MARKET WRAPS
Stocks:
European stocks fell sharply on Friday led by technology, which
echoed a late-session selloff on Wall Street. Profit warnings in
the renewables sector sent the shares of two Siemens subsidiaries
tumbling.
Wind-power company Siemens Gamesa Renewable Energy fell nearly
15% after it posted an operating loss and lowered its guidance,
citing supply-chain constraints.
The warning from its Spanish subsidiary prompted Siemens Energy
to lower its targets for fiscal 2022, and shares tumbled 10%. Those
of rival Vestas Wind Systems dropped 6%.
While tech led the losses in Europe, few sectors showed any
green. Among chip names in Europe, heavily weighted ASML dropped
3%, and ams shares fell 3%, while business software group SAP was
down 1.2%.
The FTSE 100 fell, with mining shares among the worst performers
as commodity prices slipped. Energy names were under pressure as a
risk-off mood hit oil prices and BP and Royal Dutch Shell shares
fell 1% each.
Meanwhile, tensions between Russia and NATO are also weighing on
market sentiment, investors said.
"Geopolitical risk plays a role, repricing of [central bank]
policy plays a role and the inflation mix in the sense of cost
pressures. You put all those together and there is actually quite a
change," said Georgina Taylor, a multiasset fund manager at
Invesco. "Risk premium for equities needs to go up."
Shares on the move: Siemens Gamesa's profit warning is down to
internal and external factors, Citi's Vivek Midha said after the
Spanish renewable-energy company cut fiscal 2022 guidance on
preliminary 1Q results. Issues with the ramp-up of the company's
5.X turbine platform affected 1Q results, but so did the wider
supply-chain issue, Midha noted.
The underlying loss in 1Q was better than consensus had
expected, but the company's guidance cut goes further than the 1Q
miss because of global assumptions on supply-chain problems
ahead--namely, that they won't ease as quickly as thought, Midha
says.
Citi has a neutral rating and a EUR20.50 target on Gamesa
stock.
Data in focus: Societe Generale expects Greek government bonds
to become investment grade within two years, in the first half of
2023 at the earliest, it said. It bases its view on improved
fundamentals but added that it sees "near-term pain and relative
underperformance versus other peripherals as investors worry about
rising yields and spreads."
The French bank's rates strategists add that Greece's recently
launched new 10-year government bond attracted lower demand "than
we have become accustomed to, similar to other January syndications
in peripheral bonds."
Greece sold EUR3 billion in June 2032-dated bonds on Wednesday,
with books for the transaction closing in excess of EUR15
billion.
The latest U.K. retail sales figures for December don't make for
pleasant viewing, ING's developed markets economist James Smith
said. Retail-sales volumes dropped 3.7% from a month earlier.
"Some of this fall is undoubtedly linked to Omicron, given
footfall appeared to have been a little lower in the run-up to
Christmas," Smith said.
But a lot of this also looks like a pullback after an unusually
strong November and Black Friday, he added.
Strong October sales also hinted that consumers did more of
their Christmas shopping early relative to past years, Smith said.
ING said these figures are unlikely to move the needle much for the
Bank of England, which looks poised to hike rates again in
February.
In the eurozone, a combination of labour shortages, high
inflation, and increased minimum wages, means 2022 is set for a
decent recovery in nominal wage growth, ING said.
The past few months have seen surprisingly rapid declines in
unemployment and the economy has recovered quicker than expected,
which has resulted in labor shortages, ING's economists said.
The relationship between unemployment and inflation--the
Phillips curve--has flattened in the last decade, they said. "It
takes longer for wage growth to emerge from low unemployment and it
leads to less wage growth as well," ING says.
But this relationship remains alive. ING expects wage growth to
significantly accelerate in 2022 and 2023 to around 3.5%, as most
important wage growth drivers point to a sharp increase.
U.S. Markets:
Stock futures were mixed Friday, but the Nasdaq was poised to
push deeper into correction territory as technology stocks remain
under pressure on multiple fronts.
Wall Street looks to end the week after a tumultuous few days of
trading. Wednesday and Thursday both saw the Nasdaq rise more than
1% and then end down more than 1%, which is the first time a
back-to-back rise and fall like that has happened in almost a year.
