MARKET WRAPS
Watch For:
ECB survey of monetary analysts results, retail trade; Germany
manufacturing orders, manufacturing turnover; UK construction PMI;
trading updates from Sberbank, Evraz, Smith & Nephew, Norwegian
Air Shuttle
Opening Call:
Shares may start lower in Europe on Monday after the U.S.
monthly jobs report beat expectations, stoking fears that interest
rate increases may continue longer than expected. In Asia, stock
benchmarks were mixed; Treasury yields rose; the dollar gained;
while oil was steady and gold advanced.
Equities:
European stocks could fall on Monday after an unexpectedly
strong surge in U.S. January nonfarm payrolls reversed Wall
Street's perception that the end of the Fed's rate increases is
near.
Although the jobs data may have rattled stock-market investors,
some argued that the overall picture points to a more favorable
picture for economic growth and inflation.
"The strong jobs report tells me more and more people have
burned through their excess savings and going back to work. This is
also helping to keep wage increases under control with a modest
0.3% increase, " said Bryce Doty, senior portfolio manager at Sit
Fixed Income Associates.
"There is a combination of improving supply and consumer demand
falling as savings evaporate. This phenomenon helps explain how the
pace of inflation is slowing more quickly than expected," he said,
while arguing the Fed will "continue to misinterpret this process
of a normalizing job market and want to punish the economy
further."
Others are worried that stocks have climbed too far too
fast.
"I don't really see how we have this sort of pie-in-the-sky,
goldilocks" scenario for stocks in a universe of still relatively
high inflation, said Patrick McDonough, a portfolio manager at PGIM
Quantitative Solutions, in a phone interview Friday. "We're not
going to zero again," he said of interest rates.
"So why would we continue to see these speculative growth
companies that did well in a zero rate environment outperform?,"
said McDonough. "I find that very strange."
Meanwhile, "after the Fed and BoE both hinted at being close to
the peak in their cycles," the ECB's meeting suggests it is
comfortable it is also close to the end of its monetary
tightening," Aviva Investors said. "We believe this peak tightening
backdrop will continue to reduce volatility in government bonds
over the coming months and make for an attractive income
opportunity."
Forex:
The dollar gained strength in Asia after the latest U.S. nonfarm
payrolls data exceeded expectations.
The labor data has traders pricing in a greater chance of rate
increases at the March and May FOMC meetings and lower odds of cuts
later in the year.
Despite the strong data, "leading economic indicators are still
consistent with our view that the U.S. economy will be in a
recession before long," Capital Economics said.
It believes deteriorating risk sentiment amid recessions in the
U.S. and other advanced economies will drive the dollar higher
through the middle of this year.
Bonds:
Treasury yields advanced after the much stronger-than-expected
U.S. January jobs report clouded investor expectations for the Fed
to end its interest rate hiking cycle in coming months.
For May, investors now see a 61.3% chance of another
quarter-point rise to 5% to 5.25%, the level which the Fed has
signaled is its expectation for a peak.
Traders will "need to contend with the coming week's Treasury
refunding supply after the post-jobs report selloff, which may
limit any near-term Treasury market rebound," Oxford Economics
said.
"That has the potential to keep yields in the ranges that have
been holding since early January. That would leave the 10-year
yield trading around the 3.50% level, the 5-year yield around
3.55%, and the 2-year yield around 4.20%."
Energy:
Oil prices were steady after swinging between mild gains and
losses, but could be weighed by Fed tightening concerns after the
stronger-than-expected U.S. economic data released Friday.
A strong labor market could complicate what the Fed does on
monetary policy and keep risks of more tightening on the table,
said Oanda.
After last week's price decline, investors will focus on the
extent of a demand recovery by China, as well as the impact of a
European Union embargo on imports of Russian fuel products that
took effect on Feb. 5 and an anticipated deal on price caps will
play out, said Commerzbank.
"Just like with the Russian crude sanctions, the EU ban on
Russian oil products is unlikely to take barrels off the market,"
said Kpler. It's "just going to cause a rejigging of global flows -
hence it will have a muted impact."
Metals:
Gold rose in a likely technical rebound after gold futures
settled at their lowest level in more than three weeks on
Friday.
Gold took a hit Friday because "the positive surprise on the
jobs number is a strong indication that the [Federal Reserve] has
more than a single rate hike left in it," said Gold Newsletter.
The yellow metal was hit harder than equities because "it's been
outperforming stocks over the last few months," it said. Profits
were taken by "those who have enjoyed that ride."
Long-term holders of the precious metal, as well as
emerging-market central banks, may view gold's recent decline as
another buying opportunity, given geopolitical uncertainty and
ongoing USD diversification, said SPI Asset Management.
---
Copper fell amid concerns over China's economic recovery.
There are doubts over the pace of the country's rebound from the
recent Covid-19 measures, said ANZ Research, citing high-frequency
data from Bloomberg which showed muted improvement of China's
economy in January.
Also, the copper market appears to have shrugged off risks of
further supply disruptions, it added.
---
Chinese iron-ore futures edged lower, extending last week's
losses, but may remain supported on rising demand.
Inventory levels of iron-ore with steel mills is low after the
Spring Festival and their willingness to purchase is increasing due
to the price drop, Nanhua Futures said.
