MARKET WRAPS

Stocks:

European stocks traded lower on Monday as the U.S. jobs report rekindled fears of a hawkish Federal Reserve, and as geopolitical tensions between China and the U.S. flared up.

"The surprising strength of Friday's payrolls report has certainly provided food for thought, and in so doing has outlined the risk that rates could well remain high for quite some time, especially if inflation continues to stay high," CMC Markets said.

"One thing Friday's strong jobs number didn't change was the fact that stock markets are still in their wider uptrend from the October lows, and they would have to fall a lot further for that to change."

Stocks to Watch

Zur Rose's sale of its Swiss business will give the company headroom to start reinvesting in its focus market of Germany and address near-term refinancing concerns, Citi said.

However, management still faces the challenge of returning the German business to growth, Citi added.

Zur Rose has been in the process of simplifying the brand portfolio following a period of relative underinvestment, it said.

Management has also positioned the asset sale as a positive from the perspective of e-prescriptions as it showcases the company's conviction in the German e-prescription opportunity, but Citi continues to prefer competitor Shop Apotheke.

Citi upgraded Zur Rose to neutral from sell.

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U.K. banks have benefited from higher interest rates, but face risks from potential deposit outflows, Barclays said, tweaking some recommendations.

Banks are set to achieve record net interest margins and decade-high returns on tangible equity thanks to rate rises, it added.

Still, quantitative tightening and escalating deposit competition raise the prospect of deposit outflows, Barclays said.

"Here we see Lloyds Banking Group as relatively better-placed given its greater reliance on retail savings."

"NatWest may be more exposed given its weighting towards flightier commercial current accounts."

Barclays upgraded Lloyds to overweight from equal-weight and increased its price target to 75 pence from 55p. It downgraded NatWest and Virgin Money to equal-weight from overweight.

Bank of England

The BOE's next move is more likely to be to raise rates further than to cut or hold them as there are still "material upside risks to our inflation outlook," Monetary Policy Committee member Catherine L. Mann said in a speech in Budapest.

"We need to stay the course, and in my view the next step in Bank Rate is still more likely to be another hike than a cut or hold," she said.

Before switching course, Mann would like to see "a significant and sustained deceleration in higher frequency price increases and in the underlying inflation measures and expectations towards inflation rates that are consistent with achieving the 2% target."

U.S. Markets:

Stocks were poised for a lower open on Monday, ahead of the week when Joe Biden delivers his State of the Union address, and the University of Michigan releases its preliminary CPI reading for February.

Dell will join the ranks of tech companies slashing jobs as the computer maker will cut 6,650 positions, according to a Bloomberg report on Monday.

Up ahead, companies including Tyson Foods are due to report before the bell. Gaming companies Activision Blizzard and Take-Two Interactive Software are due to report after the close, as is Pinterest.

Forex:

The dollar continued to gain after Friday's much stronger-than-expected U.S. jobs data, reaching its highest in nearly four weeks against a basket of currencies as the U.S. economy looks more resilient and more rate rises look likely, MUFG said.

"Market participants have moved to price in a higher probability of the Fed delivering at least two more 25bps hikes before pausing their hiking cycle."

U.S. rate markets have scaled back expectations for rate cuts beginning later this year, and thus the dollar has reversed most of its losses sustained since the start of the year, MUFG said.

MUFG said it doesn't expect the dollar's rebound "to be the start of a more sustained upward trend."

"The underlying trend for job growth is still slowing but not fast enough to make the Fed comfortable over upside risks to inflation from the tight labour market."

Bonds:

Bond markets are off to a strong start in 2023, running with the downward inflation trend in the US, J.P.Morgan Asset Management said.

"As a result, bond demand has picked up and government bond yields have rallied."

This has benefited JPM AM's preference for adding U.S. duration at the beginning of the year, it said, adding that, in the near term, inflation, wage and economic growth data may keep government bond yields range bound.

"Ultimately, we prefer to remain structurally long U.S. duration as we continue to see a 60% chance of the market pricing in a recession later this year."

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A desire to increase fixed-income allocations has seen robust demand for this asset class at the start of the year and this has created a supportive technical dynamic, RBC BlueBay Asset Management said.

"However, once this demand is sated, elevated deficits across the Continent and a ECB selling bonds to shrink its balance sheet, are both risks that could pressure yields higher."

