Germany ZEW Indicator; U.K. Unemployment; Italy Foreign Trade
EU; EU New Passenger Car Registrations; OECD Harmonised
Unemployment Rates; ECOFIN meeting of EU finance ministers; updates
from OMV, Rio Tinto
A spike in Treasury yields will likely drag on European shares
early Tuesday. In Asia, most major benchmarks were weaker, while
the dollar and oil gained but gold struggled.
European and U.S. stock index futures were in the red early
Tuesday following a jump in Treasury yields, as investors remained
focused on the likelihood of higher U.S interest rates in the next
Traders are also gearing up for another big week of U.S.
earnings, with Goldman Sachs set to report Tuesday and Bank of
America and Morgan Stanley scheduled for Wednesday, with several
other household names following through the week.
"One of our major calls for 2022 is that banks will surprise to
the upside," said Lale Akoner, a market strategist at BNY Mellon
More broadly, "wages are going higher, energy costs are still
very elevated so inflation overall is going to pressure margins.
This will definitely show in earnings in 2022," Ms. Akoner said.
"Large-caps usually weather this better than small-caps."
In Asia, 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
Stocks to Watch:
Rio Tinto's fourth-quarter production was somewhat lower than
Jefferies had been expecting and, based on the miner's 2022
guidance, the bank expects little volume growth for the company
overall this year.
"This means that Rio's earnings trajectory for 2022 will depend
entirely on prices and unit costs," Jefferies said, adding that a
weaker iron-ore price could be a headwind after the first
This year's biggest risk is inflation, Capital Economics said,
forecasting it will fall this year but at a slower pace than most
"If supply constraints in both product and labour markets were
to ease more quickly than we anticipate, then it's possible that
inflation will fall more quickly too," Capital Economics group
chief economist Neil Shearing said.
But markets should be more concerned with the risk that
inflation proves more sticky than even Capital Economics expects.
Strong demand, tight labor markets, squeezed margins and stretched
supply chains all suggest that the risks to inflation lie on the
upside, Shearing added.
The dollar was little changed overall in Asia, although USD/JPY
rose after the Bank of Japan maintained its easing policy, saying
risks to prices were generally balanced. That has raised
expectations the Japanese central bank will likely be well behind
its peers, such as the Fed, in tightening monetary policy.
U.S. economic data will be in focus in the coming days, as
investors assess the Fed's pace of potential rate increases.
The Swedish krona is likely to remain under pressure in 2022
after last year's poor performance as the Riksbank maintains its
ultra-loose policy stance, Bank of America said.
"The dovish Riksbank stance remains the main reason for our
persistent bearishness on SEK: the market expects the Riksbank to
hike rates as soon as this year and twice more next year, but we do
not see hikes on the horizon," BofA analysts said.
The Riksbank sees current price pressures as transitory, arguing
higher energy prices and supply disruptions explain most of the
rise in inflation. BofA sees EUR/SEK rising to 10.20 and USD/SEK
increasing to 9.27 this year.
The Polish zloty is likely to weaken over the next 12 months
even as the country's central bank raises interest rates to rein in
inflation, Danske Bank said.
National Bank of Poland Governor Adam Glapinski has sounded more
"hawkish" lately as the government is putting pressure on the
central bank to do more to combat high inflation, Danske Bank
analyst Jakob Christensen said.
"However, we still think that the central bank will not deliver
as much as the market thinks, due to NBP's concern about the
negative impact on economic activity." That means high inflation
will keep upward pressure on EUR/PLN. Danske Bank expects EUR/PLN
to rise to 4.64 in 12 months.
Turkey's central bank may leave interest rates unchanged at
Thursday meeting after delivering a series of rate cuts but that's
unlikely to offer the lira lasting support, Unicredit said.
Further rate cuts this year still remain "on the cards" given
pressure from Turkey President Recep Tayyip Erdogan to take such
action and the lira's recent recovery after the government
announced measures to shore up the currency, Unicredit said.
