MARKET WRAPS
Watch For:
EU preliminary flash estimate GDP, ECB bank lending survey;
Germany foreign trade price indexes, retail trade, unemployment;
France GDP first estimate, consumer spending, PPI, provisional CPI;
Italy unemployment, GDP preliminary estimate; UK money and credit;
trading updates from Hapag Lloyd, UBS, Unicredit, Swedbank
Opening Call:
Shares could start lower in Europe on Tuesday ahead of a wave of
central bank meetings and corporate earnings this week. In Asia,
stock benchmarks declined; Treasury yields gained; the dollar was
steady; while oil and gold lost ground.
Equities:
European stocks are expected to retreat Tuesday, as investors
stay wary ahead of a raft of economic and corporate news in the
coming week.
"Investors will have a better idea (we hope) about the outlook
once the central-bank decisions, job numbers and earnings reports
are in the bag, " IG said.
Federal Reserve officials are broadly expected to raise interest
rates by a quarter of a percentage point when their two-day meeting
concludes Wednesday, lowering the size of the increase for a second
straight meeting.
"The market has had a flying couple of weeks. But as we get
closer to the Fed meeting, cautiousness is something that is
certainly going to creep in," said Principal Asset Management. "We
will likely see Powell re-emphasizing that they are not at the end
yet."
The European Central Bank and the Bank of England are also both
expected to raise interest rates this week, with policy decisions
from both due Thursday. Inflation in Europe has yet to show the
sustained decline that has been witnessed in the U.S.
"There is an emerging divergence between the Fed and the ECB,"
said Mediolanum International Funds. "The forward-looking inflation
data continues to move south in the U.S. In Europe, it is clear
that the data isn't yet doing the same."
Forex:
The dollar was steady in Asia ahead of the FOMC's two-day
meeting.
At this time, it seems unlikely that the Fed would want to
appear dovish, Pepperstone said.
Hence, with risks tilted toward a hawkish Fed in a market where
leverage funds are short USD, the bias is slightly skewed to the
dollar's upside, it added.
"The dollar is ending January with a familiar death-by-a
thousand-cuts routine, each week bringing a fresh round of
controlled bloodletting," JPMorgan said, citing Bank of Japan
"(non)-drama" two weeks ago and the Bank of Canada's last putative
rate hike of the cycle that spurred "end-of tightening
mini-euphoria in cyclical FX."
"The broad decline in G10 money market yields this month has
fostered a general sense of relief from central bank tightening
pressures as global disinflationary trends have broadened, to the
benefit of risky FX and the detriment of the dollar even as US-RoW
rate differentials have not necessarily played ball."
Bonds:
Treasury yields climbed, as investors awaited the Fed's
decision, along with clues to future moves..
The expected 25bp increase is a downshift from the outsize 75
and 50 basis point increases seen in 2022 that contributed to a
sharp selloff in both bonds and stocks.
"January experienced the strongest bidding for Treasury
securities since October 2021," Navellier & Associates said.
"Bond investors are fully expecting inflation cooling off and that
the Fed's key interest rate hikes will soon end."
Another 25bp hike is expected for March, when the Fed's economic
projections will be updated. Two nonfarm job reports will be
released before the March meeting.
The Fed is likely to "reiterate that it anticipates 'ongoing
increases' in interest rates will be appropriate. And Chair Powell
will probably use his press conference to push back against market
expectations for 50bp of rate cuts in the second half of this
year," UniCredit Bank said.
"To reinforce the message, the Fed might decide to include a
line in the post-meeting statement indicating that once rates rise
to 'sufficiently restrictive' levels, they will likely remain there
for 'some time.'"
Energy:
Oil weakened in Asia, as strong Russian oil exports relieved
some supply shortage concerns.
Uncertainty surrounds the outlook for demand and production
ahead of an expected interest-rate hike by the Fed and a committee
meeting of the Organization of the Petroleum Exporting Countries
and their allies, both due Wednesday.
Also, the European Union's ban on imports of Russian oil
products will begin Feb. 5.
"A hawkish sentiment for potential future rate hikes will give
weakness to crude and refined products across the board," analysts
on the Kansas City energy team at StoneX said.
However, Yongan Futures remained positive on the near-term price
outlook for oil, pointing to lower-than-usual inventory levels in
Europe and the U.S, which could suggest more buying activities
ahead.
China's solid travel traffic during the past week's holiday
period further brightens oil's demand outlook, as the country is
likely to stage a strong economic recovery after its post-reopening
infection surge, it added.
Metals:
Gold prices slipped in Asia, as the precious metal extended its
recent muted trading pattern.
The safe-haven commodity has sustained a strong bullish run in
recent weeks on the back of global recession worries and continued
geopolitical uncertainties.
But Galaxy Futures said recession concerns may be easing, as
recent economic data from the U.S. and Europe have proved more
resilient than feared. This could raise investors' risk appetite
and weigh on demand for assets like gold.
Traders are waiting to see whether Fed's Powell will try to take
investors down a peg by signaling that the Fed is nowhere near
finished with its battle against inflation.
"Gold is seeing a modest corrective pullback and some mild
profit-taking from the futures traders ahead of this week's highly
anticipated monetary policy meeting of the U.S. Federal Reserve,"
said Kitco.com.
---
Copper edged higher, buoyed by supply concerns.