RBC BlueBay AM looks for yields to rise, expecting bond supply to be a prevalent source of pressure on bonds in 2023.

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The price action in German Bunds on the day of the ECB's meeting last Thursday highlighted the importance of the positioning factor, Morgan Stanley said.

It is "something we considered a key factor with the valuation versus macro data or the seasonality," MS said.

With the setback in yields after U.S. nonfarm payrolls data on Friday, the Bund yield has stabilized around Morgan Stanley's model fair value, it added.

A more benign supply backdrop and the seasonality factor will finally turn supportive for Bunds this coming week, MS said, expecting a gradual decline in 10-year Bund yields below 2.00%.

Read Drop in German Bund Yield on Day of ECB Meeting Is Historically Large

Energy:

Oil prices ticked 0.6% higher after fresh Western sanctions on Russian refined products came into effect.

An EU ban on Russian refined products and a G-7 price cap on those products came into force Sunday.

The caps prevent shipping and insurance firms from trading Russian refined products unless they are below a cap of $100 a barrel for gasoline, diesel and jet fuel and $45 a barrel for naphtha and fuel oil.

The measures have been well-flagged and Europe has built up strong stockpiles in recent weeks, limiting the measures' hit on prices.

"EU buyers have had time to prepare for the ban," ING said.

Metals:

Metals prices were mixed, while gold was higher, with the dollar still rising after Friday's strong U.S. jobs report.

Friday's robust nonfarm payroll figure boosted the dollar--with the ICE index up 0.2% to 103.15 today--and hit risk commodities, meaning the Fed might stay hawkish with regards to monetary policy, ANZ Research said.

"Any macro disappointment could lead to a short-term price correction before seeing a sustained rise in prices," it said with regards to industrial metal prices, adding that gold is likely to face headwinds for similar reasons.

Copper Outlook

Strong demand from China and supply strains from South-American mined production is likely to keep copper prices elevated according to Fitch Solutions.

Fitch said it expects prices to average $8,500 a metric ton in 2023, but added that it sees significant upside risks to this, driven by China's reopening.

"Despite a slight cooling of prices directly after the Lunar New Year holidays, we remain optimistic about a recovery of copper demand from Mainland China in the coming months."

The research firm added social unrest in Latin America also remains a near-term threat to supply.

DOW JONES NEWSPLUS

EMEA HEADLINES

Nissan Plans to Take Up to 15% Stake in Renault's New EV Company

Nissan Motor Co. plans to invest for an up to 15% stake in Renault SA's new electric-vehicle company, Ampere, the auto makers said Monday as they formally announced the alliance's reorganization.

The French-Japanese auto alliance said member Mitsubishi Motors Corp. will also consider investing in Ampere.

German Factory Orders Rose in December

New orders at German factories recovered in December, an indication of improving demand in the country's key manufacturing sector despite signs of an upcoming economic slowdown.

Factory orders rose 3.2% on month in December, swinging from a 4.4% fall in November, according to price-adjusted data from the German statistics office Destatis released Monday. However, it meant new orders rose in just four of the months of 2022.

Norwegian Air Shuttle Passenger Numbers Fell Slightly on Month in January

Norwegian Air Shuttle ASA said Monday that passenger numbers fell slightly in January compared with the prior month, but noted positive current booking trends.

The airline said it carried 1.13 million passengers in January, down from 1.32 million passengers in December. However, passenger levels increased 78% compared with the 637,376 it carried in January 2022.

Rovio Starts Strategic Review and Preliminary Talks Over Potential Takeover

Rovio Entertainment Oyj said Monday it has started a strategic review and preliminary non-binding talks with certain parties in relation to a potential tender offer for its shares.

The Finnish company behind the Angry Birds mobile-gaming franchise said it has received expressions of interest and indicative non-binding takeover proposals, and as part of the strategic review it has decided to enter into preliminary non-binding talks with certain parties, including Playtika Holding Corp.

Europe Hopes Its Latest Russian Energy Purge Is Another Nonevent

Europe is weaning itself off Russian oil and gas in steps. The next phase, targeting oil products such as diesel and jet fuel, could bring fresh snags for buyers and fat profits for refiners.

This weekend, the European Union stops importing petroleum products from Russia. This follows a ban on shipments of crude oil that came in early December, and before that, August's coal embargo.