USD/TRY and EUR/TRY have already absorbed most of their initial
sell-off on the government measures and failed to benefit much from
the dollar's decline this past week, suggesting "buying on dips"
strategies--or buying an asset price at cheaper levels--remain
favored for these pairs.
Treasury yields jumped in Asia, with the yield on the benchmark
10-year note above 1.84%. Bond markets in the U.S. were closed
Monday, in observance of Martin Luther King, Jr. Day.
Oil futures were higher in Asian trade, boosted by signs of
tightness in the market.
Reports suggest that Iran-backed Yemeni fighters have launched
drone attacks on the international airport and storage facilities
of state-run oil group Adnoc, ANZ said. "This comes as Iran is
negotiating with world leaders to try and restore Tehran's 2015
Meanwhile, the market doesn't appear to be too worried about the
impact of China's coronavirus outbreak on oil demand, ANZ
Goldman Sachs said "robust fundamentals have reversed last
year's oil price melt-down, with the market remaining in a
surprisingly large deficit as the Omicron demand hit is so far
smaller" than expected.
A lack of progress on the Iran nuclear talks may mean a ramp-up
of oil production in the country would be slower than expected, the
bank added, which may "bring OECD inventories to their lowest level
The outcome of an EU consultation due on Jan. 21 is unlikely to
include gas-powered electricity firms such as Enel, Naturgy Energy
Group and E.ON, the three largest producers in Europe, in the
region's taxonomy for what classes as green activities, ABN Amro
A draft of the proposal sparked criticism as it would allow gas
and nuclear to be labelled as green investments subject to certain
conditions. ABN Amro's fixed-income strategists said that none of
the current 439 operational natural gas power plants in Europe
would comply with the proposed EU Taxonomy thresholds regarding
permitted carbon emissions, so they won't qualify.
Additional investments will be necessary to curb emissions and
"this might not come across any time soon."
Gold futures were little changed in Asia and OANDA said they may
struggle to breach key technical resistance around the $1,833/oz
However, it is impossible to ignore gold as it continues to
rally despite more and more rate increases being priced in around
the world and yields rising in tandem, OANDA added. There could be
an argument that there are safe-haven or inflation-hedge moves
owing to the current environment, which could become clearer in
Chinese iron ore fell, around 0.7% on reduced restocking
activity among the country's steel mills, ING said. On the supply
side, improving weather in key producer Brazil should allow for
some mines to come back online after heavy rains caused mining
giant Vale to suspend some operations in the south of the
TODAY'S TOP HEADLINES
BOJ Raises Inflation Expectations Amid Pandemic-Related Supply
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
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.
BlackRock's Climate Stance Is About Profits, Not Politics, Larry
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:
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.
Full Recovery in Global Labor Market Could Take Years
It will take at least two years before global unemployment falls
back to pre-pandemic levels, according to fresh projections, with
joblessness in poor countries remaining high even as labor markets
in rich countries become increasingly tight.
The pandemic has upended the global labor market, initially
sending unemployment soaring around the world. A surge in demand
following the reopening of rich economies such as the U.S. created
huge disruptions in labor markets, with companies in need of
workers. But at the same time, a lack of vaccines in many poor
countries is keeping unemployment high.
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.
Rolls-Royce, Bentley, BMW Sales Surge as Cheaper Brands Lag
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.
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
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Expected Major Events for Tuesday
07:00/EU: Dec New Passenger Car Registrations in Europe
statistics (EU27 + EFTA3)
07:00/UK: Dec UK monthly unemployment figures
07:30/SWI: Dec PPI
07:30/SWI: Dec Import Price Index
09:00/BUL: Dec CPI
09:00/ITA: Nov Foreign Trade EU
10:00/GER: Jan ZEW Indicator of Economic Sentiment
11:00/FRA: Nov OECD Harmonised Unemployment Rates
11:00/POR: Dec PPI
16:59/AUT: Jan OPEC Monthly Oil Market Report
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(END) Dow Jones Newswires
January 18, 2022 00:36 ET (05:36 GMT)
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