It is not "cost-effective" to continue to short the commodity
given its spot price is strong, while the futures price falls
sharply, it said, adding that it remains optimistic about the price
growth.
TODAY'S TOP HEADLINES
Upbeat Economic Data Keep Investors on Edge About Fed
The U.S. labor market remains incredibly strong. Investors can't
decide if that is a good or bad thing.
At first glance, Friday's jobs report seemed to have very little
for money managers to dislike. The U.S. economy added a whopping
517,000 jobs in January, while the unemployment rate fell to its
lowest level since 1969, according to Labor Department data.
Russia Sanctions Challenge Tight U.S. Diesel Market
U.S. fuel markets held steady in December after Western
sanctions on Russian crude reshuffled global oil shipments. New
restrictions that take effect Sunday could prove more
complicated.
The measures, which target most of Russia's refined petroleum
products, threaten to take supplies off the market as the country
looks for new trading partners. Any confusion could buoy prices for
diesel and other fuels that have remained stubbornly high since the
Kremlin launched its invasion of Ukraine last year.
Russia Builds Pressure on Ukraine Along Front Line
MYKOLAIV, Ukraine-Russian forces are putting pressure on Ukraine
along a growing portion of the front line, with attacks coming in
the Luhansk and Zaporizhzhia regions in recent weeks, in addition
to the fierce fighting around Bakhmut in the Donetsk region.
Bakhmut, in eastern Ukraine, is increasingly being cut off from
other Ukrainian-held territory, according to the British ministry
of defense, as Moscow continues to make progress in its efforts to
encircle the city.
Powerful Earthquake Strikes Turkey With Fears of High
Casualties
ISTANBUL-A strong earthquake shook southern Turkey on Monday,
killing at least five people and destroying dozens of buildings,
Turkish authorities said, in the country's worst seismic event in
years.
The 7.8-magnitude quake was felt across a large region with
multiple aftershocks, rocking an area that houses millions of
Turkish citizens, displaced Syrians and refugees. The U.S.
Geological Survey warned "significant casualties are likely."
Moscow, Tehran Advance Plans for Iranian-Designed Drone Facility
in Russia
Moscow and Tehran are moving ahead with plans to build a new
factory in Russia that could make at least 6,000 Iranian-designed
drones for the war in Ukraine, the latest sign of deepening
cooperation between the two nations, said officials from a country
aligned with the U.S.
As part of their emerging military alliance, the officials said,
a high-level Iranian delegation flew to Russia in early January to
visit the planned site for the factory and hammer out details to
get the project up-and-running. The two countries are aiming to
build a faster drone that could pose new challenges for Ukrainian
air defenses, the officials said.
Ukraine War Makes Unexpected Winner of Turkey's Erdogan
ANKARA, Turkey-Russia's invasion of Ukraine one year ago
unleashed global economic turmoil. In Turkey, it has proved an
unexpected windfall for President Recep Tayyip Erdogan.
The Turkish leader has managed to make himself indispensable to
all sides of the conflict, a position that is reaping economic
rewards that have helped ease the Turkish state's financial
troubles. The turnaround has bolstered his position ahead of a
national election that could cement his position as Turkey's most
powerful ruler in nearly a century.
Russia Sanctions Challenge Tight U.S. Diesel Market
U.S. fuel markets held steady in December after Western
sanctions on Russian crude reshuffled global oil shipments. New
restrictions that take effect Sunday could prove more
complicated.
The measures, which target most of Russia's refined petroleum
products, threaten to take supplies off the market as the country
looks for new trading partners. Any confusion could buoy prices for
diesel and other fuels that have remained stubbornly high since the
Kremlin launched its invasion of Ukraine last year.
Pope Francis Reaffirms Calls for Acceptance of Gay People
ROME-Pope Francis reaffirmed his recent statement against the
criminalization of homosexuality and recalled his past calls for
greater acceptance of gay people, underscoring a prominent theme of
his pontificate.
"People with homosexual tendencies are children of God. God
loves them. God is walking with them," the pope told reporters
accompanying him on his flight to Rome from South Sudan on Sunday.
"To condemn someone like this is a sin. To criminalize someone for
homosexual tendencies is an injustice."
Twitter Hasn't Paid Bill, M&A Advisory Firm Says
An advisory firm says Twitter Inc. hasn't paid its bill after
the firm worked for the company on Elon Musk's acquisition last
year, the latest contention that the company is shirking debts.
Innisfree M&A Inc. sued Twitter on Friday in New York State
Supreme Court, seeking about $1.9 million.
Write to singaporeeditors@dowjones.com
Expected Major Events for Monday
07:00/ROM: Dec Retail trade
07:00/DEN: 4Q Consumer credit
07:00/GER: Dec Manufacturing orders
07:00/GER: Dec Manufacturing turnover
07:30/HUN: Dec Retail Sales
08:00/SVK: Dec Internal trade, incl Wholesale & Retail
08:00/CZE: Dec External trade
08:00/CZE: Dec Industry, Construction
09:00/UK: Jan UK monthly car registrations figures
09:30/UK: Jan S&P Global / CIPS UK Construction PMI
10:00/EU: Dec Retail Trade
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(END) Dow Jones Newswires
February 06, 2023 00:15 ET (05:15 GMT)
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