MARKET WRAPS

Stocks:

European stock markets were weaker on Wednesday, as caution dominated trading ahead of another busy day of U.S. earnings that will offer investors a sense of how big companies are coping with an economic slowdown and higher interest rates.

Stocks to Watch

Renault should be able to navigate economic weakness in the second half as unexpected strength in the European order book will be a tailwind for the car maker, Bernstein said, upgrading the stock to outperform from market-perform.

"Renault is not without risk, but its better European earnings in the near term, its long-term strategic execution, as well as one-off upsides from Nissan, Ampere, and Horse outweigh cyclical risks."

Renault's over-exposure to Europe should help it deliver strong 4Q results as well as a good first half of 2023, Bernstein said.

Read Renault's Over-Exposure to Europe May Become Disadvantage

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Rheinmetall could benefit if Germany agrees to send Leopard 2 tanks to Ukraine, UBS said, noting there could be potential for refurbishment, ammunition and spare parts.

While the Leopard 2 is a trademark of Krauss-Maffei Wegmann, Rheinmetall provides the tank's 120-millimetre smoothbore gun, ammunition, fire-control technology and other systems.

"Using disclosure on the ringswap agreements with the Czech Republic and Slovakia we calculate a refurbishment value plus some ammunition and spare parts of up to EUR10 million/A4 tank," UBS noted.

European Central Bank

Major concern over the eurozone economy has passed, paving the way for the ECB to raise interest rates by 50 basis points at both of the upcoming policy meetings in February and March, Barings Investment Institute said.

" The ECB can now stay its course of two 50bp hikes in the next two meetings without too much worry of exacerbating an incoming downturn," Barings said.

Should the winter remain mild and China not consume too much gas, a soft landing--where inflation is lowered without causing an economic recession--may actually materialize in Europe, it added.

U.S. Markets:

Stock futures retreated, with Nasdaq-100 contracts under the most pressure, while Treasury yields also fell.

Several large companies will report earnings Wednesday. Before the morning bell, investors will parse results from AT&T, Boeing and Kimberly Clark. On tap for this afternoon, after markets are closed, are Tesla results.

Microsoft shares slipped 1.4% in pre-market trading. The company on Tuesday said it recorded its slowest sales growth in more than six years.

In a further setback, Microsoft said on Wednesday it was investigating reports of outages to its services including Teams and Outlook, with thousands of users globally reporting that the products were down.

Read more here .

Forex:

The euro could rise on a potentially stronger Ifo German business sentiment survey but any gains might be limited, UniCredit Research said.

"Investors might still want to wait for the Federal Reserve and European Central Bank meetings next week, despite their respective outcomes having become somewhat of a done deal given the recent central bank rhetoric," it said.

Nevertheless, the Fed is expected to downshift to a 25 basis points interest rate rise while the ECB is seen delivering a 50bp move with continued "hawkish" language, which doesn't favor a lower EUR/USD and a test of 1.10 remains possible, UniCredit Research said.

ING said the dollar could fall modestly if market expectations continue to build for a "dovish" Fed Feb. 1 meeting that delivers cautious signals, ING said.

Markets expect the Fed to slow the pace of interest rate rises to 25bp but are reluctant to fully price in another 25bp move, ING said. "This signals the perceived balance of risks is tilted to the dovish side ahead of next week's FOMC."

Should this narrative gain traction, the dollar may fall but only slightly as investors wait for other event risks to pass including the ECB and Bank of England's decisions.

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The U.K.'s weak economic prospects combined with high inflation poses a challenge for the BOE and could weigh on sterling, Commerzbank said.

It is more pessimistic about the U.K. outlook than any other economy. That means the BOE is facing a difficult choice between battling high inflation and supporting the economy, Commerzbank said.

"It is difficult to imagine that British central bankers will master these wanderings without damaging GBP."

Energy:

Oil prices edged lower as the market mulls the outlook for demand after the Chinese Lunar New Year holiday period.

China's reopening has been bearish, rather than bullish, for oil in the very short term, Bank of America said. A surge in Covid-19 cases has seen oil and coal stocks rise, holding oil prices back from rallying.

But in the second half of the year the bank believes "the reopening of the Chinese economy could unleash a large wave of pent-up demand over the next 18 months."

