MARKET WRAPS
Stocks:
Stocks were mostly in negative territory on Friday as
disappointing results from a trio of U.S. Big Tech weighed on
sentiment and dragged down Nasdaq futures.
Caution will likely dominate in Europe at least until the U.S.
jobs report, due at 1330 GMT. Nonfarm payrolls are expected to have
grown by 187,000 in January, with the unemployment rate forecast at
3.6%, ticking up from 3.5% one month earlier.
Stocks to Watch
Inditex has proved robust in the face of consumer clouds and is
making headway on sustainability concerns, Deutsche Bank said,
raising its rating on the stock to hold from sell and lifting its
target price to EUR27 from EUR23.
The Zara-owner's sales growth has held up better than expected,
as have margins, with greater online sales not eating heavily into
the gross margin, Deutsche Bank said.
Inditex has meanwhile leveraged its size to secure more
sustainable raw materials than smaller competitors. In any case,
sustainability isn't proving to be as big an issue in fast fashion
as previously thought, Deutsche Bank said.
---
Rio Tinto could declare a special dividend for 2H 2023 if it
doesn't pursue any major acquisitions in the short term, Macquarie
said, adding that the miner's balance sheet remains strong even
after buying Turquoise Hill.
Macquarie said its final-dividend forecast for 2022 is
$1.87/share, which is in the lower half of market consensus.
Although there's upside to that estimate, it said, highlighting
recent strength in iron-ore prices. Rio Tinto is due to report FY
earnings on Feb. 22.
"We believe capex and opex updates could be an interesting area
to follow during the earnings release" while "the company could
also provide an update on Western Ranges, Rhodes Ridge and Rincon,
in addition to its decarbonization programs."
---
U.K. retailers ended 2022 with a surprisingly positive
performance, and the 2023 outlook is also becoming less bearish,
Deutsche Bank said.
With inflationary pressures in cost of goods sold expected to
become a tailwind into 2H and beyond, operating cost
inflation--specially regarding wage inflation--will remain the
biggest challenge.
"Our thesis has evolved to prefer clothing retailers over
hardlines, discount over mainstream and physical retail over
online."
Deutsche Bank has upgraded B&M and Marks & Spencer to
buy from hold and downgraded ASOS, Kingfisher, Pets at Home and
Wickes to hold from buy.
Economic Insight:
With the end of central banks' interest rate rises in sight, it
seems like investors no longer worry about inflation or about going
long duration, Societe Generale said.
"This seems premature in Europe, with core inflation still
rising and showing no signs of a turn. A pause [in interest rate
rises] beyond the summer is highly likely, but the pricing of rate
cuts from late 2023 relies on inflation quickly returning to
sensible levels."
Societe Generale continues to underweight EUR rates versus U.S.
rates, seeing a bullish outlook more plausible in Treasurys as the
Federal Reserve is approaching the pivot, while the European
Central Bank is lagging.
U.S. Markets:
Stock futures pointed to losses, with shares of Apple, Alphabet
and Amazon down between 3.7% and 5.6% in premarket trading.
The big three all reported December quarter results that showed
the effects of the weakening global economy across most of the
companies' diverse business lines.
Shares of retailer Nordstrom surged premarket after the Wall
Street Journal reported that activist investor Ryan Cohen has taken
a big stake in the company. Nordstrom was recently up 31%.
Cohen, known for sparking big jumps in meme stocks such as
GameStop a few years ago, has become one of the top five nonfamily
shareholders of the company.
The labor-market update bookends a busy week of data and
central-bank decisions and will give investors another read on the
U.S. labor market.
Forex:
The ECB's unclear communications is causing the euro to weaken,
ING said. Christine Lagarde's press conference brought "more fog
than clarity" about the rate path beyond March, ING said.
"We remain of the view that at least 75bp of extra tightening
will be delivered by the ECB, which still puts EUR/USD in a
position for a big rally in the second quarter--when U.S.
short-term rates may come off more steadily. The ECB communication
troubles may cap EUR/USD before then."
---
The dollar could fall if U.S. nonfarm payrolls data for January,
due at 1330 GMT, are weaker, UniCredit Research said.
"A slide in the number of nonfarm payrolls [we expect 190,000
from the previous 223,000] is not too heavy but, coupled with a
rise in the unemployment rate to 3.6%, might still weigh on the
greenback and allow EUR/USD to steady back above 1.10 as the week
concludes," UniCredit said.
The recovery in EUR/USD might be even more evident if the U.S.
ISM non-manufacturing survey at 1500 GMT disappoints expectations
with the index remaining below 50, signalling a contraction in
sector activity, as UniCredit expects.
---
The Bank of England's policy decision prompted the market to
scale back interest rate expectations for the U.K. more than
elsewhere, weakening sterling, MUFG Bank said.
While the Fed and ECB decisions also encouraged markets to lower
rate-rise bets, the biggest adjustment was expectations for the
BOE, MUFG added.
"The U.K. rate market had been expecting the BOE to lift the
policy rate up to a terminal rate of 4.50% but is now only pricing
in one final 25 basis points hike in either March or May."
