MARKET WRAPS
Watch For:
EU bank stress test launches late January, Business &
consumer surveys; Germany GDP 1st release; Italy PPI, foreign trade
non-EU; trading updates from Philips, Ryanair, Evraz, Smith &
Nephew
Opening Call:
Shares in Europe may open lower at the start of a busy week
headlined by a slew of central bank rate decisions. In Asia, stock
benchmarks were mixed; Treasury yields broadly gained; the dollar
and oil futures fell; while gold gained slightly.
Equities:
European shares look set to fall at Monday's open, as investors
brace for corporate earnings and rate decisions by the Fed, the
European Central Bank and the Bank of England.
Hopes that inflation has peaked, alongside some momentum in the
stock market, have drawn many investors in to bet on some of the
riskiest corners of the market.
"I'm actually quite optimistic about where things stand," said
Dev Kantesaria, founder of Valley Forge Capital. "Inflation is
improving across the board."
Mr. Kantesaria considers the path of interest rates to be
paramount in terms of stock returns, despite the bevy of earnings
results that have trickled out in recent weeks.
He is expecting the Federal Reserve to eventually have to cut
interest rates, which he thinks will help the stock market.
However, Matt Rowe, senior portfolio manager at Nomura Private
Capital, said that many investors entered the year bearish on
stocks and may be chasing the market higher in recent weeks.
"I think most of it is based on positioning," Mr. Rowe said of
the rally. "There's a lot of reasons to think this has gone too
far, too fast."
Investors this week will also focus on the U.S. job reports,
which will gauge U.S. wages, openings and overall labor market.
Read: The Fed and the stock market are set for a showdown this
week. What's at stake.
Forex:
The dollar strengthened early Monday, with analysts expecting
policy announcements from the Fed, ECB and BOE this week to be a
turning point for the dollar.
Capital Economics said it thinks the headwind for the greenback
has largely run its course.
"What's more, we expect continued weakness in US economic data
to dent risk sentiment, tighten financial conditions and push the
dollar higher over the coming months," it said.
However, Bank of America FX strategists said, "while inflation
will likely fall through 2023, persistent country divergences
should keep FX volatility high."
"We expect modest USD downside by the year-end, continuing into
2024. Still, while the recent USD weakness is directionally
justified, we believe its size has been an overreaction. Certainly,
the forces behind the strong USD rally last year seem to have
turned; US inflation has likely peaked," they added.
Meanwhile, Danske Bank analysts expect the Bank of England to
raise interest rates by 50 basis points to 4.0% this week and also
warned of a grim economic outlook, likely causing the pound to fall
against the euro.
"We expect EUR/GBP to move slightly lower upon announcement [of
a 50bp rate rise], but reverse higher on the back of a dovish
statement and press conference," they said.
Danske expects the decision would be a closer call between a
25bp and a 50bp rise than many anticipate. Rates should peak at
4.25% after a final 25bp rise in March, below the 4.40% the market
currently prices, Danske added.
Bonds:
U.S. Treasury yields were mixed early Monday after, the 10-year
Treasury notching its biggest weekly yield climb in a month on
Friday.
Investors were likely to monitor the Fed's post-meeting
communication for clues on how soon the central bank will stop
tightening.
"A number of indicators are flashing red lights that a recession
may be upon us," Bill Adams, chief economist at Comerica Bank,
said.
"With cooler inflation and increased signs that the economy may
have in fact turned, financial markets are pricing in a smaller
quarter percentage point rate hike for the Fed's decision," he
said, adding that the markets are now also "pricing in the
possibility that the Fed holds rates unchanged at their following
decision in March."
"Our economists remain hawkish relative to market pricing,
expecting a terminal [fed funds] target range of 5.00-5.25%. and
the first cut not until Mar-2024, for which forwards price 100 bp
more cuts than our colleagues expect," BofA Global's rates team
lead by Ralf Preusser said.
Energy:
Crude oil futures fell in Asia, as investors focus on the OPEC+
Joint Ministerial Monitoring Committee, which reviews the oil
market, meeting on Feb. 1.
"OPEC remains a critical piece of the puzzle," said SPI Asset
Management.
"Because of the voiced frustration with the Western energy
policies, including the price cap on Russian oil, and the risk it
creates precedents, it will most certainly limit the group's
willingness to raise production and play ball with the West."
Oil agencies expect "solid global oil demand growth with a
significant contribution from China, and subject to the burden of
proof, many traders think it could push the market back into
deficit from June onwards" and drive Brent back up to $105 a barrel
by the fourth quarter of this year, SPI said.