The index entered correction territory earlier in the week -- down
more than 10% from its high in mid-November -- and was heading
deeper into the red Friday.
One of the latest catalysts for a move lower among tech stocks,
which have a weighting with more influence in the S&P 500 and
Nasdaq than the Dow, was downbeat news about Peloton. Underwhelming
financial results from Netflix after the bell Thursday haven't
helped the picture.
"The bears took control of the ball," said Jim Reid, a
strategist at Deutsche Bank. "The S&P 500 is on track for a
third consecutive weekly decline for the first time since September
2020."
Forex:
The dollar has been under pressure for most of January with
favorable interest rate differentials failing to prop up the
currency, RBC Capital Markets said.
The rally in commodity prices and U.S. equity weakness have been
a more important driver for the dollar in the last month, RBC's
George Davis said.
"With U.S. equities recently posting a series of bearish
long-term trend reversals, further declines could undermine the USD
via shifts in asset allocation." U.S. equity declines may trigger
outflows from U.S. assets, thereby hurting the dollar, he said.
The Turkish lira is likely to weaken this year following a
temporary stabilisation as Turkey's central bank looks set to
resume its interest rate cutting cycle after leaving rates
unchanged Thursday, Capital Economics said.
"We think that falling inflation towards the end of the year
will provide the motivation for the CBRT to press ahead with
further rate cuts amounting to 100 basis points placing renewed
downward pressure on the lira," Capital Economics economist Joseph
Marlow said.
Meanwhile, very low foreign exchange reserves mean policymakers
won't be in a position to intervene in the currency market to
bolster the lira, he says. Capital Economics expects USD/TRY to
rise to 16.00 by year-end from 13.3994 currently.
Cryptocurrencies, already pressured by market sentiment away
from risk assets, tumbled. Bitcoin was 7.5% lower over the past 24
hours to below $39,000, according to data from CoinDesk. Smaller
peer Ether dropped around 8.5% over the same period to below
$2,900.
The fall can mostly be blamed on Russia, where cryptocurrencies
are popular among citizens and the country is a hub for mining --
the process that generates new digital currency tokens. The Russian
central bank has proposed banning crypto mining as part of a wider
prohibition that includes preventing people from trading or
transacting with the likes of Bitcoin.
"The pessimism continues to grow among investors and traders
when it comes to riskier assets and this is chiefly influencing the
price of equities and bitcoin," said Naeem Aslam, chief market
analyst at AvaTrade, in a note to clients.
"The thing with bitcoin is that when it begins to fall, the
price action drops like there is no tomorrow," said Aslam, who
added that January also tends to be a volatile month for the
cryptocurrency on a historical basis.
Sterling fell after data showed retail sales unexpectedly
declined in December. Retail sales dropped 0.9% year-on-year,
compared to the 3.4% increase expected by economists in a WSJ
survey.
Many consumers did Christmas shopping earlier than usual in
November and stayed at home in December as the Omicron coronavirus
variant spread.
"Even as Plan B restrictions lift, the number of shoppers is
unlikely to snap back to pre-pandemic times in high streets and
city centre locations given that hybrid working is fast becoming
the norm and household budgets are tightening," Hargreaves Lansdown
analyst Susannah Streeter said.
Bonds:
The rise in government bond yields won't be a linear process, DZ
Bank analyst Christoph Kutt said. "The trajectory of inflation
rates may involve downside as well as upside surprises, which the
central banks will have to address as part of their exit
strategies," he said.
The Fed's approach toward policy normalization will be "far more
forceful" than that of the European Central Bank, Kutt said.
The ECB has to be vigilant against inflation risks and the
threat of eurozone fragmentation, he said.
Soaring inflation and the prospect of central banks raising
interest faster than anticipated is fueling yield volatility in
credit markets. "Yield volatility is likely to remain elevated, a
further gradual repricing of European credit is in the cards,"
UniCredit said.
The stock of negative-yielding euro corporate bonds in the iBoxx
senior investment-grade nonfinancial index has plunged to 11% at
present from 55% in November 2020, they sid.
Credit curves are likely to retain their steepening bias and
UniCredit reiterates its preference for corporate bonds maturing in
between three and five years.
