MARKET WRAPS

Stocks:

European stocks were down, with the biggest losses in the technology and travel and leisure sectors.

Tech stocks were the biggest fallers as Treasury yields rise following recent comments from Federal Reserve officials that have boosted expectations for imminent monetary policy tightening. "However, today's bearish price action is still seen as temporary, with most market operators looking to hedge their portfolio with other asset classes ahead of what is going to be a crucial earnings season," ActivTrades analyst Pierre Veyret said.

Investors in interest-rate futures markets are betting on four to five interest rate hikes this year, according to CME Group.

"Markets are still trying to find a level for rate hikes. It was only in October the market was expecting one rate hike for 2022 and now it's expecting four," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. "That's reflecting the level of uncertainty we have in the market right now about the path of Fed policy."

Stocks to Watch: Germany's financial regulator has tightened some requirements on banks operating in the country in light of rising house prices, and this should crimp Deutsche Bank and Commerzbank's excess capital the most, Citi said.

Citi estimates the banking sector will take a 7 basis-point hit to core equity tier 1 ratio from the measures, which should reduce excess capital to 6% from 7%.

"The risk is more regulators in Europe adopt such measures in the face of stimulus-fuelled housing booms," it said, adding that similar measures have already been taken in some Scandinavian and Eastern European countries.

Regulators might be hoping that a strong repricing of loans will cool demand for mortgages. Despite this headwind, Citi remains overweight on European banks this year.

Stocks on the Move: Shares of GAM Holding fell 8% after the Swiss asset-management firm said it would notch a net loss for 2021 equivalent to around $33 million.

High expectations put a dampener of Lindt's "excellent" sales development in 2021, Vontobel analyst Jean-Philippe Bertschy said after the Swiss chocolatier released figures showing higher revenue than in 2019.

Double-digit on-year growth in all regions in 2021 is a strong result, though slowdown in North America in the second half is disappointing, Bertschy said. And while the sales growth should be positive for operating leverage and, therefore, earnings, expectations were aggressive, he noted.

Vontobel nevertheless keeps a buy rating as Lindt confirmed guidance for 2021's operating margin and this year's sales and margin development. Shares slip 3.2%.

SMCP's board looks more independent and offers a greater range of expertise, Jefferies said after the French fashion group replaced representatives of its former parent with new independent directors.

Former Unibail-Rodamco-Westfield boss Christophe Cuvillier becomes chairman of the board, while three new independent directors were appointed last week after shareholders approved a motion jettisoning all representatives of Chinese former majority shareholder Shandong Ruyi and its holding subsidiary European TopSoho.

This is a positive development for SMCP's corporate governance ahead of new ownership, Jefferies says, noting that the company will benefit from greater director expertise across retail, real estate and risk management. Shares slip 3.2%.

Economic Insight: The U.K.'s labor market seems to have remained tight after both the end of the government wage-subsidy program and the start of the Covid-19 Omicron wave, strengthening the case for a rate increase in February, Capital Economics said.

"These [November-December] data suggest that labor demand has remained fairly strong, that supply is struggling to keep up and that the squeeze on households real wages is only just beginning," Capital Economics' chief U.K. economist Paul Dales said.

The firm expects the Bank of England to raise interest rates to 0.50% from the current 0.25% at its meeting on Feb. 3.

U.S. Markets:

U.S. stock futures fell, led by large technology stocks, as government bond yields rose to a two-year high, a sign that investors are rotating out of stocks that do well in a low-interest-rate environment.

A slew of financial companies are slated to post earnings ahead of the market open, most notably Goldman Sachs, plus Bank of New York Mellon, PNC Financial Services and Charles Schwab. Profits have begun to ebb at some big banks that benefited from the tumultuous pandemic economy.

In premarket trading, shares of electric-vehicle maker Tesla fell 2.5%. Twitter, Meta Platforms -formerly known as Facebook-and Amazon.com each fell about 2%.

The Cboe Volatility Index-Wall Street's so-called fear gauge, also known as the VIX-ticked up to 21.78, its highest level in a month.

Forex:

The dollar should remain supported by expectations for imminent U.S. interest rate rises ahead of the Federal Reserve's next meeting, ING said. The absence of notable data before the Fed's January 25-26 means pricing for monetary policy tightening should remain largely unchanged, ING analysts said.

