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
---
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.
---
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."
---
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.
---
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.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
January 25, 2023 05:53 ET (10:53 GMT)
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