Read Sterling Could Fall Further as BOE May Have Reached Peak
Rates
Bonds:
Eurozone government bond yields were higher in early trading,
reversing Thursday's rally which was initially driven by the
prospect of an approaching peak in Federal Reserve rate rises, with
the rally later reinforced by the ECB's meeting.
Algebris Investments said the ECB's "tone was much more dovish
than the guidance communicated in December, with less emphasis on
recent data improvement and core inflation stickiness than in the
past few talks."
Post-ECB Reaction
Early signs suggest that the bond market isn't buying what
Christine Lagarde is selling, "with signs emerging that [market]
participants wish to price in the peak in rates," Insight
Investment said.
Given the likelihood that some inflationary inputs such as
energy prices will potentially subside during 2023, this is
understandable, it said.
"However, while intentions are not promises, should the ECB stay
the course there is significant potential for market
disappointment."
---
The eurozone government bond market's initial reaction to the
ECB was too dovish, SEB said, which continues to see the risks to
core inflation on the upside.
"We expect that the inflation outlook over the coming months
will likely be in line with the ECB staff projections, but still
with risks tilted to the upside."
Read Market Seems to be Interpreting ECB Stance as Dovish
Read Market Reaction to ECB Suggests Even Pause in Rate Rises Is
Possible
Read Government Bond Rally in Europe Looks Too Early
Energy:
Crude futures ticked lower despite an impending European Union
ban on Russian oil product exports which is expected to tighten
crude markets further.
The EU's ban is set to come into force Sunday. Ample time to
prepare and strong Russian exports of crude and oil products ahead
of the ban are keeping prices in check, ING said.
"Despite this imminent disruption to flows, the market appears
relatively calm...the market has had a significant amount of time
to prepare for the ban. We have seen strong inflows of middle
distillates into Europe ahead of Feb. 5."
Metals:
Base metals were mixed, with gold slightly weaker, as investors
awaited the nonfarm payroll data.
This week has been a bumper data week, with more positive data
out of China meeting Western central banks indicating more monetary
tightening may be needed in March as they seek to taper
inflation.
"Despite Chinese growth outperforming, slowing economic growth
elsewhere globally will result in muted global demand growth for
metals," Fitch said.
It sees metal prices climbing this year on Chinese demand but
elsewhere the picture looks less clear.
DOW JONES NEWSPLUS
EMEA HEADLINES
Sanofi Upbeat on 2023 Earnings After 4Q Growth; Raises Dividend
- Update
Sanofi SA on Friday posted rising earnings and sales for the
fourth quarter, said it expects its earnings per share to grow in
2023, and raised its dividend for the year.
The French pharma major reported net profit of 1.46 billion
euros ($1.59 billion) for the quarter, up from EUR1.13 billion in
the same quarter of 2021, on sales that grew to EUR10.73 billion
from EUR9.99 billion in the previous year.
French Industrial Production Rose More Than Expected in
December
French industrial production increased more than expected in
December, suggesting the country's manufacturing sector held up at
year-end despite high energy prices and increasing interest
rates.
Industrial output-comprising output in manufacturing, energy and
construction-increased 1.1% on month after rising 2% in November,
according to data from the country's statistics office Insee
published Friday. November's sharp increase represented a rebound
from October, when output declined markedly amid strikes at some of
the countries' biggest refineries.
TotalEnergies reveals $3.1 billion exposure to Adani
TotalEnergies, a French-headquartered energy company, has told
investors it has a "limited" $3.1 billion exposure to Indian
conglomerate Adani Group, representing a 2.4% of its worldwide
investment activities.
In a statement posted on its website Friday, the multinational
oil giant outlined the extent of its exposure to the struggling
Adani Group, which has to date, lost more than $110 billion in
market value since short seller Hindenburg Research alleged fraud
at the Adani-linked companies over a week ago.
Zur Rose Shares Skyrocket Amid Deal to Sell Switzerland
Business
Shares in Zur Rose Group AG almost doubled in opening trade
after the online pharmacist said it reached a deal to divest its
operations in its home country, Switzerland, to Migros Group, as it
looks to focus on its business in Germany.
At 0807GMT, shares traded 92% higher at CHF75.
CaixaBank 4Q Net Profit Rose 62% on Year
Spain's CaixaBank SA said Friday that its fourth-quarter profit
rose 62% compared with the same period a year earlier, thanks to
higher net interest income.
The bank reported net profit of 688 million euros ($750.6
million) over October to December, beating analysts' expectations
for net profit of EUR632 million, according to a consensus forecast
provided by the bank.
TomTom Shares Rise on Narrowed 4Q Net Loss, Higher Revenue
Shares in TomTom NV rose 9% in early trade Friday after the
company reported a narrowed net loss for the fourth quarter of the
year on revenue that was boosted by its biggest location technology
unit.
Shares at 0814 GMT were up 63 European Cents at EUR7.57.