That should offer some room for speculators to rebuild dollar longs, or bets on the currency rising, which were unwound in the first two weeks of January, they said.

"Another grim day for global equities may also help the dollar to find some support," they said, noting the dollar's safe haven status.

Cryptocurrencies, which have shown themselves in recent weeks to be sensitive to monetary policy as risk assets, were lower. Bitcoin, the leading crypto, was down 2.5% over the last 24 hours to below $42,000, according to data from CoinDesk. Smaller peer Ether fell 3.5% over the same period to around $3,150.

The latest U.K. jobs data support expectations the Bank of England will raise interest rates further and this should benefit sterling, ING said. Market expectations for four rate rises by year-end are "overdone" but Tuesday's employment data and Wednesday's inflation report will do little to challenge the "hawkish bets," ING analysts said.

"This means that the pound's good momentum, which has remained immune to the UK's political noise, should remain broadly intact into the February 3 BOE meeting."

EUR/GBP could fall below 0.8300, they said. EUR/GBP fell 0.1% to 0.8353 but GBP/USD drops 0.1% to 1.3644. The data showed the unemployment rate fell 0.4 percentage points to 4.1% in the three months to the end of November.

Bonds:

The recent upward trend in German Bund yields is expected to slow "as Covid cases increase," DZ Bank analyst Birgit Henseler said. "In our view a downturn in business and consumer confidence indicators will slow down the recent rise in yields," she said, adding that a sharp and sustained fall in 10-year Bund yields isn't in sight because of upward pressure on yields from inflation.

The German bank forecasts the 10-year Bund yield reaching 0% on a three-month horizon and at 0.10% on a six-month view. "But if inflation declines sharply towards the end of the year, we see 10-year yields falling back to 0% in spite of the winding down of asset purchases," she said.

Seven-year U.K. government bonds trade cheap ahead of U.K. Debt Management Office's planned sale Tuesday of GBP2.5 billion in the 0.5% January 2029 conventional gilt, said RBC Capital Markets.

The narrative of faster central bank policy normalization in the U.K. and globally has pushed yields higher since the year began, analysts at the bank said.

Seven-year gilts sold off Monday, driving yields to their highest level since first half of 2019, though yields are now trading at important resistance levels, limiting further advances, they said. The bond was last tapped on Nov. 3 and will not be tapped further this quarter, according to DMO.

Commodities:

Oil prices climbed to their highest level in seven years, as geopolitical tensions in the Middle East added to worries about tight supply. Brent crude oil futures rose as high as $88.11 a barrel, their highest level since late-2014 before paring some gains.

Yemen's Iran-backed Houthi rebels claimed responsibility for drone and missile attacks on the United Arab Emirates, in retaliation for the gulf state's renewed involvement in the Yemeni civil war.

Part of the attack targeted facilities of the state-owned oil firm ADNOC. The attack on the major energy producer added "geopolitical tension" to "ongoing signs of tightness across the market," said ANZ Bank in a note.

Goldman Sachs expects Brent oil prices to rise to $100 a barrel in the third quarter of the year before climbing as high as $105 by the first three months of 2023.

GS expects OECD inventories to fall to their lowest level since 2000 this summer as demand remains robust in the face of new variants of Covid-19.

At the same time, the bank doubts the capacity of OPEC+ nations to raise supply sufficiently. The bank argues only demand destruction can help balance the market, which will "require ever rising oil prices given the reluctance to invest in oil during the energy transition and the gradual depletion of shale's geological, midstream and service capacities."

Copper prices weakened as inventories climb to a two-month high. After falling almost constantly since August 2021, LME stocks of the red metal have turned higher this year rising to 94,525 tons this week.

However, supply risks could still support prices after Peruvian community groups on Monday rejected the latest proposals to end a standoff with a major mine.

The communities have been blockading access to the Las Bambas copper mine over environmental concerns. Peru is the world's second-largest copper producer and Las Bambas is the second-largest mine in the South American nation.

   
 
 

EMEA HEADLINES

German Economic Expectations Rebounded to a Five-Month High in January

Economic expectations in Germany rebounded at the beginning of the year after falling the previous month as financial market experts expected the hit from the Covid-19 Omicron wave to be short-lived, the ZEW economic research institute said Tuesday.