Prices of the industrial metal could be supported by worries
over supply from Peru and Chile, said ICICI Direct Research.
Also, prices could rally amid improving prospects for demand
from top metals consumer China, it added.
---
Chinese iron-ore futures were lower, but analysts were
optimistic about the long-term price increase on expectations of
strong Chinese demand after the reopening.
Given the Chinese government's efforts to rescue the country's
real estate sector and the economic recovery after the pandemic,
the iron market is likely to be bullish in the long run, Huatai
Futures said.
TODAY'S TOP HEADLINES
China's Services, Manufacturing Activity Rebounded Sharply in
January
China's official gauges measuring services, manufacturing and
construction activity all rebounded sharply in January as the
nation recovered quickly from a surge in Covid infections in the
wake of a sudden reopening at the end of last year.
China's nonmanufacturing PMI, which covers service and
construction activity, rose to 54.4 in January, up sharply from
41.6 in December, the National Bureau of Statistics said
Tuesday.
Biden Administration Considers Cutting Off Huawei From U.S.
Suppliers
WASHINGTON-The Biden administration is considering entirely
cutting off Chinese telecommunications giant Huawei Technologies
Co. from U.S. suppliers over national-security concerns by
tightening export controls targeting the firm, according to people
familiar with the matter.
The move-should the administration move forward-would mark the
latest salvo in the high-stakes clash between the world's two
largest economies as U.S. policy makers seek to counter China's
industrial policy they say threatens Western interests.
Israel Drone Strike Hit Iranian Weapons Facility
An Israeli drone strike inside Iran hit an advanced
weapons-production facility in an attack that Israel believes
achieved its goals, according to people familiar with discussions
about the operation.
The operation early Sunday morning was executed by Israel's
intelligence agency, the Mossad, and targeted a Ministry of Defense
site in Isfahan in central Iran, hitting a building in four
different areas with precision strikes, the people said. Satellite
photos showed what appeared to be minor damage to the site's roof,
but the people called the mission successful, without
elaborating.
Flight Centre to Acquire U.K. Luxury Travel Brand Scott Dunn
SYDNEY-Australian travel agent Flight Centre Ltd. agreed to
acquire U.K.-based luxury travel brand Scott Dunn for an enterprise
value of 121 million pounds (US$150.0 million).
Flight Centre on Tuesday said that it would fund the deal with a
fully underwritten institutional placement of 181 million
Australian dollars (US$128.7 million) and a A$40 million
non-underwritten share purchase plan. It will also use A$40 million
of existing cash.
U.S. Presses Gulf States, EU to Boost Aid for Drought-Hit
Somalia
MOGADISHU, Somalia-The U.S. is pressuring wealthy Persian Gulf
states, as well as Europe, to boost humanitarian assistance to
Somalia before a food crisis becomes a famine.
In a speech in the Somali capital, Linda Thomas-Greenfield, the
U.S. ambassador to the United Nations, accused rich countries-both
American allies and adversaries-of failing in their moral
obligation to feed the starving.
Samsung Electronics Operating Profit Falls 69% on Lower Tech
Demand
SEOUL-Samsung Electronics Co.'s fourth-quarter operating profits
slumped as the company's mainstay memory-chip and smartphone
businesses grappled with a sharp drop-off in demand and high
inventories.
On Tuesday, the South Korean tech giant reported a 69% drop in
operating profit in the fourth quarter compared with the prior year
due to a decline in demand for tech products including PCs and
smartphones and the semiconductors that go inside them.
Write to singaporeeditors@dowjones.com
Expected Major Events for Tuesday
05:30/NED: Dec Retail turnover
06:30/FRA: Dec Household consumption expenditure in manufactured
goods
06:30/FRA: 4Q GDP - first estimate
07:00/GER: Dec Foreign trade price indices
07:00/DEN: Dec Unemployment
07:00/TUR: Dec Foreign Trade
07:00/GER: Dec Retail Trade
07:30/HUN: Dec PPI
07:30/SWI: Dec Retail Sales
07:45/FRA: Dec PPI
07:45/FRA: Jan Provisional CPI
08:00/AUT: 4Q Flash Estimate GDP
08:00/CZE: 4Q GDP preliminary estimate
08:55/GER: Jan Labour market statistics (incl unemployment)
09:00/ITA: Dec Unemployment
09:30/UK: 4Q Insolvency statistics
09:30/POR: 4Q Flash Estimate GDP
09:30/UK: Dec Bank of England effective interest rates
09:30/UK: Dec Money and Credit - Lending to Individuals, Lending
to Businesses, Broad Money and Credit
09:30/UK: Dec Monetary & Financial Statistics
10:00/GRE: Nov Turnover Index in Retail Trade
10:00/CYP: Dec PPI
10:00/LUX: Dec PPI
10:00/EU: 4Q Preliminary Flash Estimate GDP
10:00/ITA: 4Q GDP preliminary estimate
11:00/POR: Dec Industrial production index
13:00/GER: Jan Provisional CPI
15:59/UKR: Dec Industrial Production
16:59/SWI: 3Q Locational & Consolidated banking statistics,
preliminary data
16:59/SPN: Nov Monthly Balance of Payments
16:59/BEL: Dec PPI
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(END) Dow Jones Newswires
January 31, 2023 00:15 ET (05:15 GMT)
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