Impala Platinum Sees 1H Ebitda Broadly Unchanged on Year
Impala Platinum Holdings Ltd. said Friday that it expects to
report earnings before interest, taxes, depreciation and
amortization for the half year ended Dec. 31 in line with the
comparable period the prior year of 24.5 billion South African Rand
($1.43 billion).
The South African platinum miner said concentrate production was
unchanged compared with the half year ended Dec. 31, 2021 at 1.62
million ounces, while production from managed operations was 2%
higher at 1.18 million ounces. Group refined production fell 9% to
1.48 million ounces.
Ukraine Hopes New Bombs From U.S. Will Help It Push Back
Russia
ORIKHIV, Ukraine-Ukraine last summer stunned Russian troops with
precision strikes from U.S.-supplied Himars mobile rocket
launchers. Now an even more potent rocket system holds the
potential to re-energize Kyiv's troops.
U.S. officials are expected Friday to say they will give Ukraine
new Ground-Launched Small Diameter Bombs, precision-guided,
250-pound explosives that are strapped to rockets and can be fired
from a Himars or another launcher. The armament, which has never
been deployed and is only at the start of production, has a range
of roughly 94 miles, or around twice the range of current Himars
shells.
GLOBAL NEWS
Jobs Report to Show Whether Labor Market Cooling Extended Into
January
January's employment report will offer clues about the state of
the labor market and overall economy at the start of 2023.
Recent figures paint a mixed picture of U.S. economic health.
Consumer spending, the main driver of economic growth, is starting
to falter. Manufacturing activity is declining. Price increases are
easing, partly as a result of the Federal Reserve's interest-rate
increases aimed at slowing the economy to bring down high
inflation.
Bitcoin Prices Rally as Larger Traders Take Charge
Larger investors appear to be powering a recovery in bitcoin
prices, as the sway of smaller individual traders over
cryptocurrency markets wanes.
Based on end-of-day trading prices, bitcoin has rallied about
51% from a nadir hit in November, after the collapse of the crypto
exchange FTX, according to Dow Jones Market Data. It was quoted
late Thursday at about $23,600, and drifted slightly lower in early
trading Friday. Other tokens such as ether and dogecoin have also
rebounded. The recovery mirrors a rebound in other risky assets,
such as some high-growth technology stocks.
Stocks are at Wall Street's year-end target. It's only early
February.
Just like last year, Wall Street strategists look pretty wrong
about their expectations for stock-market performance in 2023. But
this time around, they're in the unusual position of having been
too pessimistic.
Back in December, MarketWatch collected year-end price targets
for the S&P 500 from 18 investment banks and brokerage houses.
Instead of following the herd, their targets were unusual for their
range, with some anticipating a further decline for stocks, but
others forecasting a powerful rally. The average for the group
pegged the S&P 500 at 4,031 by year's end.
Bonds Take Flight. But Investors Should Brace for Bumps
Ahead.
Fixed income is off to a flying start in 2023, a major
turnaround from last year. But the path ahead looks bumpier.
The rally has swept through nearly all fixed-income sectors. In
investment-grade bonds, the iShares Core U.S. Aggregate Bond
exchange-traded fund (ticker: AGG) is up 4.1%. More impressive are
gains in long-term bonds, with the iShares 20+ Year Treasury Bond
ETF (TLT) ahead 8.9%, clawing back a bit of last year's 31%
fall.
China Caixin Services PMI Bounced Back in January
A private gauge of China's service-sector activity bounced back
in January to expansionary territory, signaling a quick economic
recovery following Beijing's removal of its stringent Covid-19
containment regime in December.
China Says It Is Looking Into Spy-Balloon Allegation by U.S.
China declined to confirm whether it sent a spy balloon over the
continental U.S. but said it wanted to handle the allegation calmly
with Washington.
U.S. officials said on Thursday that a Chinese reconnaissance
balloon had been spotted over Montana, adding that it was expected
to pass in a southeasterly direction over the country for a few
days.
FBI to Search Mike Pence's Home for Additional Classified
Materials
WASHINGTON-The FBI is expected to search former Vice President
Mike Pence's Indiana home for classified material in the coming
days, according to people familiar with the matter, as senior
government officials come under increased law-enforcement scrutiny
of their handling of such documents.
The Justice Department is in talks with Mr. Pence's legal team
about scheduling the search, the people said.
Global Minimum Tax Deal Advances With Partial Reprieve for
U.S.-Based Companies
WASHINGTON-The U.S. prodded other major countries to agree to a
coordinated global corporate tax increase. Now, international
officials are moving ahead with their tax increases while giving
U.S. companies a temporary break from some tax hikes in hopes of
prompting the U.S. to implement the deal.
The Organization for Economic Cooperation and Development on
Thursday spelled out how the U.S. tax system will interact with the
minimum taxes being implemented in the European Union, the U.K.,
South Korea and other countries. The rules offer a partial reprieve
for U.S. companies through 2025. Still, U.S. companies are likely
to face higher taxes abroad.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
February 03, 2023 05:53 ET (10:53 GMT)
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