MARKET WRAPS

Watch For:

EU ECB Governing Council non-monetary policy meeting; U.K. PPI, monthly automotive manufacturing figures; Germany Ifo Business Climate Index; France Pole emploi unemployment; trading updates from Alstom, ASML Holding, Tullow Oil, Tod's, Fresnillo, easyJet, Lonza Group, Givaudan

Opening Call:

Shares in Europe may open mixed on a weak lead from Wall Street; Asian stock benchmarks broadly higher with some markets still closed for the Lunar New Year; Treasury yields gain; the dollar weakened; oil rose and gold fell.

Equities:

European stocks could be mixed at the open early Wednesday, as investor continue to focus on corporate earnings and economic data.

"The biggest thing this week would be earnings," said John Roe, head of multiasset funds at Legal & General Investment Management.

So far, this earnings season hasn't seen major downgrades to corporate outlooks, or to consensus forecasts for the coming year, Mr. Roe said.

"Everyone was worried that it could be an earnings season where we get revisions down, so when you get a season where nothing happens, you also get the idea that this pushes out the timing of a U.S. recession," he said.

"The market is looking for confirmation that this rally at the start of the year is sustainable. Every number counts," said Antonio Cavarero, head of investments at Generali Insurance Asset Management.

"The economy still might dodge a recession," said Bill Adams, chief economist for Comerica Bank in Dallas, Texas.

"The first half of the winter has passed without energy shortages, China's economy is reopening and set to accelerate, and mortgage rates have pulled back a bit from their peaks last fall. But the many financial and economic indicators economists use to forecast business cycle turning points suggest that a recession is more likely near-term."

Forex:

The dollar was weaker early Wednesday. FX markets are in a wait-and-see mood as the Fed goes into a blackout period ahead of the next FOMC meeting, Silicon Valley Bank's Ivan Asensio said.

"This week is more about earnings releases," scrutinizing them for clues about a potential recession, he said.

During the last few recessions the dollar tended to sell off before a recession, recover during the recession and then sell off again, he said.

Regarding the dollar now, he said "we milked the benefit of rate hikes and differentials" and now it's a matter of seeing what rate increases did and how deep slowdowns or a recession may be.

Bonds:

U.S. Treasury bond yields were higher early Wednesday. Yields have been floating with a narrow range for the past few weeks as investors try to guess how much tightening the Fed still has in the pipeline.

"No FOMC member has said explicitly that they expect to pause after the February meeting. But markets are now pricing-in a 20bp tightening in March; one-fifth of investors, therefore are choosing to ignore the public statements of policymakers," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"That has been a losing proposition over the past year, but what's happening now, in our view, is that investors have flipped from hanging on every word of Fed officials to trusting instead the evidence in front of their own eyes."

"Specifically, three straight good CPI reports, slowing wage growth, back-to-back grim retail sales and manufacturing output reports, the sudden drop in the ISM services index, and the recession-level NFIB index have convinced many investors that the Fed cannot keep raising rates until core inflation is almost back to 2%. We agree," Shepherdson said.

However, Prudent Management's Daniel Berkowitz said, "the Fed has yet to pivot, and a target rate north of 5% in the first half of 2023 remains likely in our view."

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U.K. gilts are favorably priced at the current high yield levels and corporate bond yields are near a decade high, making them attractive to buy, says HSBC head of U.K. rates strategy Daniela Russell.

"In gilts, we see value in the long-end forwards, with the secular re-allocation into fixed income at attractive levels," she said.

While Russell expects increased volatility in the 30-year asset swap spreads, there is a likelihood for the products to richen in the near term.

Energy:

Oil futures gained early Wednesday, as expectations for a pickup in crude demand from China continue to lend support.

"With the latest PMI numbers in Europe and the U.K. showing signs of weakness despite lower energy prices, some doubt is creeping in around any sort of rebound in economic activity," Michael Hewson, chief market analyst at CMC Markets U.K. said.

On Feb. 5, the European Union will impose a ban on imports of Russia-refined petroleum products, and a price cap on Russian oil products will also take effect.

"A key question is whether these measures are already lowering or will further lower Russian oil production," said Stephen Innes, managing partner at SPI Asset Management.

Uncertainty around Chinese demand and a lack of clarity of the impact of sanctions on Russian crude oil supplies could remain the key issues in focus for the OPEC+ alliance, ANZ analysts said.

The OPEC+ Joint Ministerial Monitoring Committee (JMMC), which reviews the oil market, is expected to meet on Feb. 1.

The JMMC is expected to "endorse the producer's group's current output policy and hope that Chinese demand will balance out worries over inflation and global economic slowdown," the Kansas City energy at StoneX said.

Metals:

Gold prices were lower in Asia, paring Tuesday gains that were boosted by expectations for smaller U.S. interest-rate hikes.

"A weaker dollar and soft U.S. economic data could further sweeten appetite for gold over the next few days," said Lukman Otunuga at FXTM.

"With the U.S. dollar on the backfoot, inflation rates around the world coming down and the Fed more likely to tone down its hawkish rhetoric rather than ratchet it up, gold has been enjoying a strong revival over the past three months," said Raffi Boyadjian, lead investment analyst at XM.

"As long as inflation continues to come down and not prove sticky, gold's uptrend should continue."

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Copper prices rose in Asia, bolstered by supply-shortage issues amid Chinese demand hopes, analysts said.

In recent weeks, social unrest has hampered production in Peru, ANZ Research analysts said, noting MMG has said its Las Bambas copper complex is mining at a lower rate owing to blockade-related supply challenges.

The industrial metal has posted robust gains this year as China's reopening has boosted expectations of a strong rebound in demand, the analysts added.