"However, if the oil market turned out to be softer than most
forecast, then OPEC should be able to put a floor under prices
given its strong pricing power," it said.
"OPEC could keep its production lower for long beyond its June
4th meeting or implement further cuts."
Metals:
Gold prices edged higher in Asia, extending a broadly muted
trading pattern in recent sessions.
"Gold has had a good run in the last few weeks benefitting from
the downturn in the U.S. dollar," Colin Cieszynski, chief market
strategist at SIA Wealth Management said.
Technically, gold was looking "a bit overbought and due for a
pause in the short term," especially with the Federal Reserve
policy decision due Wednesday, he said. The longer-term picture
remains bullish, he said.
Galaxy Futures analysts also reckoned the precious metal was
likely to continue oscillating at its current high levels for the
near term, given a lack of substantial changes to the market's
fundamentals.
But some have been warning of profit-taking risk and an end to
gold's recent strong rally, as elevated prices and easing worries
of a global slowdown weigh on buying interest.
Gold has yet to break the $2,000 level, and there will likely be
"sharp corrections unless there is a convincing break" of that
level, Chintan Karnani, director of research at Insignia
Consultants, said.
"Gold traders will be looking for clues on interest rate pause
in the FOMC so that they can force a break of $2,000."
--
Chinese iron-ore futures rose on demand hopes as local markets
reopened after the Lunar New Year holidays.
There have been expectations that China will increase buying
after the Lunar New Year holidays, Saxo Bank said.
Also, Australia's biggest pure-play iron ore company, Fortescue
Metals Group, expects stronger sales in 1H, it noted.
--
Copper prices inched higher, extending a range-bound pattern
over recent sessions.
Investors have been weighing a mixed bag of signals including
worries of a potential global recession, uncertainties in the Fed's
upcoming interest rate changes, and expectations of China's
post-reopening demand recovery.
The metal's price may find some support in the near term, Yongan
Futures analysts said.
They pointed out that China's domestic copper inventories have
remained low during the past week, which could trigger buying
interest as traders seek to build up supplies for an expected
demand rebound in 1Q.
TODAY'S TOP HEADLINES
Short Sellers Feel the Pain in Stock Market's 2023 Rally
The market's comeback in 2023 has been very bad news for one
group: short sellers.
Short sellers profit from stock declines by borrowing shares of
companies that they believe are overvalued, selling them, and then
buying them back at a lower price later. They made huge gains in
2022, when markets around the world tumbled.
Fed set to deliver quarter-point rate hike along with 'one last
hawkish sting in the tail'
The Federal Reserve will downshift to a 25 basis point rise in
its policy interest rate at their upcoming interest-rate meeting
and will work overtime to make sure that the market doesn't get the
idea that rate increases are finished, economists said.
"Despite the good news on inflation and being one step closer to
done, it's likely too soon for the Fed to stop raising rates and
likely too soon to signal a stop is imminent," said Jonathan
Pingle, economist at UBS.
Startup Valuation Resets to Kick-Start Stalled M&A
The merger-and-acquisition market for venture-backed startups is
expected to see a rebound in deal making this year as entrepreneurs
and their investors resign themselves to accepting lower prices for
their companies.
Startups flush with capital from the recent bull market in
venture funding have been holding out for better prices for months,
despite calls for discounts from prospective buyers anticipating a
souring economy. Many startups, however, may soon give in if they
continue struggling to raise capital and face lower private-market
valuations.
U.K. Prime Minister Fires Top Official Over Tax Probe
LONDON-British Prime Minister Rishi Sunak on Sunday fired Nadhim
Zahawi as chairman of the U.K.'s ruling Conservative Party, after
an internal probe concluded Mr. Zahawi failed to disclose an
investigation into his tax affairs last year, the latest in a
series of controversies to wash over the government.
Mr. Sunak dismissed the former businessman after the
government's ethics adviser concluded on Sunday that not disclosing
the tax probe was a serious failure.
Israel Strikes Iran Amid International Push to Contain
Tehran
Israel carried out a drone strike targeting a defense compound
in Iran, as the U.S. and Israel look for new ways to contain
Tehran's nuclear and military ambitions, according to U.S.
officials and people familiar with the operation.
Iranian officials said that the country's air defenses had
fended off an attempted attack by three small quadcopters targeting
a munitions factory in the city of Isfahan, right next to a site
belonging to the Iran Space Research Center, which has been
sanctioned by the U.S. for its work on Iran's ballistic-missile
program.
