MARKET WRAPS

Stocks:

European stocks climbed Wednesday, heading for a two-day winning streak, with gains led by financials and the travel sector, as investors looked ahead to the Federal Reserve announcement that is expected to provide clarity on coming interest-rate rises.

Shares have been rocked in recent days by expectations the Fed will embark on a series of rate increases this year to temper heightened inflation. The prospect of a shrinking balance sheet and higher rates has prompted some to sell risky assets, including shares of technology companies that promise future returns, and cryptocurrencies.

Investors are also monitoring rising tensions between Russia and Ukraine that have drawn the focus of NATO allies.

"Today the focus is going to be on the Fed," said Luca Paolini, chief strategist at Pictet Asset Management. "It's more about the tone of the press conference. People may have an expectation that given the market turmoil and the geopolitical tensions the Fed may tone down its rhetoric."

Stocks on the Move:

Major European and U.K. airlines rose sharply after the EU lifted Covid-19 travel restrictions in the bloc following Britain's new guidance for vaccinated passengers.

Airlines have argued that travel restrictions haven't significantly slowed rising case numbers of the Omicron variant in the region.

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Shares in Fresnillo fell 15% after the precious-metals miner reported disappointing fourth-quarter figures, with production missing estimates by 8%-9% for silver and gold, said Jefferies. Guidance was well below consensus estimates too, particularly for silver, Jefferies added.

"Beyond the delay in Juanicipio, announced in December, Fresnillo is citing lower volume of ore at Saucito due to personnel shortages, Covid-related absenteeism and instability caused by increased seismicity in the Jarillas vein," Jefferies said.

Economic Insight:

Oxford Economics' eurozone recovery tracker rose 1.4 points to 80.3 in the two weeks ended Jan. 9, driven by a recovery in mobility due to a rise in movement in workplaces after the holidays.

"We view the reading with a bit of caution, as it may reflect a reflexive rebound following the Christmas dip rather than the start of a steady improvement, as high-frequency data tend to be noisy at the start of the year," Oxford Economics' chief French economist Daniela Ordonez said.

Although Oxford Economics expects the Omicron wave to be sharp but short, health metrics in several countries indicate infections have yet to peak, she says. While the recovery tracker has likely troughed, Ordonez expects it to remain restrained for some weeks.

U.S. Markets:

Stock futures gained ahead of the Fed announcement.

"Trading in U.S. equities remains hectic, unpredictable and full of surprises," wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote.

"The escalating tensions on the Ukrainian border, Biden threatening Putin with personal sanctions, IMF cutting U.S. and Chinese growth outlooks, combined with hawkish Fed expectations are mostly responsible for the rising volatility and confusion among investors."

Forex:

Concerns over Russia-Ukraine tensions are likely to prevent the euro from rising considerably against the dollar even if the greenback falls after the Fed's policy decision, said ING.

"The implications of forthcoming sanctions to Russia for the EU-Russia relationships [in particular related to the gas supply] are important factors for the EUR's short-term outlook," ING analysts said.

Until these implications become clearer, the euro will "keep feeling the drag" of Russia-Ukraine tensions so a weaker dollar after the Fed's decision wouldn't be enough to significantly lift EUR/USD.

The market has fully priced in a 25bp rate rise by the Fed in March and will be looking for a confirmation of that at today's meeting, but the Fed's hints on the terminal rate for USD could be more of a mover for euro duration, Citi's rates strategists said.

Citi's rates strategists' base case is four interest rate hikes by the Fed in 2022, each for 25 bps. "For euro duration, what perhaps matters more is not what the Fed signals for 2022--where the ECB effectively has closed the hiking window--but if the Fed says anything to prompt a re-pricing of the terminal rate for USD, to which EUR is currently trading with a high beta," Citi said.

Bonds:

Eurozone government bond yields edged higher with the market's focus on the Fed and the likely confirmation of a first interest rate rise in March, analysts said.

"The market will be expecting to see a strong signal from the Fed of a 25bp hike to come in March, with more later on," said Mizuho's rates strategists.

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Inflation fears and some extra yield should spur demand for the U.K. Debt Management Office's planned sale of GBP600 million in the 0.125% March 2051 index-linked gilt, said RBC Capital Markets.

"While the bond does not stand out as particularly cheap compared to its nearest neighbours, there are some signs that a concession has been priced into the sector ahead of today's auction," analysts at the bank said.

This combined with continuing fears of higher inflation should help support the take-down of today's auction. The next index-linked auction will be on March 15.

Commodities:

Oil prices ticked higher in Europe as supply remains tight and tensions continue to linger in Ukraine, with market participants concerned about dwindling spare capacity.

"With OPEC's effective spare capacity razor thin, any given nation's underproduction is increasingly difficult to offset," said TD Securities. It added: "The conflict between Russia and Ukraine and tensions in the Middle East [is] the largest source of supply uncertainty."

