MARKET WRAPS

Stocks:

European stocks traded in positive territory on Tuesday as investors awaited Jerome Powell's latest speech following last week's Federal Reserve rate rise.

Powell's comments will be dissected for clues on the path of interest rates.

The U.S. labor market report last Friday has forced investors to rethink, and this week's equity theme is that central banks both need to raise interest rates more and that it may take some time before we see cuts, SEB said.

Stocks to Watch

Engie's earnings are expected to be hurt by the proposed inframarginal rent caps and triennial review of Belgian nuclear provisions, but the company's underlying equity story is still seen positively, Berenberg said.

The bank forecasts a 6.5% earnings per share annual compound growth over the 2021-23 period, from previous expectations of 8%, supported by renewables growth.

The French energy company targets 50 gigawatts of installed renewables capacity by 2025 and an investment-return criterion of 150 to 250 basis points return spread on all its renewable projects.

Analysts expect Engie's management to present an updated plan during full-year results, which should expand on this target, especially in regards to balance sheet headroom.

---

Legrand is seen with limited upside potential as near-term electrical product demand is feared to have suffered from a greater-than expected correction of customer inventories in the residential sector, Deutsche Bank said.

The bank downgraded its rating on Legrand to hold from buy.

"We also expect management to give conservative guidance for 2023 given the ongoing deterioration in the new build residential market and the recent decision to completely exit the Russian market, which still represented 1.5% of revenue in 2022," it said.

DB expects growth underperforming compared with peers in the next couple of years due to a less favorable mix.

U.S. Markets:

Stock futures ticked higher as investors looked towards Powell's speech.

Powell is due to speak at the Economic Club of Washington at 17:40 GMT, in an interview with Carlyle Co-Chairman David Rubenstein.

There's also data on trade and consumer credit, as well as a speech from Vice Chair for Supervision Michael Barr.

Forex:

The dollar pulled back after earlier gains as raiders awaited Powell's speech.

"Powell is likely to sound hawkish again..., thus possibly providing a little more support for USD," Commerzbank said.

However, the market continues to expect the Fed to cut interest rates this year and the ECB is also likely to sound hawkish, which limits the scope for EUR/USD to fall, it added.

---

The Riksbank needs to raise interest rates 50 basis points and signal further rate rises on Thursday to prevent further Swedish krona losses, ING said.

EUR/SEK is around 2.5% below its short-term fair value as markets increasingly price in the risk of Sweden facing high inflation, a recession and a housing market crash, ING added.

"There is no quick fix to restore confidence in the krona, and data will play a big role along the way, but for now, a hawkish 50bp hike by the Riksbank is a necessary move to try and halt the SEK slump."

Bonds:

The market keeps having second thoughts about the initial rally in eurozone government bonds that was ignited by the ECB with Bund yields rising back above their levels before the ECB meeting, with the exception of the short end, Commerzbank said.

"With yields above 2.25%, at least the carry for short to intermediate Bunds remains positive after the 50bp rate hike has almost arrived in full in German repo rates yesterday."

---

Generali Investments Partners favors a highly cautious and tactical investment approach for the time being, tactically playing the Bund yield range between 2% and 2.5%, with a risk that this could break higher, it said.

"We hold a negative view on the short end of the yield curve, given the two-year Bund yield currently aligns with official interest rates of 2.5%, which are expected to increase."

Overall, the portfolios of Generali Investments Partners' euro bond strategies are tactically short duration and defensive following the recent rally, Generali added.

They hold a moderate exposure to peripheral euro government bond debt, having reduced exposure in recent weeks following good performance.

Energy:

Oil pared earlier gains of more than 2% after Reuters reported that oil was being pumped on a pipeline linking Northern Iraq and Ceyhan, a key terminal on Turkey's Mediterranean coast, while exports from the terminal were expected to resume later today.

Meanwhile, Equinor said it had halted production at a major facility in the North Sea due to a technical fault unrelated to the earthquake, with the outage expected to last until at least Wednesday.

Wind Turbines

Rising metal costs for wind turbines slowed their installation in Europe last year, according to Bank of America.

"Countries have failed to deliver on their ambitious wind-farm targets, partly because the costs of key inputs, including steel and copper, have been volatile and are trending higher,"

BofA said that 12 gigawatts of wind capacity was installed between January and November last year, citing WindEurope, but that 30 gigawatts need to be installed each year if the European Union is to meet its climate goals.