The index of economic expectations increased to 51.7 in January from 29.9 in December, topping the 32.5 consensus forecast from economists polled by The Wall Street Journal and the highest reading since July.

   
 
 

UK Labor Market Tightened in December Despite Omicron Woes

The number of people employed in the U.K. rose in December and unemployment continued to fall, signaling that the end of the furlough program and the spread of the Omicron coronavirus variant didn't weaken the country's labor market.

Staff on businesses' payrolls increased by 184,000 in December compared with the previous month, to 29.5 million, according to data from the Office for National Statistics released Tuesday.

   
 
 

Hugo Boss Gets Into Gear as 4Q Online Sales Surge

Higher online sales and good brand development helped Hugo Boss AG record consensus-beating top-line growth in the final quarter of 2021, as the German premium-fashion company's sales strategy appears to be bearing fruit.

According to preliminary figures released Tuesday, Hugo Boss made sales of 906 million euros ($1.03 billion) in the fourth quarter, up by more than half on-year at constant currency, and 12% higher than in the same period of 2019, before the global pandemic hit.

   
 
 

888 Holdings Sees 2021 Revenue Growth of 14% on Expansion in Regulated Markets

888 Holdings PLC said Tuesday that it expects to report revenue growth of 14% for 2021, driven by an expansion in regulated markets.

The online betting and gaming company said it anticipates revenue for the year of $972 million compared with $850 million a year earlier. Growth was driven by regulated and taxed markets, with strong performances in the U.K., Italy, Romania and Portugal.

   
 
 

EU New Car Sales Fell in December

Passenger-car registrations across the European Union fell in December, marking the sixth consecutive month of decline in 2021, according to the European Automobile Manufacturers Association.

New car registrations--a reflection of sales--declined roughly 23% on year to 795,295 vehicles for the month, the ACEA said Tuesday. In the January-December period, registrations for new passenger cars in the EU stood at 9.7 million, down 2.4% on year mainly due to the semiconductor shortage's hit on production.

   
 
 

Rolls-Royce, Bentley, BMW Sales Surge as Cheaper Brands Lag Behind

BERLIN-Luxury car brands such as Rolls-Royce, Bentley, Porsche and BMW have reported record sales, thanks to customers who have craved them and manufacturers that have directed scarce chips toward their most profitable models.

With international travel stalled during the pandemic and many avenues of flashy spending closed to them, a young generation of luxury-car consumers went on a shopping spree last year.

   
 
 

Rio Tinto Full-Year Australian Iron-Ore Shipments Fall; 2022 Exports Likely Higher

Rio Tinto PLC said annual iron-ore shipments from its Australian mining operations fell by 3% in 2021 as projects were disrupted by a worker shortage and supply chain issues, but said shipments will likely increase this year.

The world's No. 2 mining company by market value said 321.6 million metric tons of iron ore were shipped from its operations in remote northwest Australia last year. Fourth-quarter shipments were down 5% year-over-year at 84.1 million tons, the miner said.

   
 
 

Credit Suisse's António Horta-Osório Lost Board Support Over Covid-19 Rules Breach

He came to fix Credit Suisse Group AG's broken culture. Then he became part of the problem.

António Horta-Osório was hoping for a slap on the wrist Sunday from the Credit Suisse board for breaking coronavirus quarantine rules on trips to events, according to people familiar with his departure. Instead, he had to leave his job as the bank's chairman for not upholding the high standards he set when joining Credit Suisse eight months ago.

   
 
 

Yemen's Houthi Rebels Claim Aerial Attacks on U.A.E. Capital

Yemen's Houthi rebels said they were behind aerial attacks in the United Arab Emirates that killed three people on Monday, as intensifying fighting in a 7-year-old civil war spills out across the broader Middle East.

The Houthis, who are backed by Iran, said they had targeted Abu Dhabi with ballistic and cruise missiles and a large number of drones in retaliation for a recent escalation by the U.A.E. in Yemen, where Emirati-backed militants last week dealt the Houthis an unexpected defeat in the oil-rich province of Shabwa. The Emiratis have intensified their efforts recently in support of local militants in Yemen in a Saudi-led coalition that had suffered defeats.

