MARKET WRAPS
Stocks:
European stocks traded lower on Monday as the U.S. jobs report
rekindled fears of a hawkish Federal Reserve, and as geopolitical
tensions between China and the U.S. flared up.
"The surprising strength of Friday's payrolls report has
certainly provided food for thought, and in so doing has outlined
the risk that rates could well remain high for quite some time,
especially if inflation continues to stay high," CMC Markets
said.
"One thing Friday's strong jobs number didn't change was the
fact that stock markets are still in their wider uptrend from the
October lows, and they would have to fall a lot further for that to
change."
Stocks to Watch
Zur Rose's sale of its Swiss business will give the company
headroom to start reinvesting in its focus market of Germany and
address near-term refinancing concerns, Citi said.
However, management still faces the challenge of returning the
German business to growth, Citi added.
Zur Rose has been in the process of simplifying the brand
portfolio following a period of relative underinvestment, it
said.
Management has also positioned the asset sale as a positive from
the perspective of e-prescriptions as it showcases the company's
conviction in the German e-prescription opportunity, but Citi
continues to prefer competitor Shop Apotheke.
Citi upgraded Zur Rose to neutral from sell.
---
U.K. banks have benefited from higher interest rates, but face
risks from potential deposit outflows, Barclays said, tweaking some
recommendations.
Banks are set to achieve record net interest margins and
decade-high returns on tangible equity thanks to rate rises, it
added.
Still, quantitative tightening and escalating deposit
competition raise the prospect of deposit outflows, Barclays
said.
"Here we see Lloyds Banking Group as relatively better-placed
given its greater reliance on retail savings."
"NatWest may be more exposed given its weighting towards
flightier commercial current accounts."
Barclays upgraded Lloyds to overweight from equal-weight and
increased its price target to 75 pence from 55p. It downgraded
NatWest and Virgin Money to equal-weight from overweight.
Bank of England
The BOE's next move is more likely to be to raise rates further
than to cut or hold them as there are still "material upside risks
to our inflation outlook," Monetary Policy Committee member
Catherine L. Mann said in a speech in Budapest.
"We need to stay the course, and in my view the next step in
Bank Rate is still more likely to be another hike than a cut or
hold," she said.
Before switching course, Mann would like to see "a significant
and sustained deceleration in higher frequency price increases and
in the underlying inflation measures and expectations towards
inflation rates that are consistent with achieving the 2%
target."
U.S. Markets:
Stocks were poised for a lower open on Monday, ahead of the week
when Joe Biden delivers his State of the Union address, and the
University of Michigan releases its preliminary CPI reading for
February.
Dell will join the ranks of tech companies slashing jobs as the
computer maker will cut 6,650 positions, according to a Bloomberg
report on Monday.
Up ahead, companies including Tyson Foods are due to report
before the bell. Gaming companies Activision Blizzard and Take-Two
Interactive Software are due to report after the close, as is
Pinterest.
Forex:
The dollar continued to gain after Friday's much
stronger-than-expected U.S. jobs data, reaching its highest in
nearly four weeks against a basket of currencies as the U.S.
economy looks more resilient and more rate rises look likely, MUFG
said.
"Market participants have moved to price in a higher probability
of the Fed delivering at least two more 25bps hikes before pausing
their hiking cycle."
U.S. rate markets have scaled back expectations for rate cuts
beginning later this year, and thus the dollar has reversed most of
its losses sustained since the start of the year, MUFG said.
MUFG said it doesn't expect the dollar's rebound "to be the
start of a more sustained upward trend."
"The underlying trend for job growth is still slowing but not
fast enough to make the Fed comfortable over upside risks to
inflation from the tight labour market."
Bonds:
Bond markets are off to a strong start in 2023, running with the
downward inflation trend in the US, J.P.Morgan Asset Management
said.
"As a result, bond demand has picked up and government bond
yields have rallied."
This has benefited JPM AM's preference for adding U.S. duration
at the beginning of the year, it said, adding that, in the near
term, inflation, wage and economic growth data may keep government
bond yields range bound.
"Ultimately, we prefer to remain structurally long U.S. duration
as we continue to see a 60% chance of the market pricing in a
recession later this year."
---
A desire to increase fixed-income allocations has seen robust
demand for this asset class at the start of the year and this has
created a supportive technical dynamic, RBC BlueBay Asset
Management said.
"However, once this demand is sated, elevated deficits across
the Continent and a ECB selling bonds to shrink its balance sheet,
are both risks that could pressure yields higher."