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European natural gas prices declined for a third consecutive day to a fresh 16-month low.

Temperatures in some of Europe's biggest cities are expected to swing from their current colder-than-seasonal-average levels to warmer-than-average levels next week, according to data from Maxar Technologies.

Temperatures on some days next week should be up to 2.4 degrees Celsius above average in London and Paris, while Hamburg and Berlin should see temperatures close to 3 degrees above seasonal levels, according to a note from the company's weather desk.

Metals:

Metal prices edged lower as recession concerns persist.

"There's been a little bit of a bias towards risk-off sentiment over the last 24 hours, thanks partly to some weaker-than-expected earnings releases that added to growing concerns about a potential U.S. recession, " Deutsche Bank said.

Outlook

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 said.

China's refocusing on growth has helped give some metals prices their strongest January-to-date in years, defying a gloomy macroeconomic backdrop, BofA said. Future gains will likely come once physical demand picks up.

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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 remains cautious.

It's "expecting 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, UBS 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.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

German Business Sentiment Hit Seven-Month High in January - Update

Business confidence in Germany improved in January to its highest level since June, adding to signs of resilient activity at the beginning of the year as optimism returns amid easing concerns over an imminent recession.

The Ifo business-climate index rose to 90.2 in January from 88.6 in December, posting a fourth-consecutive monthly improvement, data from the Ifo Institute showed Wednesday. The rise is broadly in line with expectations from economists polled by The Wall Street Journal.

   
 
 

ASML Holding 4Q Net Profit, Sales Rose; Sees Strong 2023 Sales Growth

ASML Holding NV said Wednesday that for the fourth quarter it beat net profit consensus and net sales rose, and that it expects continued strong sales growth in 2023 despite a challenging environment.

The Dutch semiconductor-equipment maker said net profit for the period was 1.8 billion euros ($1.96 billion) compared with EUR1.77 billion for the fourth quarter of 2021, and consensus of EUR1.71 billion, taken from FactSet and based on 17 analysts' estimates.

   
 
 

Alstom Confirms FY 2023 Targets After Nine-Month Sales and Orders Rose

Alstom SA reported on Wednesday an increase in nine-month sales and total orders rose, and confirmed its full fiscal-year targets.

The French train maker said sales rose 8% to 12.27 billion euros ($13.36 billion) in the nine months to December while orders jumped 6% to EUR15.22 billion.

   
 
 

easyJet Expects to Beat FY 2023 Pretax Profit Market Consensus After 1Q Revenue Rose

easyJet PLC said Wednesday that it expects to beat fiscal 2023 market consensus for pretax profit after first-quarter revenue rose, and that booking strength continues across the second quarter and into the summer season.

The U.K. low-cost carrier said it expects to beat market consensus of a pretax profit of 126 million pounds ($155.3 million).

   
 
 

Lonza's 2022 Core Earnings and Sales Increased; Plans a Share Buyback

Lonza on Wednesday reported an increase in 2022 core earnings and sales and said it would launch a share buyback as its result was helped by Covid-related peak in sales.

The Swiss life-sciences company said its full-year core earnings before interest, taxes, depreciation and amortization-which strips out exceptional items- grew to 1.99 billion Swiss francs ($2.16 billion) compared with CHF1.67 billion in 2021, on sales that grew 15% to CHF6.22 billion.

   
 
 

Givaudan Says 2022 Profit Rose Despite Challenges; Raises Dividend

Givaudan SA on Wednesday said that profit rose in the full year with solid growth across segments and geographies, and raised its annual dividend.

The Swiss flavor-and-fragrance company posted net profit of 856 million Swiss francs ($927.8 million) for the year compared to CHF821 million a year earlier.

   
 
 

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.

   
 
 

Ukraine Pushes Back Russian Forces in East

Ukrainian forces repelled Russian attempts to advance in the country's east, the country's military said, while air-raid sirens across the country raised fears of possible Russian missile attacks.

Sirens wailed across Ukraine just after 9 a.m. Wednesday, including in the capital, Kyiv. The alert was lifted at around 11 a.m. The Ukrainian military warned of a "high threat" of Russian air and missile attacks.

