Germany GfK Survey, Italy Industrial Turnover/Orders; UK CBI
Distributive Trades Survey; European Investment Bank Annual Press
Conference; updates from LVMH, SAP, Deutsche Bank, Salvatore
Ferragamo, Banco Sabadell, Metro, SEB, Diageo, STMicroelectronics,
St James's Place, Intermediate Capital, 3i Group, Anglo American,
easyJet, Anglo American Platinum, SAS, Fuller Smith &
A post-Powell selloff on Wall Street will likely hammer European
shares on Thursday, as concerns mount about the pace of Fed
interest rate rises this year. Asian stocks and U.S. futures were
deep in the red, while the dollar and Treasury yields pushed
higher, adding to Wednesday's hefty gains. Commodities were lower,
however, with oil, gold and base metals all suffering modest
European shares are likely to slide Thursday as investors
digested the possibility of multiple interest-rate hikes by the
Federal Reserve this year, starting as soon as March.
The Fed's statement and subsequent news conference kicked off a
wild end to the day on Wall Street. Trading was volatile again,
with the major U.S. indexes reversing big early gains after Jerome
Powell signaled that changes are coming to U.S. monetary
While saying no final decisions have been made yet, Powell said
the Fed "was of a mind" to raise the federal-funds rate at its
mid-March meeting for the first time since 2018, and didn't rule
out the prospect of rate increases larger than 25 basis points
given the scope of the inflation challenge. Economists interpreted
his comments as opening the possibility of more than four rate
hikes this year.
Investors also got new, if vague, details over officials' plans
to shrink the Fed's $9 trillion balance sheet, which has doubled
since the start of the pandemic and represents nearly 40% of U.S.
gross domestic product.
"For now, we maintain our base case for 4 hikes this year, but
we now view it as a floor rather than a cap," said Aneta Markowska,
chief economist at Jefferies. "The Fed did nothing to contain
market expectations to 4 hikes, effectively inviting the market to
price in even more."
The dollar continued to charge higher against other major
currencies, thanks to rallying Treasury yields, after the Fed
hinted at an aggressive path of interest-rate hikes.
"Even if the Fed is correct in thinking that intermediate price
pressures are abating on many fronts, markets will remain on edge
if an inflection point in consumer inflation data is not visible
soon," said Corpay Senior Market Strategist Karthik Sankaran.
"Any data that ratifies fears that the Fed's measured approach
to hiking is too little--or too late-- could push short-term
interest rate markets to price more aggressive rate increases in
2022, hitting equities and commodities and boosting the dollar more
Westpac said the USD Index has yet to fully price in yield
support that has formed in the past several months, let alone what
may be in store in the coming months.
BNP Paribas said if U.S. inflation picks up faster, the Fed
could raise rates about six times this year. Economist Ryutaro Kono
said that's up from his previous expectation of an increase every
Kono said the Fed will likely lift rates a
quarter-percentage-point at a time rather than trying a bigger move
such as a half-point increase. "If the Fed raises interest rates by
50 basis points or more at once, it suggests that it has fallen
into a panic. It would upset global financial markets and also
increase the chance of overkill."
Other Currency News:
Sterling could come under pressure as the market may be getting
ahead of itself in pricing in four U.K. interest rate rises this
year, said Validus Risk Management.
The Bank of England has "limited tools" to tame high inflation
mainly caused by external factors including rising energy prices
and supply chain bottlenecks, Validus analyst Jesus Cabra Guisasola
The BOE also has a history of not wanting to hike rates, having
left rates unchanged between 2010 and 2013 when inflation was
elevated, and it could do the same this time, he says. Coupled with
uncertainty surrounding the U.K. government and risk aversion
related to Russia-Ukraine tensions, sterling faces "significant
headwinds" throughout 2022.
The Russian ruble remained under pressure as tensions between
Russia and the West over Ukraine persist. on Wednesday, USD/RUB
rose 1.4% to 79.9210, its highest level since November 2020.
Recent developments suggest "some form of hot conflict" is
becoming likely, said TD Securities strategists. Against this
backdrop, the ruble and other Russian assets have suffered losses
but nowhere near close to that experienced in 2014 and 2015
following Russia's annexation of Crimea, they said.
"We think Russian assets would not sell off as much this time
around, unless the worst-case scenario materializes."
Treasury yields extended gains in Asia after 10- and 30-year
rates hit their highest in over a week on Wednesday following
Jerome Powell's press conference. In addition, the 2-year yield
climbed to another 52-week high.
