior to the Fed and ECB meetings this week.

Economic data are still in the driver's seat, even as the release of German inflation data has been postponed, thus one major impulse for bond markets gone, UniCredit said.

Eurozone government bonds were reversing Monday's pressure, with 10-year bond yields trading lower.

Energy:

Oil prices were 1% lower as the market awaits clarity on Chinese demand and Russian supplies.

Russian oil exports continued to show resilience in the face of an impending EU crude products ban set to come into force Sunday.

"Russian oil continues to flow eastbound, which of course, is great news for Central Bankers, broader markets, and Brent Crude short sellers," SPI Asset Management said.

With China's Lunar New Year holiday having now passed, investors are also looking for clues that the nation's demand for crude is recovering.

Metals:

Base metals and gold were lower early in the London session, as traders await tomorrow's Fed decision on interest rates.

Gold prices remained strong, however, and are currently on track for their third monthly gain.

"Financial conditions have loosened and markets have rallied on softer inflation metrics over the past month," Peak Trading Research said.

"Traders expect that Powell will have a hawkish message tomorrow to temper some of this enthusiasm," Peak Trading Research said, noting that the fall in metals prices today reflect profit taking given the possibility of a pivot from the Fed.

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone's Economy Outpaced China and U.S. in 2022

The eurozone economy grew faster than China and the U.S. last year, underlining how the fading Covid-19 pandemic continues to scramble traditional patterns of global growth.

Figures released by the European Union's statistics agency Tuesday showed the currency- area's economy grew at an annualized rate of 0.5% as higher energy costs weighed on household spending. This translated into 3.5% growth in gross domestic product for 2022 as a whole, a faster rate than seen in either China or the U.S.

UBS Attracts Wealthy Clients to Help Lift Profit

UBS Group AG said wealth clients added new assets at the bank in the fourth quarter, helping it post a better-than-expected net profit.

The Swiss bank made a $1.65 billion quarterly net profit, more than the $1.28 billion analysts expected and up from $1.35 billion a year earlier. Inflows from its wealth customers picked up in the quarter across most regions, lifting the annualized growth above the bank's 5% target, to 7.9%.

UniCredit to Hand $5.70 Bln to Shareholders After Record Profit - Update

Italy's UniCredit SpA plans to distribute 5.25 billion euros ($5.70 billion) to shareholders in the coming months, EUR1.5 billion more than in the previous year, after the bank swung to a profit in the fourth quarter and posted revenue well ahead of analysts' forecasts.

The Italian bank said Tuesday that the distribution, subject to supervisory board and shareholder approvals, would consist of a EUR1.91 billion cash dividend and a share buyback of EUR3.34 billion. A first tranche of the buyback worth some EUR2.34 billion will launch once approved by the company's annual general meeting at the end of March, followed by another tranche of around EUR1 billion in the second half of the year.

Talking Markets: Further Hefty ECB Interest-Rate Rises Could Follow This Week's Increase

Further significant interest-rate rises are likely to be on their way after the European Central Bank delivers what is widely expected to be a 50 basis-point increase on Thursday as policymakers focus on reducing high levels of inflation.

The ECB's deposit rate currently stands at 2.0%. A half-percentage-point increase this week would take it to 2.5%.

French Economy Expanded Slightly in 4Q

France's economy eked out a small expansion in 2022's fourth quarter, shrugging off recession fears for this winter as the government cushioned households and businesses from high energy prices.

The French economy, eurozone's second-largest, grew by a marginal 0.1% from October to December compared with the previous three-month period, slowing from a 0.2% expansion recorded in the third quarter, according to preliminary data from the country's statistics office Insee released Tuesday.

French Workers Mount New Strike Against Macron's Pension Overhaul

PARIS-French workers are taking to the streets for the second time in two weeks, piling more pressure on President Emmanuel Macron's plans to raise France's retirement age and threatening further walkouts that could grind much of the country to a halt.

Striking teachers and railway, health and oil workers are staging marches in dozens of cities as a part of a nationwide day of action called by unions to force the government to back down from its pension overhaul. Train, subway and bus services are severely curtailed, and dozens of flights have been canceled. Many schools and nurseries will remain closed.

IMF Upgrades Outlook for Global Economy as Inflation Eases and China Reopens

WASHINGTON-Resilient demand, easing inflation and China's reopening should allow the global economy to grow a bit faster than previously expected, the International Monetary Fund said.