RBC BlueBay AM looks for yields to rise, expecting bond supply
to be a prevalent source of pressure on bonds in 2023.
---
The price action in German Bunds on the day of the ECB's meeting
last Thursday highlighted the importance of the positioning factor,
Morgan Stanley said.
It is "something we considered a key factor with the valuation
versus macro data or the seasonality," MS said.
With the setback in yields after U.S. nonfarm payrolls data on
Friday, the Bund yield has stabilized around Morgan Stanley's model
fair value, it added.
A more benign supply backdrop and the seasonality factor will
finally turn supportive for Bunds this coming week, MS said,
expecting a gradual decline in 10-year Bund yields below 2.00%.
Read Drop in German Bund Yield on Day of ECB Meeting Is
Historically Large
Energy:
Oil prices ticked 0.6% higher after fresh Western sanctions on
Russian refined products came into effect.
An EU ban on Russian refined products and a G-7 price cap on
those products came into force Sunday.
The caps prevent shipping and insurance firms from trading
Russian refined products unless they are below a cap of $100 a
barrel for gasoline, diesel and jet fuel and $45 a barrel for
naphtha and fuel oil.
The measures have been well-flagged and Europe has built up
strong stockpiles in recent weeks, limiting the measures' hit on
prices.
"EU buyers have had time to prepare for the ban," ING said.
Metals:
Metals prices were mixed, while gold was higher, with the dollar
still rising after Friday's strong U.S. jobs report.
Friday's robust nonfarm payroll figure boosted the dollar--with
the ICE index up 0.2% to 103.15 today--and hit risk commodities,
meaning the Fed might stay hawkish with regards to monetary policy,
ANZ Research said.
"Any macro disappointment could lead to a short-term price
correction before seeing a sustained rise in prices," it said with
regards to industrial metal prices, adding that gold is likely to
face headwinds for similar reasons.
Copper Outlook
Strong demand from China and supply strains from South-American
mined production is likely to keep copper prices elevated according
to Fitch Solutions.
Fitch said it expects prices to average $8,500 a metric ton in
2023, but added that it sees significant upside risks to this,
driven by China's reopening.
"Despite a slight cooling of prices directly after the Lunar New
Year holidays, we remain optimistic about a recovery of copper
demand from Mainland China in the coming months."
The research firm added social unrest in Latin America also
remains a near-term threat to supply.
DOW JONES NEWSPLUS
EMEA HEADLINES
Nissan Plans to Take Up to 15% Stake in Renault's New EV
Company
Nissan Motor Co. plans to invest for an up to 15% stake in
Renault SA's new electric-vehicle company, Ampere, the auto makers
said Monday as they formally announced the alliance's
reorganization.
The French-Japanese auto alliance said member Mitsubishi Motors
Corp. will also consider investing in Ampere.
German Factory Orders Rose in December
New orders at German factories recovered in December, an
indication of improving demand in the country's key manufacturing
sector despite signs of an upcoming economic slowdown.
Factory orders rose 3.2% on month in December, swinging from a
4.4% fall in November, according to price-adjusted data from the
German statistics office Destatis released Monday. However, it
meant new orders rose in just four of the months of 2022.
Norwegian Air Shuttle Passenger Numbers Fell Slightly on Month
in January
Norwegian Air Shuttle ASA said Monday that passenger numbers
fell slightly in January compared with the prior month, but noted
positive current booking trends.
The airline said it carried 1.13 million passengers in January,
down from 1.32 million passengers in December. However, passenger
levels increased 78% compared with the 637,376 it carried in
January 2022.
Rovio Starts Strategic Review and Preliminary Talks Over
Potential Takeover
Rovio Entertainment Oyj said Monday it has started a strategic
review and preliminary non-binding talks with certain parties in
relation to a potential tender offer for its shares.
The Finnish company behind the Angry Birds mobile-gaming
franchise said it has received expressions of interest and
indicative non-binding takeover proposals, and as part of the
strategic review it has decided to enter into preliminary
non-binding talks with certain parties, including Playtika Holding
Corp.
Europe Hopes Its Latest Russian Energy Purge Is Another
Nonevent
Europe is weaning itself off Russian oil and gas in steps. The
next phase, targeting oil products such as diesel and jet fuel,
could bring fresh snags for buyers and fat profits for
refiners.
This weekend, the European Union stops importing petroleum
products from Russia. This follows a ban on shipments of crude oil
that came in early December, and before that, August's coal
embargo.
