MARKET WRAPS
Watch For:
UK Public sector finances; ECOFIN's Le Maire appears at European
Parliament Committee on Economic and Monetary Affairs; Germany Ifo
Business Climate Index; U.S. Federal Open Market Committee meeting;
updates from LVMH, Alstom, Remy Cointreau, Tod's Group.
Opening Call:
European stocks could open higher, while Asia suffers sharp
losses and U.S. stock futures come under pressure. The U.S. dollar
strengthens. Oil rises, gold is little changed.
Equities:
European stocks are set to open higher following a volatile day
on Wall Street. Inflation-fighting measures from the Federal
Reserve and the possibility of conflict between Russia and Ukraine
are overhanging markets.
U.S. markets whipsawed Monday, with the Nasdaq Composite
declining as much as 4.9% before rallying to close 0.6% higher. The
S&P 500 and Dow Jones Industrial Average also staged similar
comebacks.
Early Tuesday, futures on key indexes fell, suggesting U.S.
markets could come under fresh pressure on Tuesday after starting
the week with a roller-coaster trading session.
Market volatility has picked up in recent sessions, as investors
have grown anxious about how rapidly the Federal Reserve will act
to combat inflation by raising interest rates and shrinking its
balance sheet.
"We're in this wait-and-see mode, which is almost the most
uncomfortable place to be, so I think the market is really
grappling with that," said Lindsey Bell, chief markets and money
strategist at Ally Invest.
The market is waiting to hear from chair Jerome Powell Wednesday
after Fed policymakers conclude a two-day meeting and offer their
latest thinking on the economy and interest rates.
In Asia, shares skidded Tuesday. Major decliners included the
technology and telecoms giant SoftBank which fell 3.7%, and Sony,
the electronics and entertainment conglomerate, which dropped
2.5%.
Hong Kong's Hang Seng Index dropped, with the banks HSBC and
Standard Chartered both losing roughly 3%.
"The surprise turnaround in U.S. market does not seem to provide
any relief into Asia's session today," said Yeap Jun Rong, market
strategist at IG.
Forex:
The U.S. dollar strengthened broadly, including slight firming
against the euro and yen, as stocks sell off and investors look for
safer assets. The dollar had a lackluster week last week, JPMorgan
said, "with neither an extension in US real yields nor a pullback
in US equities lending a great deal of support."
The firm continues: "Positioning, a broadening spectrum of
hawkish central banks vs. the Fed, and some stabilization in global
growth expectations all look like plausible near-term USD
headwinds. But the risk of earlier/faster USD liquidity withdrawal
from the Fed, or an accelerated pace of hikes that can serve to
lift pricing of the terminal rate, suggests it is too early to
discount completely the potential for a rates-led USD rebound this
year."
Deutsche Bank raises its year-end forecast for the euro-dollar
exchange rate as it expects the European Central Bank to raise
interest rates earlier than previously anticipated.
The German bank expects EUR/USD to end 2022 at 1.15, compared to
its previous forecast of 1.08, and sees it rising to 1.20 by
end-2023, to 1.25 by end-2024 and 1.30 by end-2025. EUR/USD last
trades at 1.1311.
"We now expect the ECB to initiate policy rate liftoff with a 25
basis points hike in December 2022 (previous view: +10 basis points
in December 2023)," Deutsche Bank analysts said.
"After the latest upgrading of our HICP inflation forecasts, the
ECB's 'triple lock' liftoff criteria are set to be met earlier than
previously anticipated."
The JPY strengthened against most G-10 and Asian currencies in
early Asian trade as continuing concerns over Fed tightening and
rising geopolitical tensions boost the safe-haven allure of the
Japanese currency.
Prospects of a Fed rate-increase cycle and balance-sheet
reduction to tackle inflation is rattling markets, Phillip
Securities Research said, adding that escalating U.S.-Russia
tensions over Ukraine has encouraged demand for havens.
Bonds:
The yield on the benchmark 10-year U.S. Treasury note rose was
fell 0.01 percentage point to 1.76%.
The Federal Reserve will put its likely March rate rise in play
with new language on the job market's state of affairs, according
to Oxford Economics' Kathy Bostjancic.