Group of Seven Agrees to Expand Sanctions on Russian Oil Industry

The U.S. and its allies agreed to cap the sales price of premium Russian petroleum products such as diesel at $100 a barrel and limit low-value ones such as fuel oil to $45 a barrel, expanding their sanctions on Russia's oil industry.

Just as with the $60 a barrel price cap on Russian crude that the West imposed last year, the agreement will bar Western firms from handling seaborne cargoes of Russian oil products unless they are sold below the set prices. The sanctions aim to keep Russian oil available on global markets to keep prices steady, while also reducing the Kremlin's revenue in response to its invasion of Ukraine.

The World's Biggest Planes Are Finding Their Way Back Into the Skies

The world's biggest passenger airliners-many of which had been earmarked for the scrapyard-are being brought back into service as carriers rush to restore long-haul air travel.

Aircraft lessors said airlines are clamoring for their once-parked fleets of big jets, which typically each ferry hundreds of passengers on long-distance routes. The demand is limiting availability and pushing up the prices of rentals.

Ukraine Warns Russia Is Planning Major Offensive as Kyiv Shakes Up Military Leadership

DNIPRO, Ukraine-Ukraine warned that Russia was completing preparations for a major new offensive this month as Kyiv signaled a reshuffle in its military leadership amid a corruption scandal that has rocked the Defense Ministry.

Serhiy Haidai, the governor of the Luhansk region in eastern Ukraine, said Russia was continuing to bolster its offensive capacity and bring in troops to front line positions while decreasing its rate of fire in certain areas to save ammunition for the coming advance.

Israeli Military Kills Five Militants Near Jericho as Violence Spreads

Tel Aviv-Israeli forces said they killed five Palestinian militants during an operation targeting Hamas members in the Aqbat Jabr refugee camp near Jericho, the second such deadly raid in little over a week as violence escalates in the occupied West Bank.

Israel's military said it raided the camp to arrest two Palestinian suspects who last month attempted to carry out a shooting attack at a nearby restaurant frequented by Jewish Israelis, but their weapons malfunctioned and they fled. Israel's military said they were hiding out in the refugee camp with the help of family and locals, and had continued to declare their intentions to carry out an attack.

Moscow, Tehran Advance Plans for Iranian-Designed Drone Facility in Russia

Moscow and Tehran are moving ahead with plans to build a new factory in Russia that could make at least 6,000 Iranian-designed drones for the war in Ukraine, the latest sign of deepening cooperation between the two nations, said officials from a country aligned with the U.S.

As part of their emerging military alliance, the officials said, a high-level Iranian delegation flew to Russia in early January to visit the planned site for the factory and hammer out details to get the project up-and-running. The two countries are aiming to build a faster drone that could pose new challenges for Ukrainian air defenses, the officials said.

GLOBAL NEWS

The stock-market rally survived a confusing week. Here's what comes next.

Despite a Friday stumble, stocks ended a turbulent week with another round of solid gains, keeping 2023's young but robust stock-market rally very much alive.

But a cloud of confusion hangs over the market, and it will eventually need to be resolved, strategists said.

Upbeat Economic Data Keep Investors on Edge About Fed

The U.S. labor market remains incredibly strong. Investors can't decide if that is a good or bad thing.

At first glance, Friday's jobs report seemed to have very little for money managers to dislike. The U.S. economy added a whopping 517,000 jobs in January, while the unemployment rate fell to its lowest level since 1969, according to Labor Department data.

Banks Borrow Unsecured Cash at Record Clip While Deposits Flee

Banks were chasing away deposits during the depths of the pandemic. Now, some are paying higher rates to shore up cash.

Borrowing in the federal-funds market hit $120 billion on Jan. 27, the highest one-day total in Federal Reserve data going back to 2016. Activity in fed funds-used by banks and government-backed lenders to exchange cash reserves parked at the Fed-surged throughout the past year when the central bank raised interest rates at the fastest pace in decades.

U.S. Weighs Sanctions for Chinese Companies Over Iran Surveillance Buildup

The U.S. is considering new sanctions on Chinese surveillance companies over sales to Iran's security forces, officials familiar with the deliberations said, as Iranian authorities increasingly rely on the technology to crack down on protests.