Group of Seven Agrees to Expand Sanctions on Russian Oil
Industry
The U.S. and its allies agreed to cap the sales price of premium
Russian petroleum products such as diesel at $100 a barrel and
limit low-value ones such as fuel oil to $45 a barrel, expanding
their sanctions on Russia's oil industry.
Just as with the $60 a barrel price cap on Russian crude that
the West imposed last year, the agreement will bar Western firms
from handling seaborne cargoes of Russian oil products unless they
are sold below the set prices. The sanctions aim to keep Russian
oil available on global markets to keep prices steady, while also
reducing the Kremlin's revenue in response to its invasion of
Ukraine.
The World's Biggest Planes Are Finding Their Way Back Into the
Skies
The world's biggest passenger airliners-many of which had been
earmarked for the scrapyard-are being brought back into service as
carriers rush to restore long-haul air travel.
Aircraft lessors said airlines are clamoring for their
once-parked fleets of big jets, which typically each ferry hundreds
of passengers on long-distance routes. The demand is limiting
availability and pushing up the prices of rentals.
Ukraine Warns Russia Is Planning Major Offensive as Kyiv Shakes
Up Military Leadership
DNIPRO, Ukraine-Ukraine warned that Russia was completing
preparations for a major new offensive this month as Kyiv signaled
a reshuffle in its military leadership amid a corruption scandal
that has rocked the Defense Ministry.
Serhiy Haidai, the governor of the Luhansk region in eastern
Ukraine, said Russia was continuing to bolster its offensive
capacity and bring in troops to front line positions while
decreasing its rate of fire in certain areas to save ammunition for
the coming advance.
Israeli Military Kills Five Militants Near Jericho as Violence
Spreads
Tel Aviv-Israeli forces said they killed five Palestinian
militants during an operation targeting Hamas members in the Aqbat
Jabr refugee camp near Jericho, the second such deadly raid in
little over a week as violence escalates in the occupied West
Bank.
Israel's military said it raided the camp to arrest two
Palestinian suspects who last month attempted to carry out a
shooting attack at a nearby restaurant frequented by Jewish
Israelis, but their weapons malfunctioned and they fled. Israel's
military said they were hiding out in the refugee camp with the
help of family and locals, and had continued to declare their
intentions to carry out an attack.
Moscow, Tehran Advance Plans for Iranian-Designed Drone Facility
in Russia
Moscow and Tehran are moving ahead with plans to build a new
factory in Russia that could make at least 6,000 Iranian-designed
drones for the war in Ukraine, the latest sign of deepening
cooperation between the two nations, said officials from a country
aligned with the U.S.
As part of their emerging military alliance, the officials said,
a high-level Iranian delegation flew to Russia in early January to
visit the planned site for the factory and hammer out details to
get the project up-and-running. The two countries are aiming to
build a faster drone that could pose new challenges for Ukrainian
air defenses, the officials said.
GLOBAL NEWS
The stock-market rally survived a confusing week. Here's what
comes next.
Despite a Friday stumble, stocks ended a turbulent week with
another round of solid gains, keeping 2023's young but robust
stock-market rally very much alive.
But a cloud of confusion hangs over the market, and it will
eventually need to be resolved, strategists said.
Upbeat Economic Data Keep Investors on Edge About Fed
The U.S. labor market remains incredibly strong. Investors can't
decide if that is a good or bad thing.
At first glance, Friday's jobs report seemed to have very little
for money managers to dislike. The U.S. economy added a whopping
517,000 jobs in January, while the unemployment rate fell to its
lowest level since 1969, according to Labor Department data.
Banks Borrow Unsecured Cash at Record Clip While Deposits
Flee
Banks were chasing away deposits during the depths of the
pandemic. Now, some are paying higher rates to shore up cash.
Borrowing in the federal-funds market hit $120 billion on Jan.
27, the highest one-day total in Federal Reserve data going back to
2016. Activity in fed funds-used by banks and government-backed
lenders to exchange cash reserves parked at the Fed-surged
throughout the past year when the central bank raised interest
rates at the fastest pace in decades.
U.S. Weighs Sanctions for Chinese Companies Over Iran
Surveillance Buildup
The U.S. is considering new sanctions on Chinese surveillance
companies over sales to Iran's security forces, officials familiar
with the deliberations said, as Iranian authorities increasingly
rely on the technology to crack down on protests.
