MARKET WRAPS
Watch For:
Manufacturing PMI for eurozone, Germany, France, Italy, UK; EU
flash estimate euro area inflation, unemployment; Italy provisional
CPI, cities CPI; UK narrow money and reserve balances, nationwide
house price index; trading updates from BBVA, Novartis, Galp, GSK,
Novo Nordisk, Sberbank, Vodafone Group, Entain, Glencore, Imperial
Brands, Ryanair
Opening Call:
Shares could open mixed in Europe on Wednesday. In Asia, stock
benchmarks were mostly higher; Treasury yields were mixed; the
dollar weakened; while oil advanced and gold retreated.
Equities:
European stocks are set for a mixed start on Wednesday, as
investors await the release of eurozone economic data and brace for
central bank interest rate decisions this week.
Investors are eager to parse the Federal Reserve's statements at
Wednesday's meeting for hints at the future path of policy-the Fed
is broadly expected to raise interest rates by a quarter percentage
point. Tuesday's data showing that wage gains are cooling buoyed
hopes that waning inflation could prompt officials to pause rate
increases in the months ahead.
Money managers are tracking corporate earnings for guidance on
inflationary pressures facing businesses and their expectations for
how the economic backdrop will affect profits.
Meanwhile, the U.K. looks likely to be the only major world
economy set to shrink in 2023, doing worse even than sanction-hit
Russia, the International Monetary Fund warned in an update.
"Investor sentiment remains uncertain in Europe, with the
[domestically focused] FTSE 250 particularly coming under pressure
following an IMF report that forecast the UK to be the only nation
they covered to contract in 2023," IG said.
Forex:
The dollar was weaker in Asia ahead of the FOMC meeting outcome
due later in the day.
Market participants are nervous over a possible hawkish policy
surprise from central banks including the Fed this week, said MUFG
Bank.
Also, a lot of good news has already been priced into markets on
expectations of China's economy reopening more fully, it added.
With a 25-basis-point rate increase well baked in, the FOMC's
announcement should be more about the language, Silicon Valley Bank
said.
"Stocks are questioning how hawkish FOMC language can be given
that we're decelerating." The dollar isn't getting as much of a
lift from rates and risk aversion lately, where last year they
moved more in lockstep, Silicon Valley Bank said.
"Last year it was all about the Fed and US. This year it's about
what's happening overseas and by the way, we're waiting for two big
50 bp increases from the European Central Bank and Bank of England.
If that happens the interest rate differential shrinks even
more."
---
ING said the pound is at risk of falling ahead of expected 50bp
rate rises by the Bank of England and the European Central Bank on
Thursday, especially if eurozone inflation data on Wednesday come
in strong.
EUR/GBP may hold below 0.8800 until Thursday's decisions, but
the upcoming inflation data "mean the balance of risk is tilted to
the upside for the pair," ING said.
"The euro... may show more resilience than other G10
peers--especially high-beta currencies--given the shift in the
inflation narrative in the eurozone which can surely fuel ECB
hawkish speculation."
Bonds:
Treasury yields were mixed ahead of an expected reduction in the
pace of interest-rate increases by the Fed.
Investors are watching for Fed Chair Powell's comments after the
FOMC meeting. Many analysts expect the Fed to hike only once more,
in March, and pivot to cutting later this year. A hawkish Powell
may refute that notion and spark a bond selloff, pushing yields
higher.
"Powell is expected to strike a hawkish tone which is in
contrast to market expectations over the Fed cutting rates near the
end of 2023. This means the disconnect between the Fed and markets
may add more spice to the pending meeting, as investors seek fresh
clues on what to expect from the central bank this year," FXTM
said.
Fed officials face a "communications challenge," said High
Frequency Economics.
"Policy makers keep repeating a higher-for-longer message on
rates, but markets are convinced that the Fed will capitulate as
inflation slows and the economy weakens," it said.
"That divide could widen as GDP slows and the markets'
conviction that the Fed will ease gets stronger, but the Fed's
resolve to bring inflation back to target is not likely to
weaken."
Energy:
Oil prices were slightly higher in Asia, recovering from recent
losses triggered in part by easing supply concerns amid strong
Russian export data.
Galaxy Futures pointed out that investors' risk appetite may be
decreasing ahead of the upcoming Fed meeting and guidance from oil
producer group OPEC and its allies.
The brokerage expects continued volatility in the near term, as
investors weigh the risk of a potential global recession and the
supply impact of geopolitical factors.
Commerzbank said "headwind is being generated by generally
negative market sentiment ahead of this week's numerous central
bank meetings and by the persistently high Russian oil
exports."
Meanwhile, "the main driver for oil lately has been the
potential for a resurgence of oil demand out of China, which may
continue into February considering how Chinese economic momentum
picked up in the overnight PMI reports," SIA Wealth Management
said.
Metals:
Gold prices nudged lower in Asia, extending a rangebound trading
pattern marked in recent sessions, as the precious metal pulled
back after soaring gains.
Metals market research firm Metals Focus pointed out that gold's
recent rally has mainly been driven by expectations of a potential
global recession, which may lead the Fed to slow interest-rate
increases and raise gold's risk-reward profile.
But the Fed's hawkish stance may also persist amid recent
resilient economic data from the U.S. and continued inflation risk
due to geopolitical tensions, it cautioned. The upcoming Fed
meeting will be "very important" for investors to monitor, it
said.