Russia Tightens Grip Around Bakhmut as Ukraine Awaits Western
Tanks
BAKHMUT, Ukraine-Russia's invasion forces tightened the noose
around this beleaguered city in eastern Ukraine, while Kyiv urged
the West to provide longer-range firepower to counter Russia's
missile barrages.
Ukrainian troops here described mounting difficulties in
stopping the Russian advances around Bakhmut, the site of this
winter's heaviest fighting in the 11-month-old war.
Some Western Backers of Ukraine Worry That Time Might Be on
Russia's Side
Behind the decision to sharply step up Western military aid to
Ukraine lies a worry in some Western capitals that time might be on
Russia's side.
That concern suggests the window for Ukraine isn't indefinite
and it needs powerful Western weapons-main battle tanks, other
armored vehicles and more air-defense systems-soon to reinforce the
momentum it achieved in offensive successes around Kyiv, Kharkiv
and Kherson last year.
Amazon Raises Price Minimum for Free Online Grocery Delivery
Amazon Prime members who order groceries online through Amazon
Fresh will soon pay a lot more to get free delivery.
Starting Feb. 28, online Amazon Fresh grocery orders of less
than $150 will incur delivery fees, Amazon.com Inc. said in an
email to Prime members.
Breakup of Google's Ad Business Would Reshape $500 Billion
Sector
Google spent the better part of two decades building the world's
most powerful digital advertising machine. Breaking it up would
send shock waves through the $500 billion online-ad market.
If the U.S. government wins the antitrust lawsuit it filed last
week and the Alphabet Inc. internet company is required to spin off
technology for brokering ad deals across the web, the separated
businesses would be valued at tens of billions of dollars,
according to ad and media-industry executives.
Virtual Birkin Bags on Trial in Hermès Case Testing IP
Rights
The Birkin handbag, made by French luxury brand Hermès, for
decades has been a symbol of wealth, sold through exclusive shops
and mysterious wait-lists at prices that reach tens of thousands of
dollars or more.
A self-described entrepreneur and artist in 2021 set out to
offer another way to own a Birkin, with a digital nonfungible
token. Mason Rothschild created a series of 100 digital images he
called MetaBirkins, depicting fur-covered purses in the same shape
and style as the Hermès luxury product, which he sold as digital
tokens on virtual marketplaces. The NFTs sometimes have sold at
prices similar to the real handbags.
Gucci Names Sabato De Sarno as New Creative Chief
PARIS-Fashion house Gucci appointed Sabato De Sarno as its new
creative director, seeking to reinvigorate the storied Italian
brand after a period of rapid growth petered out.
Mr. De Sarno, 39 years old, began his career at Prada SpA before
working for Dolce & Gabbana Srl. He then joined Valentino SpA
in 2009, where he held positions of increasing responsibility. He
was most recently fashion director at Valentino, overseeing both
men's and women's collections.
Write to singaporeeditors@dowjones.com
Expected Major Events for Monday
00:01/UK: Dec Zoopla House Price Index
00:01/UK: Jan CBI Growth Indicator Survey
00:01/UK: CBI Service Sector Survey monthly report
05:30/NED: Jan Producer confidence survey
05:30/NED: Dec PPI
07:00/SWE: 4Q Flash GDP
07:00/NOR: Dec Credit Indicator C2
08:00/SVK: Jan Economic sentiment indicator
08:00/SVK: Jan Business tendency survey
08:00/SWI: Jan KOF economic barometer
08:00/SPN: Dec Retail Sales
08:00/SPN: Jan Flash Estimate CPI
09:00/ITA: Dec Foreign Trade non-EU
09:00/ICE: Jan CPI
09:00/BUL: Dec PPI
09:00/GER: 4Q GDP - 1st release
10:00/CYP: Nov Industrial Production Index
10:00/EU: Jan Business & Consumer Surveys - Business Climate
Indicator & Economic Sentiment Indicator
10:00/ITA: Dec PPI
10:00/BEL: 4Q Preliminary GDP
10:00/GRE: Dec PPI
10:00/CRO: Dec Retail trade
10:00/MLT: Dec PPI
10:00/CRO: Dec Industrial Production Volume Index
10:30/BEL: Jan CPI
11:00/POR: Dec Retail trade
11:00/IRL: 4Q Preliminary GDP Estimate
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(END) Dow Jones Newswires
January 30, 2023 00:15 ET (05:15 GMT)
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