Copper rose 1.5% on the LME as traders awaited the conclusion of the Fed meeting for guidance on rate rises, with TD Securities saying "a growing cohort of participants [are] hoping the Fed will manage to provide a soothing tone for markets."

TD Securities said that with the central bank's stated goal to dampen inflation, "it's unlikely the Fed will pivot from its plan to start hiking rates as soon as March."

Investors who bet on gold ahead of the recent market turmoil are likely pleased to see that the precious metal has held on to recent gains while most other asset classes have suffered. Comex gold futures were down 0.4% Wednesday but have gained almost 1% so far this month.

"With most asset classes losing money in recent days, even standing still is helpful for an investor's portfolio, so gold has still performed its role as a safe haven," said Rupert Rowling, an analyst at Kinesis Money.

After shunning gold exchange-traded funds for months, investors are flocking back to them amid the turbulence in stock markets. The SPDR Gold Shares ETF saw its largest ever inflows of more than $1.6 billion on Friday, according to data from FactSet.

Inflows have continued this week with a further $273 million flowing into the fund on Monday. The sizable inflows coupled with more modest inflows into other, smaller funds means the 17 gold ETFs tracked by FactSet have seen net inflows of $2.35 billion dollars over the past 30 days.

DOW JONES NEWSPLUS

EMEA HEADLINES

Intel Wins EU Antitrust Appeal as Court Annuls $1.2 Billion Fine

BRUSSELS-Intel Corp. won an annulment of a $1.2 billion fine issued by the European Union's antitrust regulator more than a decade ago over allegations the microchip producer had used its commercial power to squeeze out a competitor.

The court's decision is a blow to the European Commission, the bloc's main antitrust regulator, which is seeking to expand its reach through new regulations and a reinterpretation of its existing powers. Lawyers said a ruling in favor of Intel could put a greater burden on the commission in pursuing some antitrust cases.

Vestas Prereleases Earnings, Guidance After Warning of Higher Costs

Vestas Wind Systems AS Wednesday released preliminary 2021 earnings and 2022 guidance after cautioning that the wind power industry continues to be challenged by supply-chain instability which is causing significant cost inflation and delays to projects while visibility and profitability remain severely affected.

The Danish wind-turbine maker posted preliminary full-year revenue of 15.59 billion euros ($17.6 billion) for 2021, within the company's guidance range of EUR15.5 billion-EUR16.5 billion, while pre-items earnings before interest and tax is expected to total EUR461 million, equating to a margin of 3.0%. The company had guided for a margin of around 4.0%.

Lonza Posts Higher 2021 Sales; Confirms Mid-Term Targets

Lonza Group AG on Wednesday posted higher sales for full-year 2021 and reconfirmed its mid-term guidance until 2024.

The Swiss life-sciences company said core earnings before interest, taxes, depreciation and amortization grew to 1.67 billion Swiss francs ($1.82 billion), from CHF1.38 billion the year prior, on sales that grew to CHF5.41 billion from CHF4.51 billion.

Metro Unveils Strategy Through 2030

Metro AG on Wednesday unveiled its strategic targets through 2030, saying it plans to focus on professional customers and expand its multichannel business model.

The German wholesale company said at its capital markets day that it targets total sales to grow at a compound annual rate of 3% to 5% in the 2022-25 period and reach over 40 billion euros ($45.19 billion) by 2030.

Wacker Chemie Posts Increased Profit for 2021

Wacker Chemie AG said Wednesday that profit more than tripled in 2021, citing preliminary figures.

The German chemicals company posted a net profit of 780 million euros ($881.5 million) for 2021 compared with a profit of EUR202 million in the previous year.

EU, U.K. Drop Border Travel Restrictions, Lessening Burden of Flying

LONDON-The European Union is lifting Covid-19 travel restrictions, allowing member countries to do away with quarantine and testing for vaccinated fliers traveling inside the bloc.

While the Omicron variant is still spreading across the continent, officials said the recent wave has reached a level at which travel restrictions may not help curb its footprint anymore.

Companies Prepare for Fallout From Cyberattacks Against Ukraine

Businesses including utilities, manufacturers and financial-services companies are bracing for potential spillover from cyberattacks against Ukraine, as U.S. officials warn of Russia-linked hacks that could ripple outward across borders and industries.

Many companies are examining their ties to Ukrainian businesses, as well as vendors with footprints in the country, as they shore up computer systems against digital campaigns that could accompany a Russian military advance into the country.

U.S. Plans Sanctions, Export Controls Against Russia if It Invades Ukraine

The U.S. is prepared to impose export controls on critical sectors of the Russian economy if Russian President Vladimir Putin invades Ukraine, and is working to soften market shocks if Russia withholds energy supplies in retaliation, officials said.

Taking a page out of the Trump administration playbook to pressure Chinese telecom giant Huawei Technologies Co., senior administration officials on Tuesday said the U.S. could ban the export to Russia of various products that use microelectronics based on U.S. equipment, software or technology.