In its latest World Economic Outlook, released Monday Washington time, the IMF sees the global economy growing 2.9% this year, up from its October projection of 2.7%. The IMF expects growth to accelerate to 3.1.% in 2024, still less than last year's 3.4%.

Blinken Set to Meet Palestinian Leader Abbas as Tensions Flare

RAMALLAH, West Bank-U.S. Secretary of State Antony Blinken will meet Palestinian Authority President Mahmoud Abbas on Tuesday to press for calm after a surge in violence in the West Bank and Jerusalem.

"We have a lot on our hands in this moment," Mr. Blinken said Tuesday morning before a meeting with Israeli Defense Minister Yoav Gallant.

GLOBAL NEWS

Labor Report to Give Fed Look at Wage Inflation

Worker-pay and benefits data set for release Tuesday will shed light on whether the Federal Reserve is successfully cooling fast wage growth as officials meet to consider further increases in interest rates.

Other recent data has shown that rapid wage growth has begun to slow, putting less pressure on prices. The Fed has aggressively raised interest rates in the past year with the aim of tamping down on the economy to tame inflation. Central-bank officials are starting a two-day meeting Tuesday.

Private Equity Taps Insurers' Cash to Speed Up Growth

Investment firms that play on the cutting edge of finance are turning to one of the oldest businesses on Wall Street to turbocharge their growth: insurance.

Private-credit fund managers such as Blackstone Inc., Carlyle Group Inc. and Centerbridge Partners are increasingly forming partnerships with insurers, or buying them outright. Call it the merger of slow money and fast money.

Pro Take: Construction Sector Strength Could Undermine Fed's Effort to Cool Inflation

The Federal Reserve has started to see some progress in its nearly yearlong campaign to cool inflation, but there is one area that could prove problematic: construction.

While the single-family housing market has slowed as mortgage rates have surged, particularly pinching first-time buyers, other segments of the construction industry are still fueling inflation.

U.S. Pushes for Military Sites in Philippines to Counter China

WASHINGTON-The U.S. is hoping to reach an agreement this week to open as many as four U.S. military sites at Philippine bases in Washington's latest push to expand its strategic footprint across the region to counter threats from China, U.S. officials said.

Defense Secretary Lloyd Austin is meeting later this week with recently elected Philippine President Ferdinand Marcos Jr. in Manila and hopes to secure the deal, which would rotate groups of U.S. forces to sites in the country, U.S. officials said.

Joe Biden to End Covid-19 Emergency Declarations on May 11, White House Says

President Biden will end a national emergency and public-health emergency declaration for Covid-19 on May 11, the White House said Monday, signaling a shift in the nation's approach to a pandemic that has claimed more than 1.1 million lives in the U.S.

The public-health emergency was first declared in January 2020, under the Trump administration, and has been renewed by 90 days every time it was due to expire. The national health emergency and the public-health emergency are now set to expire on March 1 and April 11, respectively, but the White House said the administration planned to extend the declarations to May 11 and then "end both emergencies on that date."

DOJ Closes Investigation Into Former Gen. John Allen Without Bringing Charges

The Justice Department dropped an investigation into whether retired Marine Gen. John Allen allegedly lobbied for the Qatari government, with federal prosecutors declining to bring criminal charges, Gen. Allen's defense lawyer said.

A Justice Department spokesman declined to comment but a person familiar with the matter confirmed that federal prosecutors have closed the investigation.

Australia's Nuclear Safety Agency Joins the Hunt for Missing Radioactive Capsule

ADELAIDE, Australia-Authorities intensified their search for a missing capsule containing radioactive material in Australia's far west, deploying car-mounted detection equipment for the first time as they began to retrace a truck's nearly 900-mile journey across the Outback.

The capsule, which is less than a third of an inch long and contains Cesium-137, is believed to have fallen from a truck somewhere between Rio Tinto PLC's Gudai-Darri mine and Perth, the capital of Western Australia. An initial search using hand-held radiation monitors failed to find the capsule, which was discovered to be missing on Jan. 25, prompting a public health alert.

Biden Administration Considers Cutting Off Huawei From U.S. Suppliers

WASHINGTON-The Biden administration is considering entirely cutting off Chinese telecommunications giant Huawei Technologies Co. from U.S. suppliers over national-security concerns by tightening export controls targeting the firm, according to people familiar with the matter.

The move-should the administration move forward-would mark the latest salvo in the high-stakes clash between the world's two largest economies as U.S. policy makers seek to counter China's industrial policy they say threatens Western interests.

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(END) Dow Jones Newswires

January 31, 2023 06:23 ET (11:23 GMT)

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