   
 
 
   
 
 

GLOBAL NEWS

Bond Yields Hit Two-Year High as Stock Futures Fall

U.S. stock futures fell and bond yields hit two-year highs, intensifying investor fears that rising interest rates will set back the large technology stocks that have come to dominate markets.

Futures for the S&P 500 fell 1% Tuesday, after U.S. markets were shut Monday for a public holiday. Contracts for the tech-focused Nasdaq-100 declined 1.6% and futures for the Dow Jones Industrial Average fell 0.7%.

   
 
 

Offices Are Leased Up, Thanks to Cash Gifts for Tenants, Months of Free Rent

The recent recovery of U.S. office rents owes much of its success to something landlords hate to discuss: all the freebies, cash gifts and other incentives they have to fork over to tenants.

These sort of payouts have long existed to a degree in the office, retail real-estate and apartment markets, especially in places like New York City and San Francisco. But they have never been so big or so commonplace as they are in urban office markets these days, real-estate brokers say.

   
 
 

With Rate Increases Looming, Investors Dump Shares of Money-Losing Companies

Moonshot stocks are coming back to Earth.

As the Federal Reserve moves closer to raising interest rates, investors are repricing their bets on one of the riskiest corners of the market: shares of companies that don't make money. Cash-burning technology firms, biotechnology companies without any approved drugs and startups that listed quickly via mergers with blank-check companies-some of which soared during the pandemic-have dropped sharply.

   
 
 

BOJ Raises Inflation Expectations Amid Pandemic-Related Supply Shortages

TOKYO-The Bank of Japan raised its price forecast slightly amid pandemic-related supply shortages, although it still expects its 2% inflation target won't be reached for at least the next two years.

In its quarterly outlook released Tuesday, the bank's policy board projected inflation would increase 1.1% in the year ending March 2023 and 1.1% in the following year, up from previous projections for 0.9% and 1.0%, respectively.

   
 
 

China PBOC Aims to Act Forcefully to Help Stabilize Economy

China's central bank said Tuesday that it would act early and more forcefully to help stabilize the economy in 2022, a politically important year for Chinese leaders.

The People's Bank of China plans to guide financial institutions to expand their credit issuance this year, and will use multiple monetary instruments to keep market liquidity reasonably ample, said Liu Guoqiang, vice governor at the central bank, during a briefing.

   
 
 

BlackRock's Climate Stance Is About Profits, Not Politics, Larry Fink Says

Larry Fink's efforts to get companies to adopt climate-friendly policies have led some to call him an activist. The BlackRock Inc. chairman and chief executive prefers a different label: capitalist.

In his annual letter to the CEOs of the companies in which BlackRock invests, Mr. Fink said businesses that don't plan for a carbon-free future risk being left behind. The quest for long-term returns, and not politics, is what animates the money manager's efforts, he wrote.

   
 
 

China's Zero-Covid Policies Cause a Traffic Jam in Vietnam as Farmers Suffer

China's zero-Covid policies are putting Chinese cities into lockdown and grounding air travel anew. They are also disrupting trade routes across its land borders that are lifelines for the region's farmers and merchants.

In neighboring Vietnam, thousands of trucks laden with dragon fruit, jackfruit, watermelons and other produce have been backed up at the border awaiting passage for weeks. Their trips were disrupted after Chinese authorities toward the end of last year suspended operations at a number of gates or slowed traffic citing a need to contain Covid-19.

   
 
 

Taliban Intensify Efforts to Take Control of Afghanistan's Overseas Embassies

ROME-Five months after the Taliban seized Kabul, Afghanistan's new rulers are stepping up their campaign to gain control of the country's embassies abroad, most of which continue to be run by diplomats appointed by the former, U.S.-backed government.

No foreign capital has formally recognized the Taliban. And nearly all of the country's 65 diplomatic missions still fly the flag of the fallen Afghan republic-though after the Aug. 15 flight of former President Ashraf Ghani from Kabul, they have no government to represent.

   
 
 

Write to sarka.halas@wsj.com

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

 

(END) Dow Jones Newswires

January 18, 2022 06:46 ET (11:46 GMT)

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