Commodities:
Oil's rally should continue as OPEC struggles to meet its
production targets and winter weather keeps demand strong, said TD
Securities. Demand expectations have risen this week, the firm
noted, pointing to upward revisions to forecasts from the IEA.
At the same time, signs that OPEC is struggling to meet supply
targets are building. Add to that the possibility of cold winter
weather in the Northern Hemisphere and oil's outlook is bullish,
said Bart Melek, the firm's head of commodity strategy.
"As the winter continues, strong demand across the energy
complex will add to bullish sentiment. There is a very real
possibility that colder-than-usual weather due to La NiƱa weather
patterns will drive demand higher, pushing the market into a
deficit sooner, rather than later."
A shortage of nickel worsened in November, according to data
from the International Nickel Study Group. The global nickel market
had a 3,000-metric-ton deficit in November, 1,400 tons larger than
in the previous month, the INSG said.
In the 11 months through November, the shortage of nickel
totaled 167,000 tons, compared with a surplus of 92,500 tons in the
same period during 2020. Nickel prices have soared this month as
stocks have dwindled.
Reports that Indonesia, a major producer, is considering a tax
on nickel exports have put additional upward pressure on prices.
Three-month nickel on the LME fell 0.7% to $23,680 a ton, but
remains more than 14% higher for the month.
Gold edged lower in early European trade on position adjustment
ahead of the weekend. The focus of gold traders is shifting to next
week's FOMC meeting, with Russia-Ukraine tensions probably factored
into the prices of precious metals, Phillip Futures said.
Rising U.S. interest rates remain a potential headwind since
this translates into a higher opportunity cost of holding
non-yielding bullion, the brokerage added.
Copper prices have seen choppy trading this week with demand
concerns presenting headwinds while falling inventories have
offered support. That range-bound trading is likely to continue
with prices averaging $9,690 a metric ton this year, said analysts
at BNP Paribas.
Weakness in China's construction sector is likely to drag on
copper demand in the first half of the year while rising mine
supply should also add to headwinds, the bank said.
Three-month copper on the LME was down 0.8%, joining a rout in
global markets that comes as investors slash their exposure risk
assets on fears of slowing economic growth. For the week, the metal
is on course to end with a modest 2.2% gain.
EMEA HEADLINES
Investors See New Sparkle in Europe's Tech Scene
Europe's tech scene has struggled to emerge from the shadows of
giants in the U.S. and Asia, but friendly local policies and a
global overflow of investment capital are now giving the region a
gusher of cash.
Investments in European tech firms soared to $93.3 billion last
year, a record and a 142% increase over the year before, according
to CB Insights. The number of deals jumped as well, to 7,051 from
5,746 the year before and 6,051 the year before that.
France's Total Exits Myanmar, Citing Shareholder Pressure Since
Coup
SINGAPORE-France's TotalEnergies SE said it is withdrawing from
Myanmar over shareholder pressure and a deteriorating human-rights
situation since the country's military seized power in a coup last
year.
Western energy companies have faced growing calls to divest or
withhold revenue from the junta, while governments including the
U.S. and France have come under pressure to sanction the sector.
Myanmar's oil-and-gas industry is the country's single largest
source of foreign revenue.
Eurozone Inflation Seen Falling in 2022, But More Slowly Than
Expected
Eurozone inflation climbed to a record-high level of 5.0% in
December but should start decelerating from January. However, more
persistent supply-side price pressures observed in energy, food and
non-energy goods suggest a very gradual inflation moderation in
2022, Barclays says.
For Barclays, the eurozone inflation outlook remains uncertain
with risks skewed to the upside. The surge in wholesale energy
prices has so far mainly boosted inflation in counties with a
relatively high share of variable-rate utility tariffs in the
overall consumer bill, such as Spain and Belgium. This leaves
countries with a larger share of regulated and fixed-rate utility
tariffs--including Germany, France and Italy--exposed to delayed,
and potentially sharp, consumer price hikes.
Siemens Gamesa Issues FY2022 Pft Warning After Swinging to 1Q
Loss Amid Supply Bottlenecks
Siemens Gamesa Renewable Energy SA lowered its guidance for the
fiscal year late Thursday after it swung to an operating loss in
the first quarter on continued supply-chain constraints.