"The FOMC should alter its forward guidance in the policy
statement to reflect their view that the labor market has now
reached maximum employment--given the disappointingly slow rebound
in labor force participation," she said, adding "this will indicate
that policymakers are poised to imminently raise the Fed funds
target range."
Over recent weeks, some Fed officials said full employment is
here for now, at least until labor-force participation rates start
to improve, which they see as a longer-run possibility. St. Louis
Fed leader James Bullard noted in a recent interview that he sees
the jobless rate under 3% by year's end.
Energy:
Oil rose in early Asian trading amid signs of market tightness,
with rising uncertainties around Russia-Ukraine tensions also
supporting prices, ING said.
The bank said capacity constraints and other production issues
among OPEC+ producers may mean supplies could increase at a slower
pace than the agreed monthly increment of 400 million barrels a
day.
Citing Commodity Futures Trading Commission data, ING noted that
traders have increased their net long positions in WTI over the
previous week, reflecting demand optimism.
Metals:
Gold was little changed in early Asian trade, although prices of
the precious metal may find support from rising ETF inflows amid
rising geopolitical risks. Inflows into gold backed ETFs continue
to surge thanks largely to the metal's draw as a safe-haven asset,
ANZ said.
"A laundry list of geopolitical risks will likely lead to
safe-haven flows for gold that should help it soon break above the
$1,850 level," Oanda said. Spot gold is flitting between positive
and negative and was last flat.
Nickel was lower in early trade after top producer Tsingshan
Holding said it will boost supply for the key battery metal, ANZ
said. The Chinese nickel producer recently shipped its first cargo
of nickel matte from its Indonesian operations.
ANZ expects nickel prices to remain supported by the surging
demand for electric vehicles, as Chinese EV sales rose 35% on month
in December. The three-month forward LME nickel contract was 1.4%
lower.
TODAY'S TOP HEADLINES
Treasury Wants Banks to Loop in Foreign Affiliates on Suspicious
Transactions
The U.S. Treasury Department's Financial Crimes Enforcement
Network has proposed a new rule that would allow banks to share
so-called suspicious activity reports more readily with foreign
affiliates.
The proposed rule, which FinCEN announced Monday, would create a
pilot program to allow banks to share SARs with foreign branches
and affiliates, a bid to improve financial institutions' ability to
counter money laundering. The new program was mandated under the
Anti-Money Laundering Act, which came into force in January
2021.
Australia's Core Inflation Rose at Fastest Pace Since 2014
SYDNEY-Australian consumer prices rose by much more than
expected in the fourth quarter of 2021, which could set the stage
for Australia's first rise in official interest rates in over a
decade.
The consumer-price index rose 1.3% in the final three months of
2021, and 3.5% annually, according to the Australian Bureau of
Statistics.
Glynn's Take: RBA Set to Entertain Interest Rate Rise in 2022,
Exit QE in Feb
SYDNEY-In a significant rethink of the economic outlook, the
Reserve Bank of Australia is set to concede that an interest-rate
increase is now highly possible by late 2022, but reject
money-market bets that it will keep pace with U.S. interest rate
increases.
The RBA's first policy meeting for 2022 on Feb. 1 will also see
its program of government bond buying wound up entirely, as it
publishes revised economic forecasts that include the unemployment
rate soon falling below 4.0%, its lowest since the 1970s.
Singapore Central Bank Tightens Policy in Surprise Move
Singapore's central bank on Tuesday unexpectedly tightened its
currency policy as a pre-emptive move to stem the inflationary
impact of supply-side constraints and rising commodity prices.
In an announcement before its scheduled policy meeting in April,
the Monetary Authority of Singapore said it would slightly raise
the rate of the Singapore dollar's appreciation against a basket of
currencies.
SEC Looks to Bolster Market's Cyber Defenses
WASHINGTON-The Securities and Exchange Commission is exploring
ways to improve cybersecurity in capital markets, including by
extending compliance obligations to companies that currently don't
have to meet them, Chairman Gary Gensler said Monday.
"The economic cost of cyberattacks is estimated to be at least
in the billions, and possibly in the trillions, of dollars," Mr.