Yields turned higher during Powell's speech even though he said
policy makers haven't made any decisions on the path of future rate
hikes, and that they will make final choices on shrinking the
central bank's almost $9 trillion balance sheet at "upcoming
Strategists said the lack of specificity around the pace of
balance-sheet runoff implies that policy makers are still working
out the details
The FOMC "continued to alert markets that it would begin
Quantitative Tightening," said Northeast Investors Trust Chairman
Bruce Monrad. "If Quantitative Tightening will serve as an active
tool to tighten financial conditions, that is a notable change
compared to the passive approach to balance sheet runoff taken
several years ago."
Reaction to Fed, Powell:
Powell worked hard to keep his options open for both rate rises
and balance sheet reduction. But with the Fed chief pretty much
locking in an increase at the next Fed meeting, he hinted that
balance sheet reduction could start at the June meeting.
How? He flagged the need to debate balance sheet actions at the
meeting right after a rate rise, and if that's March, then June
appears to be in play for cutting back on the now $9 trillion
The Fed's new guidelines for the upcoming monetary tightening,
called "Principles for Reducing the Size of the Federal Reserve's
Balance Sheet, " suggest to Wells Fargo that "the Committee will
not rush headlong into shrinking its balance sheet, but that it is
Wells Fargo economist Jay Bryson expects that "the FOMC will
announce at the September policy meeting that it will begin balance
sheet reduction in the fourth quarter, and that the amount of
run-off will accelerate over the subsequent few months."
Capital Economics' Michael Pearce noted that Fed officials
agreed to "a short set of principles for reducing the size of the
balance sheet, reaffirming that interest rates remain the main
policy tool and that the FOMC wants to hold primarily Treasury
securities in the longer run."
Pearce said the FOMC statement failed to give details such as
caps and how quickly it will allow assets to run off. He said "the
Fed is still on track to deliver four rate hikes, beginning in
March, and to start normalising the size of the balance sheet by
Oil prices were lower in Asia after fears of a potential Russian
attack on Ukraine helped lift futures Wednesday back to their
highest levels in over seven years.
Goldman Sachs said it expected a limited disruption to energy
flows despite the tensions, adding that historical precedent
suggests sanctions to limit Russian energy exports would be
unlikely. Furthermore, an impact from a possible oil or gas
pipeline outage in Ukraine should be modest.
It said prices may rise just $2/bbl as a fallout of the ongoing
tensions, given that only a limited quantity of undivertible
pipeline volume will be affected, because Russia can reroute flows
away from Ukraine and use other pipelines instead.
However, Goldman Sachs cautioned that tight inventories remained
a concern, so price risks are skewed to the upside.
Gold futures fell deeper into the red in Asia after they settled
at their lowest in over a week Wednesday, following "Powell's
hawkish press conference," said OANDA.
However, rising geopolitical risks remained, so "the path higher
for gold is there, but it will likely be a tough grind higher,"
Goldman Sachs said gold is likely a good hedge against
geopolitical risk, as long as the event is severe enough to impact
the U.S. economy, such as the 9/11 attacks or the 2003 Iraq War.
The precious metal moves less when events don't have a direct link
to the U.S., it said, citing examples including the annexation of
Crimea and the 2005 London bombings.
"This may be due to the fact that dollar itself often acts as
the safe haven when tensions arise in other parts of the world,
rather than gold. But when the U.S. itself is affected investors go
for gold as a hedge of last resort."
Base metals were broadly lower too, as traders weighed supply
risks caused by the Russian tensions, said ANZ. Nickel and aluminum
could be affected if tensions escalate given Russia's significant
market share in these metals.
TODAY'S TOP HEADLINES
Fed Interest-Rate Decision Tees Up March Increase
The Federal Reserve signaled it would begin steadily raising
interest rates in mid-March, its latest step toward removing
stimulus to bring down inflation.
Fed Chairman Jerome Powell said Wednesday that the central bank
was ready to raise rates at its March 15-16 meeting and could
continue to lift them faster than it did during the past
China Industrial Profits Rose 34.3% in 2021
China's industrial profit climbed 34.3% in 2021 thanks to strong
growth from raw material producers and high-tech manufacturers,
official data showed Thursday.
Profit growth slowed sharply at the end of the year, however,
rising just 4.2% in December from a year ago, according to figures
from the National Bureau of Statistics. In November, industrial
profit grew 9.0% from the year-earlier period.
China Evergrande Promises to Play by the Book in Offshore Debt
Embattled property developer China Evergrande Group said
Wednesday that within six months, it aims to release a global
restructuring plan that would respect offshore creditors' legal
rights, after a group of its bondholders threatened last week to
sue the company for failing to engage with them.
During a call with offshore creditors, Evergrande promised to
follow the rule of law and respect bondholders' rights, which in
some cases include claims on the company's secured offshore assets,
according to people familiar with the matter. Evergrande also said
on the call that its founder and Chairman Xu Jiayin might provide
additional financial support to the company as it navigates a
prolonged restructuring, said the people, who declined to be
identified because the call was private.