GLOBAL NEWS

Fed Expected to Signal Rate Increases to Start in March

Federal Reserve officials are set to keep interest rates near zero Wednesday, at the conclusion of their two-day policy meeting, while likely signaling they are preparing to raise rates at their following gathering in mid-March.

The central bank is also poised to approve one final round of asset purchases and resume deliberations over how and when to reverse the pandemic-driven expansion of its $9 trillion securities portfolio later this year.

Derby's Take: Fed Likely to Use Job View in FOMC Statement to Tee Up March Rate Hike

The Federal Reserve will likely work to prepare markets for the start of interest rate increases by upgrading how it describes the job market in the policy statement to be released at the end of its monetary policy meeting Wednesday, economists say.

The forecasters believe that to tee up a widely expected March increase in the now near-zero federal-funds rate target range, the Federal Open Market Committee policy statement will likely move to say that the economy has achieved full employment. In the last FOMC statement from mid-December, the Fed said that the economy was still working to achieve that level.

Analysis: Why the Fed Is Unlikely to Start Raising Rates With a Half-Point Increase

Market speculation around whether the Federal Reserve might raise interest rates by a half percentage point, instead of a quarter point, at its March meeting has picked up in recent weeks. Hedge-fund manager Bill Ackman called for such a "shock and awe" move recently, as did Henry Kaufman, the former chief economist at Salomon Brothers.

While the Fed isn't likely to rule out a half-percentage-point increase as an instrument in its tool kit, the central bank is unlikely to begin any sequence of rate rises with such a move, in part because it would essentially concede that it had made a policy mistake.

IMF Urges El Salvador to Ditch Bitcoin's Legal Tender Status

The International Monetary Fund urged El Salvador to strip bitcoin of its status as legal tender because of its large risks to financial stability, the latest twist in protracted talks between the fund and the highly indebted Central American country to secure a $1.3 billion loan.

The fund said on Tuesday that El Salvador's recent adoption of bitcoin as a national currency also creates risks for financial integrity, consumer protection and fiscal liabilities in a tiny economy with limited government resources.

Chip Shortage Leaves U.S. Companies Dangerously Low on Semiconductors, Report Says

WASHINGTON-U.S. manufacturers and other companies that use semiconductors are down to less than five days of inventory for key chips, the Commerce Department said Tuesday, citing the results of a new survey.

In 2019, companies typically maintained 40 days of inventory for key chips, according to the Commerce Department report. Now for the same chips-defined as 160 products that companies identified as being the most challenging to acquire-companies are operating with fewer than five days of inventory, the report said.

Imports Drop at Southern California Ports as Ship Backup Grows

Imports are tumbling at the nation's busiest container port complex even as the backup of ships waiting to unload there breaks records.

House Speaker Nancy Pelosi to Run for Re-Election, Doesn't Address Leadership Plans

WASHINGTON-House Speaker Nancy Pelosi (D., Calif.) said she plans to seek re-election this fall, but gave no indication of whether she wants to remain her party's leader, as Democrats face an uphill battle to keep control of the chamber in the midterms elections.

To win backing for the speakership in 2018, Mrs. Pelosi made a deal with party lawmakers that she would serve as speaker for just two more terms. Since then, she has declined to talk about whether she plans to step aside. While she has the firm backing of her caucus, many have openly called for a change in leadership.

New York Mask Mandate Reinstated in State Appeal

An appellate judge reinstated New York's indoor mask mandate on Tuesday after the state Health Department appealed a ruling that struck down pandemic-related requirements for schools and businesses.

Judge Robert Miller stayed a Monday ruling that the state's requirements for face coverings, adopted at the start of the school year and extended in December to cover all indoor public places, were unconstitutional because they didn't relate to a specific law regarding Covid-19.

Biden Administration Withdraws Emergency Covid-19 Vaccine Mandate After Supreme Court Blocks Rule

The Biden administration is withdrawing an emergency private-sector vaccination mandate against Covid-19 after the Supreme Court blocked its implementation.

The Occupational Safety and Health Administration said Tuesday it would continue to work on imposing the vaccination requirement through the regular-and lengthier-rule-making process.

Covid-19 Deaths in the U.S. Top 2,100 a Day, Highest in Nearly a Year

Covid-19 deaths in the U.S. have reached the highest level since early last year, eclipsing daily averages from the recent Delta-fueled surge, after the newer Omicron variant spread wildly through the country and caused record-shattering case counts.

The seven-day average for newly reported Covid-19 deaths reached 2,191 a day by Monday, up about 1,000 from daily death counts two months ago, before Omicron was first detected, data from Johns Hopkins University show. While emerging evidence shows Omicron is less likely to kill the people it infects, because the variant spreads with unmatched speed the avalanche of cases can overwhelm any mitigating factors, epidemiologists say.

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(END) Dow Jones Newswires

January 26, 2022 05:54 ET (10:54 GMT)

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