Base metals should enjoy another leg higher as Chinese authorities "become more pragmatic" in managing the world's second-largest economy, although that next step up may happen closer to summer, Bank of America analysts said.

China's refocusing on growth has helped give some metals prices their strongest January-to-date in years, defying a gloomy macroeconomic backdrop, they added.

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While some analysts and investors expect Chinese iron-ore demand to pick up materially after the Lunar New Year break, UBS analysts remained cautious.

They expect "the demand impulse on reopening to be modest due to the ongoing weakness in China property (more than 25% of demand) and that iron-ore prices will fall as inventories build."

Steel ingredient iron ore has been recently trading above $120/metric ton--an "elevated" level, the UBS analysts said--although market activity is currently subdued due to the holiday in China.

Demand looks weak, with China's pig-iron production falling again in the first 10 days of January and China rebar spreads still depressed, they added.

TODAY'S TOP HEADLINES

NYSE Glitch Causes Erroneous Prices in Hundreds of Stocks

A technical glitch at the New York Stock Exchange on Tuesday briefly caused wild price swings and a temporary trading freeze in stocks of major companies such as Exxon Mobil Corp., McDonald's Corp. and Walmart Inc.

Hundreds of stocks experienced erroneous prices as a result of the incident, the biggest snafu to hit a U.S. stock exchange in several years, according to a spreadsheet of affected securities released by the NYSE.

Janet Yellen Expects EV Subsidy Rules to Prompt New Trade Deals

Treasury Secretary Janet Yellen said Japan and the European Union would need to negotiate new trade agreements with the U.S. to meet the mineral-sourcing requirements for an overhauled electric-vehicle tax subsidy.

As part of the 2022 Inflation Reduction Act, the U.S. revamped a tax credit for consumers who buy electric vehicles in hopes of reducing U.S. reliance on China. To qualify for the full $7,500 tax credit, among other requirements, 40% of the value of the minerals in an electric vehicle's battery must come from a country that has a free-trade agreement with the U.S. That amount is set to rise to 80% after 2026.

Treasury Secretary Janet Yellen Takes Measures to Ease Debt-Ceiling Woes

The Treasury Department will stop fully investing in a government investment vehicle for federal employees as the U.S. bumps up against its debt ceiling, Secretary Janet Yellen said Tuesday in a letter to congressional leaders.

The department will hold back money from the Government Securities Investment Fund of the Thrift Savings Fund, known as the "G Fund," Ms. Yellen said. The G Fund allows government employees to save in interest-bearing U.S. securities as part of their retirement savings.

International Paper Strikes Deal to Divest Russian Pulp Business

International Paper Co. said it has struck a deal to divest from a lucrative Russian pulp business, the latest U.S. company to leave Russia since Moscow invaded Ukraine.

IP said it would sell its 50% stake in Ilim Group to its Russian partners in the joint venture for $484 million. The Memphis, Tenn., company said those partners, led by Ilim chairman Zakhar Smushkin, also have indicated that they are interested in buying IP's stake in a related corporate entity for $24 million. IP said it intends to sell that stake as well as any residual interests in Ilim.

U.S. Poised to Provide Abrams Tanks to Ukraine

WASHINGTON-The Biden administration is poised to send a significant number of Abrams M1 tanks to Ukraine, settling a rift that threatened the unity of the alliance supporting Ukraine at a pivotal moment in the war, U.S. officials said.

The move, which could be announced as soon as Wednesday, would be part of a broader diplomatic understanding with Germany in which Berlin would agree to send a smaller number of its own Leopard 2 tanks and would approve the delivery of more of the German-made tanks by Poland and other countries.

Turkey Postpones Talks on NATO Bid by Sweden and Finland

ISTANBUL-Turkey postponed a key meeting with Sweden and Finland that was intended to hash out differences over their bid to join the North Atlantic Treaty Organization, Turkish officials said Tuesday, intensifying a standoff over an expansion of the alliance in response to Russia's invasion of Ukraine.

The decision is the latest setback for Sweden and Finland in a diplomatic dispute that has unfolded since last May when Turkish President Recep Tayyip Erdogan first threatened to veto the countries' membership in NATO over their alleged ties to Kurdish militant groups.

Tesla Eyes $3.6 Billion Factory Expansion

Tesla Inc. said it would spend more than $3.6 billion to expand its plant near Reno, Nev., where the electric-vehicle maker assembles batteries and produces EV car components.

The Elon Musk-led auto maker said its investment plan would expand its lithium-ion battery and electric-vehicle-component facilities there and employ 3,000 additional workers.

Microsoft Earnings Fell Last Quarter Amid Economic Concerns

Microsoft Corp. recorded its slowest sales growth in more than six years last quarter as demand for its software and cloud services cooled on concerns about the health of the global economy.

The Redmond, Wash., company's revenue expanded 2% in the three months through Dec. 31 from a year earlier to $52.7 billion. Its net income fell 12% to $16.4 billion. That is the company's lowest revenue growth since the quarter that ended in June 2016.

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Expected Major Events for Wednesday

00:01/UK: REC JobsOutlook survey

07:00/UK: Dec UK producer prices

07:00/EU: Dec New Commercial Vehicle Registrations in Europe statistics (EU27 + EFTA3)

07:00/SWE: Dec PPI

08:00/SPN: Dec PPI

09:00/GER: Jan Ifo Business Climate Index

09:00/POL: Dec Unemployment

09:00/ICE: Dec Labour Force Survey

09:00/ICE: Dec PPI

10:00/LUX: Nov Trade

11:00/FRA: 4Q Claimant count and job advertisements collected by Pole emploi

14:00/BEL: Jan Business Confidence Survey

15:59/UKR: Dec PPI

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(END) Dow Jones Newswires

January 25, 2023 00:16 ET (05:16 GMT)

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