Gensler said in a virtual speech to the Northwestern Pritzker
School of Law's annual Securities Regulation Institute conference.
"We at the SEC are working to improve the overall cybersecurity
posture and resiliency of the financial sector."
Bitcoin Bounces Back After Falling Below $33,000
Bitcoin rallied on Monday afternoon, trading above $37,000,
after falling to a seven-month low in the morning, as the
cryptocurrency moved in lockstep with a swift rally in risk
assets.
Bitcoin was trading at $36,800 at 5 p.m., up, 4.7% on the day,
according to CoinDesk. In the morning, it traded below $33,000 for
the first time since July. That extended its selloff to a more than
50% loss from its record high of $68,990.90, set on Nov. 10.
Evergrande Asks Overseas Creditors for More Time
China Evergrande Group asked international creditors to give the
giant property developer more time to get a grip on its complicated
financial situation, and warned that drastic legal action could be
destabilizing.
The plea came days after a group of international bondholders
threatened to enforce their legal rights against Evergrande, saying
they had been unable to engage substantively with the troubled
Chinese real-estate company for months. Advisers to some Evergrande
bondholders last Thursday released a statement accusing the
developer of withholding crucial information about its liabilities
and failing to engage, despite statements to the contrary.
U.K. Steps Up Arms Backing for Ukraine, Leading European Efforts
to Deter Russian Invasion
LONDON-The U.K. has pushed itself to the forefront of European
efforts to deter a Russian invasion of Ukraine, becoming the first
major Western country to join the U.S. in providing lethal weapons
to Kyiv.
In recent weeks, Britain has shipped military hardware to Kyiv
that analysts say would increase the risks to Russia if it launched
a ground invasion into Ukraine and has called out what it described
as Russian efforts to subvert Ukraine's political system.
Rio Tinto, Oyu Tolgoi Partners Reach Agreements to Advance
Copper Project
Rio Tinto PLC said it has reached agreements with Turquoise Hill
Resources Ltd. and Mongolia's government on the Oyu Tolgoi copper
mine expansion in South Gobi desert that have led the partners to
approve the start of underground operations.
Under the agreements, Turquoise Hill will waive a $2.4 billion
loan to Mongolia's Erdenes Oyu Tolgoi, while Rio Tinto and
Turquoise Hill have also promised improved cooperation with the
state-owned company on the copper-mining operation, Rio Tinto said.
The world's No. 2 miner by market value said the partners have
agreed on measures to monitor underground development financing
mechanisms and enhance environmental, social and governance
matters, while also approving a new electricity supply
agreement.
On the Brink of War With Russia, Ukrainians Are Resigned and
Prepared
KYIV, Ukraine-Computer whiz Danylo Kovzhun has taught his
children to handle a pistol. Confectioner Roman Nabozhniak is
training colleagues to run his business so he can focus on fighting
Russians. Bar owner Vitaliy Kyrychenko keeps his gas tank full in
case he needs to get out fast.
Ukraine has struggled to maintain a sense of stability since it
fully established itself as a sovereign country in 1991, and has
been at war since 2014. But with 100,000 Russian troops gathered
nearby, threatening Europe's biggest land war since the 1940s,
people there say something feels different this time.
NATO to Send Ships, Jet Fighters to Eastern Europe Amid Standoff
With Russia
BRUSSELS-NATO allies are bolstering the alliance's eastern flank
in response to Russia's military buildup around Ukraine, as the
European Union set out plans for loans and grants for Kyiv worth
more than $1.3 billion and the Pentagon ordered thousands of troops
to prepare for possible deployment.
The moves are part of efforts by the U.S. and its allies to gird
for what they believe could be an imminent military invasion of
Ukraine, which Russia denies it is planning. President Biden held a
videoconference with European leaders Monday afternoon to
coordinate the trans-Atlantic response to the Russian troop
buildup.
Unilever Plans Job Cuts as Activist Investor Trian Takes
Stake
Unilever PLC plans to cut thousands of jobs as part of a
reorganization aimed at speeding up its decision making, according
to a person familiar with the matter, a move that comes as the Ben
& Jerry's owner looks for ways to jump-start growth.