U.S. authorities are in advanced discussions on the sanctions, according to the officials, and have zeroed in on Tiandy Technologies Co., a surveillance-equipment maker based in the eastern Chinese city of Tianjin whose products have been sold to units of Iran's Islamic Revolutionary Guard Corps, a hard-line paramilitary group.

Russia Sanctions Challenge Tight U.S. Diesel Market

U.S. fuel markets held steady in December after Western sanctions on Russian crude reshuffled global oil shipments. New restrictions that take effect Sunday could prove more complicated.

The measures, which target most of Russia's refined petroleum products, threaten to take supplies off the market as the country looks for new trading partners. Any confusion could buoy prices for diesel and other fuels that have remained stubbornly high since the Kremlin launched its invasion of Ukraine last year.

China Rebukes U.S. for Taking Down Its Balloon

BEIJING-China's vice foreign minister lodged strong criticism of the U.S. decision to shoot down a suspected surveillance balloon over the weekend, calling it an indiscriminate use of force that would further damage U.S.-China relations.

Vice Foreign Minister Xie Feng delivered the rebuke to the U.S. Embassy in Beijing on Sunday, according to a statement published Monday by the Chinese Foreign Ministry. The statement reiterated China's position that the balloon was an unmanned civilian aircraft that had drifted off course.

U.S. Weighs Sanctions for Chinese Companies Over Iran Surveillance Buildup

The U.S. is considering new sanctions on Chinese surveillance companies over sales to Iran's security forces, officials familiar with the deliberations said, as Iranian authorities increasingly rely on the technology to crack down on protests.

U.S. authorities are in advanced discussions on the sanctions, according to the officials, and have zeroed in on Tiandy Technologies Co., a surveillance-equipment maker based in the eastern Chinese city of Tianjin whose products have been sold to units of Iran's Islamic Revolutionary Guard Corps, a hard-line paramilitary group.

Billionaire Charles Koch-Backed Group Will Push GOP to Move Past Donald Trump

WASHINGTON-A group funded by billionaire Charles Koch will work to support a Republican presidential nominee other than Donald Trump, concluding in a strategy memo that "we need to turn the page on the past."

The organization, Americans for Prosperity, has stayed out of the last two presidential cycles but has concluded it needs to engage now as Mr. Trump mounts his third consecutive White House run. The memo released Sunday doesn't mention the former president by name but is unambiguous in its purpose.

Classified-Documents Probe Highlights Biden Family's Deep Ties to Penn

The discovery of classified documents from Joe Biden's vice presidency at a foreign-relations think tank might have surprised many in the country. The fact that the think tank was run by the University of Pennsylvania and bore the president's name shouldn't have.

For decades, the Ivy League school and the Biden family, across generations, have fostered close relations to their mutual benefit. Those benefits extend beyond the Penn Biden Center for Diplomacy and Global Engagement, where the documents were discovered in November.

Biden Prepares for State of the Union Speech as China Tensions, Job Gains Take Center Stage

WASHINGTON-President Biden will give the State of the Union address before a newly divided Congress on Tuesday, hoping to build off positive economic signs but facing fresh tensions with China and the lingering war in Ukraine.

Following the speech, Mr. Biden will travel on Wednesday to Wisconsin, a 2024 presidential battleground, and tout union jobs during a visit to Madison. On Thursday he is scheduled to visit Florida-the home of two potential 2024 GOP rivals, former President Donald Trump and Gov. Ron DeSantis-to highlight plans to strengthen Social Security and Medicare and reduce healthcare costs, the White House said. On Friday he will discuss his economic agenda with the nation's governors and meet with Brazilian President Luiz Inácio Lula da Silva.

Hong Kong Opposition in Court as Landmark National-Security Trial Opens

HONG KONG-Sixteen pro-democracy figures went on trial Monday in a landmark case in Hong Kong's crackdown on political dissent, drawing global scrutiny as the city's government launches a marketing blitz to restore the financial hub's allure to global business and tourists.

The arrests of the 16 in January 2021, part of a larger roundup that snared dozens of the city's most prominent politicians and activists and effectively snuffed out legislative opposition in the city, drew condemnation and sanctions from Washington and its allies. Most of the 47 people charged in the case have been held in prison for more than two years.

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(END) Dow Jones Newswires

February 06, 2023 06:23 ET (11:23 GMT)

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