New SEC Proposal Could Steeply Increase Private-Equity
Reporting, Industry Says
A new Securities and Exchange Commission proposal would require
private-equity firms to report many more transactions than they do
now, a prospect that unnerves many in the industry.
SEC commissioners voted Wednesday for a proposed expansion of
the amount of information that private-fund managers report and the
frequency with which they have to do so. The agency can put the
changes into effect following a public comment period.
Bank of Canada Says Rate Increases Are Coming
OTTAWA-The Bank of Canada held its main interest rate steady at
0.25%, but said rate increases are on the horizon to deal with
elevated inflation and an economy running at or near full tilt.
Gov. Tiff Macklem said the decision Wednesday marked the end of
emergency policies to support the economy through the pandemic. In
the fall, the central bank ended its large-scale asset-purchase
program, or quantitative easing, based on economic progress to
date. "We're signaling to Canadians that they can expect a rising
path for interest rates," he told reporters at a press
UBS Buys Wealthfront for $1.4 Billion to Reach Rich Young
UBS Group AG is buying online wealth adviser Wealthfront for
$1.4 billion to reach the young rich and manage more money for
people through their devices, the company said Wednesday.
UBS said it would pay cash for the digital platform, one in a
clutch of startups whose assets have grown rapidly in an industry
shift to automated advice. California-based Wealthfront has $27
billion under management for nearly half a million clients.
U.K. Car Manufacturing Hits 65-Year Low
U.K. car manufacturing fell 6.7% in 2021, marking its worst year
since 1956, an industry body said Thursday, blaming the drop mostly
on Covid-19-related factors.
The Society of Motor Manufacturers and Traders said that a total
of 859,575 cars drove off the production lines last year compared
with 920,928 in 2020 and 707,594 in 1956.
U.K. Ad Market Set to Improve After Strongest Year Ever in
The U.K.'s advertising market recovered faster than previously
anticipated in 2021 to post its best ever year and spending for
2022 is expected to reach 32.2 billion pounds ($43.44 billion),
according to the latest Advertising Association/WARC Expenditure
Report released Thursday.
Revised estimates for U.K. advertising market growth for 2021
now stand at 26%, reaching a total value of GBP29.7 billion, up
from October's projection of 25% growth.
UK Government Supports Development of Nuclear Project With
GBP100 Million of Funding
The U.K. government said Thursday that it will provide 100
million pounds ($135.1 million) of funding for a project to build a
new nuclear plant in Suffolk, in the east of England, which is
being developed by Electricite de France SA.
The Department for Business, Energy and Industrial Strategy said
the funds will be used to continue the development of Sizewell C,
attracting further financing from private investors and potentially
the U.K. government.
Italian Executives Meet With Putin Amid Tension Over Ukraine
Big European and U.S. businesses are attempting to balance their
business interests in Russia with increasing pressure from their
home governments to isolate Moscow, as tensions between the West
and Russia grow over Ukraine.
In Italy, top business executives held a videoconference with
Russian President Vladimir Putin on Wednesday, although some
companies pulled out of the long-scheduled event following pressure
from Italy's government.
Facebook's Cryptocurrency Venture to Wind Down, Sell Assets
Facebook's ambitious effort to bring cryptocurrency to the
masses has failed.
The Diem Association, the consortium Facebook founded in 2019 to
build a futuristic payments network, is winding down and selling
its technology to a small California bank that serves bitcoin and
blockchain companies for about $200 million, a person familiar with
the matter said.
Tesla Is a Proven Automaker, an Unproven Tech Giant
With help from China, Tesla has turned itself into an unusually
profitable car maker. Whether that makes it a tech company worthy
of a near-trillion-dollar valuation is less clear.
As it has scaled up production in its Shanghai factory over the
past two years, the electric-vehicle pioneer has accumulated enough
profit to make up for all the losses in its previous history. Late
Wednesday it reported a 14.7% operating margin for the fourth
quarter in an industry where single-digit margins are considered
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Expected Major Events for Thursday
00:01/UK: Dec Zoopla House Price Index
00:01/UK: Dec UK monthly automotive manufacturing figures
07:00/GER: Feb GfK consumer climate survey
07:00/NOR: Nov Labour force survey SA, incl unemployment
07:00/NOR: 4Q Labour force survey
07:00/SWI: Dec Trade Balance
08:00/SVK: Dec PPI
08:00/SPN: 4Q Economically Active Population Survey
08:00/HUN: Dec Employment & unemployment
09:00/ITA: Nov Industrial turnover & orders
09:00/AUT: Jan Austria Manufacturing PMI
09:00/ICE: Dec Labour Force Survey
11:00/UK: Jan CBI Distributive Trades Survey
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(END) Dow Jones Newswires
January 27, 2022 00:45 ET (05:45 GMT)
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