   
 
 

Ukraine's Zelensky Removes Top Officials in Bid to Contain Corruption Scandals

Ukrainian President Volodymyr Zelensky has removed nearly a dozen top officials as he tries to contain a series of corruption scandals and shore up Western confidence in his administration at a critical moment in the war.

Though the scandals are small compared with those of previous Ukrainian governments-some of which were accused of stealing billions in public funds-they are nonetheless a blow to Mr. Zelensky, who has garnered praise at home and abroad for his leadership of the country during Russia's invasion.

   
 
 

Russians Mourn Ukrainians Killed in War at Statue to a Ukrainian Poet in Moscow

MOSCOW-Every few minutes, the mourners came, alone, in pairs or in families, to a statue of a Ukrainian writer standing in the center of the Russian capital, laying flowers and stuffed animals at her bronze feet.

Some said a prayer and left quickly. Others wept. Still others sat for hours on benches nearby, watching in silence as a small but regular flow of people visited what has become a makeshift memorial to victims of Russia's invasion of Ukraine.

   
 
 

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.

   
 
 
   
 
 

GLOBAL NEWS

Jittery Investors Turn to Cash in Hunt for Yield

The dash for cash on Wall Street is back on.

Investors have added about $135 billion to global money-market funds over the past four weeks, according to EPFR data through Jan. 18. That is the best stretch since the four-week period ended May 2020, when those funds logged roughly $175 billion in net inflows.

   
 
 

Joe Manchin to Introduce Bill to Delay EV Tax Credits

WASHINGTON-Sen. Joe Manchin (D., W.Va.) said he would introduce legislation Wednesday that delays implementation of new tax credits for electric vehicles amid disagreements with the Treasury Department over how to implement the program, a component of the Inflation Reduction Act.

The tax credits of up to $7,500 per vehicle have come under fire from European and Asian allies who say rules aimed at spurring domestic production of vehicles and batteries are unfair to foreign manufacturers.

   
 
 

Shift to Mined vs. Man-Made Graphite Raises Shortage Risk for EVs

Mining companies are ramping up supplies of critical minerals for rechargeable batteries such as lithium, cobalt and nickel. Graphite, a key battery component, has largely been overlooked.

That is about to change. Some of the world's biggest auto and battery makers and the U.S. government are racing to secure graphite supplies amid looming signs of shortages of the mineral suitable for batteries. So far graphite prices haven't reflected the tight supply.

   
 
 

McCarthy Kicks Two Democrats Off House Intelligence Panel

WASHINGTON-House Speaker Kevin McCarthy on Tuesday blocked Democratic Reps. Adam Schiff and Eric Swalwell from serving on the Intelligence Committee, a move he can make unilaterally because the panel is controlled by his office.

Mr. McCarthy (R., Calif.) said Messrs. Schiff and Swalwell were undeserving of the positions. Mr. McCarthy said that Mr. Schiff used his position as chairman of the panel when Democrats were in control of the chamber for political purposes. He alleged that Mr. Swalwell was targeted by a suspected Chinese spy nearly a decade ago.

   
 
 

Joe Biden, Chuck Schumer, Hakeem Jeffries Look to Project Unity Ahead of Spending Fights

WASHINGTON-President Biden met Tuesday with Democratic congressional leaders as the party tries to project a united front on the economy and the coming fight over lifting the debt ceiling.

At the start of the meeting, Mr. Biden warned that newly empowered House Republican lawmakers could cut Social Security and Medicare, and he criticized a proposal pushed by some in the GOP to impose a national sales tax. "I have no intention of letting the Republicans wreck our economy," he said.

   
 
 

Classified Documents Found at Mike Pence's Indiana Home

WASHINGTON-Former Vice President Mike Pence's lawyers discovered classified material at his private home, according to a letter his representative sent to the National Archives.

Lawyers hired by the former vice president recently discovered "a small number of documents bearing classified markings that were inadvertently boxed and transported" to Mr. Pence's home, according to a Jan. 18 letter to the National Archives from Gregory Jacob, who oversees Mr. Pence's records. Mr. Pence was unaware of the existence of the documents, the letter said.

   
 
 

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(END) Dow Jones Newswires

January 25, 2023 05:53 ET (10:53 GMT)

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