Unilever's chief executive, Alan Jope, has been under pressure
to buoy sales growth for months but that has ratcheted up in recent
weeks. The Wall Street Journal and others reported over the weekend
that Nelson Peltz's Trian Fund Management LP had acquired a stake
in Unilever, just days after the company abandoned its $68 billion
bid for GlaxoSmithKline PLC's consumer-healthcare business, after
being rebuffed on price.
Omicron Slows the Global Economy, Hitting the U.S. Particularly
Hard
Rising infection rates driven by the faster-spreading Omicron
variant of Covid-19 led to a U.S. and global economic slowdown as
the year got under way, surveys of purchasing managers said.
The pullback was particularly pronounced in the U.S., where both
the services and manufacturing sectors reported slower growth,
according to surveys by data firm IHS Markit conducted in the first
weeks of January and released on Monday.
Differences Splinter U.S. Team Negotiating With Iran on Nuclear
Deal
With talks to restore the 2015 nuclear agreement with Iran
reaching a critical phase, differences have emerged in the U.S.
negotiating team over how tough to be with Tehran and when to walk
away, according to people familiar with the negotiations.
U.S. officials confirmed over the weekend that Richard Nephew,
the deputy special envoy for Iran, has left the team. Mr. Nephew,
an architect of previous economic sanctions on Iran, had advocated
a tougher posture in the current negotiations, and he hasn't
attended the talks in Vienna since early December.
Italy to Decide on Its Leadership-and Draghi's Future
ROME-Italy faces a political puzzle this week: It must fill its
two most important leadership positions, but it has only one Mario
Draghi.
Mr. Draghi is both the widely respected prime minister of
Italy's bipartisan government and the most credible contender to
become head of state, or president of the republic.
GameStop, Meme Stocks Hit by Market Turmoil
Shares of GameStop Corp., AMC Entertainment Holdings and other
meme stocks numbered among the hardest hit by Monday's market
turmoil, the latest blow to the favorite bets of many online day
traders.
IBM Sales Surge. The Company's Turnaround May Be Taking
Hold.
IBM posted strong results Monday for its fourth quarter, with
its best sales growth in more than a decade. The results suggest
that CEO Arvind Krishna's strategy for returning the legacy tech
giant to growth is beginning to pay off.
Over the last year, IBM (ticker: IBM) has restructured its
business to focus on its software and consulting units, after
spinning off its managed IT services business, now known as Kyndryl
(KD). IBM also recently agreed to sell its Watson Health unit to
private equity shop Francisco Partners. While it is early in the
turnaround, Wall Street is likely to be encouraged by today's
results.
Meta Unveils New AI Supercomputer
Meta Platforms Inc. said Monday that its research team built a
new artificial intelligence supercomputer that the company
maintains will soon be the fastest in the world.
The supercomputer, the AI Research SuperCluster, was the result
of nearly two years of work, often conducted remotely during the
height of the pandemic, and led by the Facebook parent's AI and
infrastructure teams. Several hundred people, including researchers
from partners Nvidia Inc., Penguin Computing Inc. and Pure Storage
Inc., were involved in the project, the company said.
Google Deceived Users About Location Tracking, States Allege
WASHINGTON-Alphabet Inc.'s Google deceived consumers by
recording their location even after users tried to turn off the
company's tracking on their smartphones and web browsers, according
to lawsuits by Washington, D.C., and three other states.
Google falsely told customers that if they opted out of
collection of their "Location History" or other settings, Google
wouldn't store the places they went, according to one of the
lawsuits, filed Monday in the District of Columbia's Superior Court
by D.C. Attorney General Karl Racine.
Write to sarka.halas@wsj.com
Expected Major Events for Tuesday
06:00/FIN: Dec Labour force survey, incl unemployment
07:00/UK: Dec Public sector finances
08:00/SPN: Dec PPI
09:00/GER: Jan Ifo Business Climate Index
10:00/LUX: Nov Trade
11:00/FRA: 3Q OECD Quarterly Employment Situation
11:00/UK: Jan CBI Industrial Trends Survey
13:00/HUN: Jan Hungarian interest rate decision
14:00/BEL: Jan Business Confidence Survey
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(END) Dow Jones Newswires
January 25, 2022 00:36 ET (05:36 GMT)
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