It added that the "economics of energy transition projects need to be addressed at an early stage," as costs rise for renewable technologies, with raw materials accounting for 15-20% of the total.

Metals:

Base metals were mixed and gold higher, as a rising dollar and firmer crude prices pulled the commodities complex in different directions.

The macro environment was sending mixed signals, Peak Trading Research said.

"Crude oil has recovered some ground and forward-looking inflation metrics are up, but the U.S. dollar is at four-week highs following last week's strong U.S. employment data."

Peak Trading Research added that markets were trading fundamentals over macro sentiment.

DOW JONES NEWSPLUS

EMEA HEADLINES

Apollo in Talks to Take Stake in Credit Suisse Investment-Banking Unit

Apollo Global Management is among a group of financial firms in talks to take a stake in Credit Suisse Group AG's revamped investment bank, people familiar with the matter said.

Credit Suisse said last year that it would carve out the advisory part of its investment-banking operation into a new entity under the resurrected CS First Boston brand following a string of scandals. The bank said it would raise outside capital to launch the new entity, which it hopes to list in a separate initial public offering eventually.

BP Slows Transition to Renewable Energy as Oil Bonanza Continues

LONDON-BP PLC said it would slow its transition to lower-carbon energy, as oil-and-gas production helped push the company to a record profit last year.

BP's results showed it joining its peers on both sides of the Atlantic in capitalizing on soaring energy prices. And its strategic shift highlighted how fossil fuels continue to be the profit drivers for the industry's biggest players.

Ams-Osram Shares Slump on Weak Smartphone, Auto Sensors Demand

Shares of Ams-Osram AG plunged in Tuesday morning trading after the Austria-based electronics company said it was experiencing weak smartphone volumes and muted demand in the automotive sector for the current quarter, with revenue expected to come below analysts' forecasts.

At 0950 GMT, Ams-Osram's Swiss-listed shares traded 18% lower at CHF7.76.

Carlsberg Warns on Costs Pressures Ahead of Challenging Year - Update

Carlsberg AS on Tuesday raised its dividend but held back launching a new share buyback and cautioned that 2023 will be another challenging year amid elevated cost pressures.

The Copenhagen-based brewer said that due to hedging, last year's commodity and energy price increases will have a significant hit on cost of sales and logistics costs this year.

German Industrial Production Fell in December

German industrial production declined more than expected in December, after an upwardly revised output in November, data from the German federal statistics office Destatis showed Tuesday.

Industrial output, comprising manufacturing production, energy and construction, fell 3.1% on month in December on a price-, seasonally- and calendar-adjusted basis, Destatis said. Economists in The Wall Street Journal's poll forecast a 0.6% decline.

BNP Paribas Raises Targets, to Launch Buyback After Revenue Surges on Interest Income

BNP Paribas SA's fourth-quarter profit fell but revenue rose on bumper net interest income, as it raised its targets to 2025 and said it would launch a 5 billion euro share buyback.

The French bank, the largest in the eurozone by market capitalization, reported net profit of 2.15 billion euros ($2.31 billion) in the three months to December, down from EUR2.31 billion in the same period in 2021.

Siemens Energy 1Q Net Loss More Than Doubled - Update

Siemens Energy AG said Tuesday that its net loss more than doubled in the first quarter of fiscal 2023 as Siemens Gamesa Renewable Energy SA's operational troubles weighed on performance, and that it plans a capital raise as part of its takeover of the unit.

The German energy company registered a quarterly net loss of 598 million euros ($643.4 million) for the quarter ended Dec. 31, from a loss of EUR246 million in the same period the previous year.

Holcim Buys US Roofing Company Duro-Last for $1.29 Bln

Holcim Ltd. said Tuesday that it has agreed to buy U.S. roofing-systems company Duro-Last in a deal valued at $1.29 billion.

The Swiss building-materials company said Duro-Last will strengthen its roofing offering, as its roofing-systems sales will exceed $4 billion ahead of schedule. Duro-Last generates pro-forma net sales of $540 million, Holcim said.

A digital currency is likely to be needed, says U.K. Treasury and Bank of England

The U.K. government said Monday that a digital currency is likely needed, as countries around the world examine the changing nature of payments.

A statement issued by both the U.K. Treasury and the Bank of England said they were seeking comments, though they said no decision has yet to be taken. The consultation will run through early June, and a decision about whether to implement a digital pound will be taken around the middle of the decade. The earliest stage at which the digital pound could be launched would be the second half of the decade.