U.S. authorities are in advanced discussions on the sanctions,
according to the officials, and have zeroed in on Tiandy
Technologies Co., a surveillance-equipment maker based in the
eastern Chinese city of Tianjin whose products have been sold to
units of Iran's Islamic Revolutionary Guard Corps, a hard-line
paramilitary group.
Russia Sanctions Challenge Tight U.S. Diesel Market
U.S. fuel markets held steady in December after Western
sanctions on Russian crude reshuffled global oil shipments. New
restrictions that take effect Sunday could prove more
complicated.
The measures, which target most of Russia's refined petroleum
products, threaten to take supplies off the market as the country
looks for new trading partners. Any confusion could buoy prices for
diesel and other fuels that have remained stubbornly high since the
Kremlin launched its invasion of Ukraine last year.
China Rebukes U.S. for Taking Down Its Balloon
BEIJING-China's vice foreign minister lodged strong criticism of
the U.S. decision to shoot down a suspected surveillance balloon
over the weekend, calling it an indiscriminate use of force that
would further damage U.S.-China relations.
Vice Foreign Minister Xie Feng delivered the rebuke to the U.S.
Embassy in Beijing on Sunday, according to a statement published
Monday by the Chinese Foreign Ministry. The statement reiterated
China's position that the balloon was an unmanned civilian aircraft
that had drifted off course.
U.S. Weighs Sanctions for Chinese Companies Over Iran
Surveillance Buildup
The U.S. is considering new sanctions on Chinese surveillance
companies over sales to Iran's security forces, officials familiar
with the deliberations said, as Iranian authorities increasingly
rely on the technology to crack down on protests.
U.S. authorities are in advanced discussions on the sanctions,
according to the officials, and have zeroed in on Tiandy
Technologies Co., a surveillance-equipment maker based in the
eastern Chinese city of Tianjin whose products have been sold to
units of Iran's Islamic Revolutionary Guard Corps, a hard-line
paramilitary group.
Billionaire Charles Koch-Backed Group Will Push GOP to Move Past
Donald Trump
WASHINGTON-A group funded by billionaire Charles Koch will work
to support a Republican presidential nominee other than Donald
Trump, concluding in a strategy memo that "we need to turn the page
on the past."
The organization, Americans for Prosperity, has stayed out of
the last two presidential cycles but has concluded it needs to
engage now as Mr. Trump mounts his third consecutive White House
run. The memo released Sunday doesn't mention the former president
by name but is unambiguous in its purpose.
Classified-Documents Probe Highlights Biden Family's Deep Ties
to Penn
The discovery of classified documents from Joe Biden's vice
presidency at a foreign-relations think tank might have surprised
many in the country. The fact that the think tank was run by the
University of Pennsylvania and bore the president's name shouldn't
have.
For decades, the Ivy League school and the Biden family, across
generations, have fostered close relations to their mutual benefit.
Those benefits extend beyond the Penn Biden Center for Diplomacy
and Global Engagement, where the documents were discovered in
November.
Biden Prepares for State of the Union Speech as China Tensions,
Job Gains Take Center Stage
WASHINGTON-President Biden will give the State of the Union
address before a newly divided Congress on Tuesday, hoping to build
off positive economic signs but facing fresh tensions with China
and the lingering war in Ukraine.
Following the speech, Mr. Biden will travel on Wednesday to
Wisconsin, a 2024 presidential battleground, and tout union jobs
during a visit to Madison. On Thursday he is scheduled to visit
Florida-the home of two potential 2024 GOP rivals, former President
Donald Trump and Gov. Ron DeSantis-to highlight plans to strengthen
Social Security and Medicare and reduce healthcare costs, the White
House said. On Friday he will discuss his economic agenda with the
nation's governors and meet with Brazilian President Luiz Inácio
Lula da Silva.
Hong Kong Opposition in Court as Landmark National-Security
Trial Opens
HONG KONG-Sixteen pro-democracy figures went on trial Monday in
a landmark case in Hong Kong's crackdown on political dissent,
drawing global scrutiny as the city's government launches a
marketing blitz to restore the financial hub's allure to global
business and tourists.
The arrests of the 16 in January 2021, part of a larger roundup
that snared dozens of the city's most prominent politicians and
activists and effectively snuffed out legislative opposition in the
city, drew condemnation and sanctions from Washington and its
allies. Most of the 47 people charged in the case have been held in
prison for more than two years.
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(END) Dow Jones Newswires
February 06, 2023 06:23 ET (11:23 GMT)
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