In the three months to Dec. 30, the Spanish energy company
posted an adjusted loss before interest and taxes of 309 million
euros ($350 million) from a profit of EUR121 million a year
earlier, on revenue that fell to EUR1.8 billion from EUR2.3
billion, according to preliminary figures.
Siemens Energy Lowers FY2022 Targets on Gamesa Profit
Warning
Siemens Energy AG late Thursday lowered its targets for fiscal
2022 after swinging to an operating loss in the first quarter, and
following a profit warning from its Spanish renewables
subsidiary.
According to preliminary results, Siemens Energy made an
adjusted loss before interest, taxes and amortization of 57 million
euros ($64.5 million) in the October-December period, compared with
adjusted Ebita of EUR243 million in the same quarter the previous
year. According to a company-compiled consensus, it had been
expected to make a profit of EUR91 million.
U.K. Retail Sales Slumped in December as Omicron Cases Raged
U.K. retail sales sank in December, sharply missing analysts'
forecasts, as the nation witnessed surging Covid-19 cases and
tightened social-distancing guidance.
Retail sales volumes dropped 3.7% from a month earlier, the
Office for National Statistics said Friday. Economists polled by
The Wall Street Journal had forecast a more modest decline of
0.6%.
Rio Tinto Reviewing Serbia's Move to Revoke Lithium Project
Licenses
Rio Tinto PLC said Thursday it was reviewing the legal basis and
implications of a decision by Serbia's government to revoke
licenses for the mining company's lithium project.
"Rio Tinto is extremely concerned by the statement from the
prime minister, Ana Brnabic, about cancelling the spatial plan and
revoking licences related to the Jadar project," a company
spokesman said.
Palfinger Issues 1Q, 1H Profit Warning on Rising Costs, Supply
Chain Woes
Palfinger AG late Thursday issued a profit warning for its first
quarter and first half of 2022 citing "massive" cost increases and
supply-chain issues.
The Austria-based crane producer said it expects its earnings
before interest and taxes in the January-March and January-June
periods to come in far below levels from the previous year.
Airbus Cancels Qatar Airways Order for 50 A321 Planes
Airbus SE has canceled a plane order from state-owned carrier
Qatar as the two companies have been in dispute for months over
surface degradation on A350 jets.
The European plane maker has canceled a contract for 50 of its
A321 planes, a company spokeswoman told Dow Jones Newswires on
Friday, confirming an earlier report by Bloomberg.
Investor AB Raises Dividend After Investments Generated 4Q
Shareholder Return of 21%
Investor AB on Friday proposed a dividend increase after the
value of its investments rose sharply during the fourth quarter,
generating total shareholder return of 21% compared with 2% for the
same period the previous year.
Total shareholder return for the year rose to 55% from 19%.
How a Small Town Learned to Stop Worrying and Love Amazon
DARLINGTON, England-Many traders in this old market town hold
Amazon.com Inc. partially to blame for the closures of a raft of
local shops in recent years.
Then, Amazon opened a warehouse here.
U.K. Consumer Confidence Drops to a Near Year-Low on Inflation,
Omicron Worries
British consumers turned more pessimistic in January as the
spread of the Covid-19 Omicron variant and high inflation weighed
on households' outlook of the economy and spending plans, according
to a survey by the research firm GfK.
GfK's consumer-confidence barometer fell to minus 19 in January
from minus 15 December, the lowest level since February 2021.
Economists polled by The Wall Street Journal expected the
confidence index to retreat slightly to minus 16.
GLOBAL NEWS
China's Yield Advantage Over U.S. Bonds Narrows
The extra yield that Chinese government bonds offer over U.S.
Treasurys this week dropped below a percentage point for the first
time in nearly three years, as the central banks of the world's two
largest economies move in opposite directions.
The narrowing gap, reflecting both a rally in Chinese bonds and
a U.S. selloff, reduces one longstanding argument in favor of
foreign investors buying more Chinese debt. But analysts and
investors say the long-term torrent of international money pouring
into Chinese fixed-income markets is likely to continue.
Swoon in Tech Stocks Puts Startup Valuations in Harsh New
Light
Waning enthusiasm for tech stocks in the public markets is
casting doubt on valuations in the private market, where prices
last year hit stratospheric levels.