"Recent dollar strength has derived from the possibility that
the central bank may indicate that rates will rise further and
remain elevated for longer than previously expected," said
ActivTrades.
"This is a scenario that penalizes gold prices, capping any
upside generated by lingering recession fears and high inflation,
with the dollar assuming the role of preferred refuge asset."
---
Copper edged higher, supported by signs of China's economic
rebound.
Data released Tuesday showed China's official gauges measuring
services, manufacturing and construction activity all rebounded
sharply in January.
Sentiment toward base metals such as copper have been boosted by
these data, said ANZ Research.
---
Chinese iron-ore futures rose, as demand was buoyed by optimism
over China's economic recovery.
Iron ore reclaimed some of Tuesday's declines, as steelmakers'
profits have improved recently and the average daily iron melt
output rebounded over the Lunar New Year break, China Shenhua
Futures said.
It expects ferrous metals to remain bullish in the short
term.
TODAY'S TOP HEADLINES
China Caixin Manufacturing PMI Improves, But Stays in
Contraction
A private gauge of China's manufacturing activity improved in
January but remained in contractionary territory for the sixth
straight month.
The purchasing managers index rose to 49.2 in January from 49.0
in December, according to data released Wednesday by Caixin Media
Co. and S&P Global. The 50-mark separates expansion from
contraction.
U.S. Says Russia Has Violated Nuclear-Arms Treaty by Blocking
Inspections
Russia has violated the New START treaty cutting long-range
nuclear arms by refusing to allow on-site inspections and rebuffing
Washington's requests to meet to discuss its compliance concerns,
the U.S. State Department said in a report sent to Congress on
Tuesday.
The State Department's finding that Moscow is in "noncompliance"
with the accord marks the first time that the U.S. has accused
Russia of violating the treaty, which entered into force in
2011.
Elon Musk Warned About Incoming EU Social-Media Law
BRUSSELS-A top European Union official told Elon Musk on Tuesday
that Twitter Inc. will have to do more over the coming months to
prepare for the bloc's new social-media regulations.
Thierry Breton, the EU's commissioner for the internal market,
told Mr. Musk during a video call that there were only a few months
left before major online platforms like Twitter will have to be
fully compliant with the Digital Services Act. Mr. Musk has
previously said that he intends to comply with the EU's new
rules.
Snap Warns of Sales Drop After Revenue Growth Stalls
Snap Inc. warned sales in the current quarter are likely to drop
after revenue growth stalled in the final three months of last
year, illustrating the difficult market conditions social-media
companies are having to navigate.
The Snapchat parent said it generated $1.3 billion in sales in
the fourth quarter, roughly flat from the year-earlier period and
broadly in line with Wall Street's expectations. The growth figure
was the lowest for Snap since going public almost six years
ago.
AMD's Profit Plunges Amid Weaker PC Sales
Advanced Micro Devices Inc. reported Tuesday a 98% decline in
net income for the fourth quarter as operating expenses more than
doubled and sales linked to its PC clients were cut in half.
The Santa Clara, Calif.-based chip maker, whose central
processing units are used to build videogame consoles and gaming
PCs, said net income for the period fell to $21 million, or 1 cent
a share, from $974 million, or 80 cents a share, for the same
period a year earlier. The company said the decline was mostly
linked to its acquisition of semiconductor company Xilinx Inc.
PayPal to lay off 7% of employees as part of cost-cutting
push
PayPal Holdings Inc. plans to lay off about 7% of its staff as
it continues with broader efforts to reduce costs.
Chief Executive Dan Schulman announced the layoffs, which will
affect about 2,000 PayPal PYPL employees, in an email to the staff
Tuesday afternoon.
Write to singaporeeditors@dowjones.com
FROM FINANCIAL NEWS
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Street Journal.
Expected Major Events for Wednesday
00:01/UK: Jan Shop Price Index
01:01/IRL: Jan Ireland Manufacturing PMI
06:00/NED: Jan Netherlands Manufacturing PMI
07:00/TUR: Jan Turkey Manufacturing PMI
07:00/UK: Jan Nationwide House Price Index
08:00/POL: Jan Poland Manufacturing PMI
08:15/SPN: Jan Spain Manufacturing PMI
08:30/CZE: Jan Czech Republic Manufacturing PMI
08:30/SWI: Jan procure.ch Purchasing Managers' Index
08:45/ITA: Jan Italy Manufacturing PMI
08:50/FRA: Jan France Manufacturing PMI
08:55/GER: Jan Germany Manufacturing PMI
09:00/GRE: Jan Greece Manufacturing PMI
09:00/EU: Jan Eurozone Manufacturing PMI
09:30/UK: Jan S&P Global / CIPS UK Manufacturing PMI
09:30/UK: Jan Narrow money (Notes & Coin) and reserve
balances
10:00/CYP: Nov Retail trade
10:00/EU: Dec Unemployment
10:00/DEN: Jan Danish PMI
10:00/EU: Jan Flash Estimate euro area inflation
10:00/ITA: Jan Cities CPI
10:00/ITA: Jan Provisional CPI
10:00/GRE: Dec Labour Force Survey
11:00/IRL: Jan Monthly Unemployment
16:59/AUT: Jan Unemployment figures
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(END) Dow Jones Newswires
February 01, 2023 00:16 ET (05:16 GMT)
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