U.K. Regulators Are Urged to Address Pension Risks After Last Year's Crisis

British regulators failed to properly monitor the risks created by the derivatives-based investment strategy that upended the U.K.'s pension sector last year, an investment approach that poses a continuing risk to companies if changes aren't made, according to a U.K. legislative panel.

Liability-driven investments, known as LDIs, invest in derivatives that are tied to U.K. government bonds known as gilts. They help pensions match long-term liabilities they have to retirees with less capital than they would need had they owned regular long-dated gilts. That allows them to manage exposure to changes in bond yields and free the funds' balance sheets to invest in higher-returning investments such as stocks, real estate or private equity.

GLOBAL NEWS

The Market's Breadth Is Improving as More Stocks Join Rally

More stocks across different sectors are participating in the market's 2023 rebound, often an encouraging sign of a rally's durability.

The S&P 500 has risen 7.1% in 2023, with last year's worst performers bouncing back sharply to lead the way. Some of the bellwethers of the U.S. stock market, including Meta Platforms Inc., Apple Inc. and Microsoft Corp., have broken through their long-term trend lines in recent sessions.

Bonds Have Been in Rally Mode. Don't Get Excited-The Fed Has More Work to Do.

Bonds got off to a great start this year but there may be challenges ahead as recent data suggest the Federal Reserve has more work to do.

There were 517,000 jobs added to the economy in January, more than double the level recorded in December and nearly triple the number forecast by economists. The white-hot labor market means that, while the Fed's interest rate hikes have shown some success in cooling inflation, the hikes have yet to lead to a meaningful drop in consumer demand as companies still feel the need to add labor-particularly in service-oriented parts of the economy.

China Foreign Exchange Reserves Rose as Dollar Weakened in January

China's foreign-exchange reserves rose in January, official data showed Tuesday, amid a weakening U.S. dollar.

The reserves rose by $56.8 billion from a month earlier to $3.184 trillion, said the State Administration of Foreign Exchange. The rise was wider than the $26 billion increase expected by economists polled by The Wall Street Journal.

U.S. Air Defenses Failed to Spot Earlier Chinese Balloon Intrusions, General Says

WASHINGTON-The military command in charge of U.S. air defenses failed to detect suspected Chinese surveillance balloons before the recent intrusion and learned about them later from intelligence agencies, the general overseeing the command said Monday, acknowledging a gap in defenses.

Gen. Glen VanHerck, commander of Northern Command and North American Aerospace Defense Command, contrasted those previous lapses in detecting balloons with the airship the military tracked and shot down Saturday. He described a surveillance gap and said the U.S. is trying to determine why the earlier flights went undetected.

Kevin McCarthy Targets Elimination of Budget Deficits in Debt-Ceiling Talks

WASHINGTON-House Speaker Kevin McCarthy said Republicans would seek to eliminate the annual budget deficit in talks with Democrats over raising the debt limit, a demand that would likely require deep cuts to federal spending.

Since they took control of the House last month, Republicans have been arguing that Congress should cut spending in exchange for GOP support for raising the debt limit, now at about $31.4 trillion. In an address Monday ahead of President Biden's State of the Union address on Tuesday, Mr. McCarthy (R., Calif.) laid out the size of the cuts Republicans are seeking.

Biden to Urge Quadrupling New 1% Tax on Stock Buybacks

WASHINGTON-President Biden plans to propose quadrupling the 1% tax on stock buybacks that took effect in January, which the White House said would encourage companies to invest in their growth instead of boosting shareholders.

Mr. Biden will discuss the proposed change during his State of the Union speech on Tuesday, the White House said in a preview of the address, in which the president will also tout economic progress since the early days of the Covid-19 pandemic. The plan to boost the buyback tax might struggle to advance through the divided Congress, where Republicans control the House.

Earthquake Rescue Efforts in Turkey, Syria Hampered by Snow

ISTANBUL-Snow, freezing temperatures and blocked roads hindered efforts to rescue survivors trapped under collapsed buildings across southern Turkey and northern Syria after two powerful earthquakes killed more than 5,000 people and destroyed thousands of homes.

Aid workers from around the world poured into Turkey on Tuesday to support local rescue efforts after a 7.8-magnitude earthquake on Monday morning was followed by a 7.5-magnitude quake in the afternoon.

Write to ina.kreutz@wsj.com

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

February 07, 2023 06:25 ET (11:25 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.