The public arenas have begun to dial down their fervor for
high-growth tech stocks, with investors in particular punishing
companies that don't make money-startups in tech and biotech,
blank-check companies and others still finding their feet.
Investors See New Sparkle in Europe's Tech Scene
Europe's tech scene has struggled to emerge from the shadows of
giants in the U.S. and Asia, but friendly local policies and a
global overflow of investment capital are now giving the region a
gusher of cash.
Investments in European tech firms soared to $93.3 billion last
year, a record and a 142% increase over the year before, according
to CB Insights. The number of deals jumped as well, to 7,051 from
5,746 the year before and 6,051 the year before that.
China's Transport Ministry Summons Freight-Delivery Platforms,
Warns Ride-Hailing Firms
China's Ministry of Transport has summoned four leading
freight-delivery platform operators and warned four internet
ride-hailing companies over recent driver complaints, in a sign of
Beijing's continued scrutiny of the country's massive tech sector
after a year-long crackdown.
The ministry on Friday said it has summoned four internet
freight delivery firms, including the cargo businesses owned by
DiDi Global Inc. and 58.com Inc., to discuss recent driver
complaints about arbitrary pricing rules, membership fee increases,
unfair competition and illegal practices such as overloading.
The SPAC Ship is Sinking. Investors Want Their Money Back.
Wall Street's favorite pandemic bet is taking on water.
SPACs, or special-purpose acquisition companies, burst onto the
scene in 2020 as the hip way to take Silicon Valley's hottest
startups public. Unlike traditional initial public offerings, SPACs
were seen as modern and accessible, allowing any investor to put
money into the companies of the future at the same time as
professional money managers.
Blinken to Meet Russia's Foreign Minister Amid Ukraine Border
Crisis
KYIV, Ukraine-As Secretary of State Antony Blinken prepares for
a high-stakes meeting with Russian counterpart Sergei Lavrov on
Friday, Ukraine's foreign minister warned that his country's
soldiers and civilians could "pay with their blood" for any delays
to a sanctions package that could be imposed on Moscow immediately
should it choose to invade.
The meeting in Geneva follows a string of meetings Mr. Blinken's
deputy, Wendy Sherman, held earlier this month with European allies
and her Russian counterpart at NATO's headquarters, followed by
more gatherings Mr. Blinken held this week in Kyiv and Berlin.
Afghans Housed at Military Base in Kosovo Risk Being Denied
Entry to U.S. for Alleged Terrorist Ties
WASHINGTON-Afghan evacuees housed on a U.S. military base in
Kosovo are at risk of being denied entry to the U.S. because of
their alleged links to the Taliban and other terrorist groups, U.S.
officials have said, potentially leaving them without a home
country.
Fewer than 10 Afghans have been declared ineligible for entry
after security officials found disqualifying information about them
during an extensive vetting process, according to a person familiar
with the issue. About 90 other individuals continue to be vetted at
the Camp Bondsteel base in Kosovo, according to administration
officials.
Biden Seeks to Reassure Ukraine, Vowing a Strong Response to
Russia and Transferring Weapons
President Biden said Thursday that any Russian troop movement
into Ukraine would be considered an invasion, seeking to clear up
confusion over his position on a potential incursion as the
administration gave approval for U.S.-made weapons to be
transferred to Kyiv.
"I've been absolutely clear with [Russian] President [Vladimir]
Putin. He has no misunderstanding," Mr. Biden said at a White House
event. "If any-any-assembled Russian units move across the
Ukrainian border, that is an invasion."
Belarusian Officials Charged With Aircraft Piracy in Diversion
of Ryanair Flight
The U.S. Justice Department charged four Belarusian government
officials with aircraft piracy, alleging they conspired to
fabricate a bomb threat to divert a Ryanair passenger jet last year
to arrest a dissident journalist.
In an indictment filed Thursday in New York, the Belarusian
officials were also accused of conspiring to cover up the fake bomb
plot after the Boeing 737 made an emergency landing in May in the
nation's capital, Minsk. The aircraft, carrying 126 passengers, was
en route from Athens to Vilnius, Lithuania, when Belarusian
air-traffic controllers told the pilots of the purported threat,
according to the indictment.
Write to sarka.halas@wsj.com
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(END) Dow Jones Newswires
January 21, 2022 06:51 ET (11:51 GMT)
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