UKX

MARKET WRAPS

Stocks:

European stocks traded higher on Wednesday as investors reacted to a less hawkish-than-feared Jerome Powell.

However, some analysts pondered what Powell's remarks on Tuesday could mean for the path of interest rates.

"Powell has given a clear message that if traders think that the Fed is done with the process of interest rate hikes, then they definitely need to rekindle their expectations as economic data suggests that they can push the curve a lot more," AvaTrade said.

SPI Asset Management said that "for the next little while, the central banks aren't as important as the economic data will be. With markets operating in a macro vacuum today, investors aren't exactly scrambling to put on risk."

Stocks to Watch

High inventories are likely to weigh on Puma's 4Q and full-year results, Warburg Research said.

Like U.S. rival Nike, the German sportswear firm should book strong sales growth for the period, driven by the soccer World Cup and despite declining sales in lockdown-hit China, it added.

But high levels of stock have kept the market promotional, which will weigh on the quarter's gross margin, Warburg said.

While control of operational expenses should balance this somewhat, Puma is still likely to meet only the lower half of its full-year operating-profit target, at some EUR 645 million, according to Warburg's estimates.

The research firm trimmed its price target on the stock to EUR 94 from EUR 96, keeping a buy rating.

European Central Bank

Goldman Sachs Asset Management affirmed its expectation that ECB's deposit rate--which is currently 2.50%--will peak at 3.50% by the summer.

However, the asset manager sees risks as being skewed toward an earlier pause in tightening, it says.

It envisages a 50 basis-point interest-rate rise at the March meeting, matching last week's rate increase, but says that the ECB's assessment of a more balanced inflation outlook leaves the policy outlook more uncertain from the second quarter.

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The ECB's decision to lower the ceiling for remuneration of euro area government deposits to 20 basis points below the euro short-term rate, effective May 1, is less drastic than feared, SEB said.

"Markets were discounting risks of the ECB introducing an even lower rate than [the euro short-term rate] minus 20bps, which would have encouraged governments to move money from deposits to money market instruments that offer a better yield for their cash balances," SEB said.

"As the rate paid for government deposits was reduced only modestly, risks for a worsening squeeze declined and especially short bond yields reacted by jumping higher."

U.S. Markets:

Stock futures edged lower, suggesting a rally in markets could pause, as investors digested Powell's remarks and waited to hear from a cluster of Federal Reserve speakers.

Earnings are due from several major companies. Before the opening bell, investors will get results from Uber and CVS Health. Robinhood and Walt Disney will report after U.S. markets close.

For economic data, revised wholesale inventories are due.

Stocks to Watch

Bed Bath & Beyond shares remained highly volatile as the troubled retailer landed a rescue financing deal with Hudson Bay Capital Management. After almost halving in regular trading Tuesday, the stock gained 4% premarket.

Manchester United shares rose 13% in premarket trade after a report of an imminent Qatari bid for the team. The Daily Mail reported the bid from Qatar, which hosted the World Cup, will "blow away" other offers.

Microsoft is integrating the technology behind the viral chatbot ChatGPT into its Bing search engine. Microsoft shares rose 2% premarket, building on Tuesday's 4% rally.

Forex:

The ECB's decision to cut interest rates on government deposits to encourage fund withdrawals shouldn't have strong implications for the euro, ING said.

"The policy discussion remains much more central, with [ECB member] Isabel Schnabel delivering hawkish statements yesterday and warning against the risk of inflation becoming entrenched in the medium term."

ECB officials may continue delivering hawkish remarks that signal further interest-rate rises after the central bank's meeting last Thursday failed to convince markets of its resolve to fight inflation, although this appears to have been largely factored in by markets, ING said.

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Sterling is the second worst performing G10 currency after the Norwegian krone so far in February and faces further underperformance, MUFG Bank said.

"If inflation angst was to return and given the less compelling evidence of an inflation drop in the UK compared to elsewhere, we could see further underperformance."

The OECD forecast more sticky inflation in the U.K. compared with elsewhere, MUFG said.

Meanwhile, data since Brexit showed the U.K. suffered the highest increase in inflation compared with the U.S., eurozone and Japan, MUFG added.

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The dollar fell as Powell failed to meet expectations to sound more hawkish about the need for further interest rate rises, MUFG Bank said.

Powell's comments were consistent with those made prior to last week's strong nonfarm payrolls report and the Fed meeting, MUFG said.

"With the overnight index swap curve already priced for two additional 25 basis points rate hikes there was no catalyst for a move higher in rates which propelled the dollar weaker."

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Read Polish Zloty's Scope to Recover Might Be Limited

Bonds:

Eurozone government bond yields were trading higher after Jerome Powell confirmed the prospect of further interest-rate rises to tame inflation.

"The Fed chair stuck to the point made at the FOMC meeting last week...(probably more rate hikes needed, disinflationary process has started but with a long and bumpy road ahead), seemingly ignoring the blow-out payrolls report and strong ISM services rebound at first," KBC Bank said.

That said, his speech didn't alter market expectations for a 5%-5.25% peak rate in the U.S., leaving the front end of the U.S. yield curve largely unchanged to slightly lower, KBC added.

Energy:

Oil prices rose about 0.5% thanks to a weaker dollar following Powell 's comments.

Investors were fearing the Fed Chairman could diverge significantly from his views on interest rates after a strong U.S. jobs report Friday. But while Powell warned that the fight against inflation would be long, he didn't indicate more aggressive rate hikes, as some had feared.

"He didn't choose this moment to notably change the script post payrolls. There was some fear that he would," Deutsche Bank said.

Metals:

Base metals and gold prices moved higher after the lack of alarm from Powell over nonfarm payrolls reassured markets, as did his commitment to being data dependent, Commodity Research Group said.

"Also reassuring, was Powell saying that many of the signs that precede typical recessions, such as excessive leverage and asset bubbles, are notably absent this time around, boding well for the economy and labor markets."

Cobalt

A project to formalize small-scale cobalt mining in the world's top producer, the Democratic Republic of Congo, is failing after being interrupted by pandemic shutdowns, New York University researchers said.

Small-scale miners in Congo account for about 10% of the global output of cobalt, a metal critical to the clean-energy transition.

A pilot open-pit mine, backed by Trafigura, in southern Congo has now been turned into dozens of poorly ventilated and unstable shafts, where more than 15,000 miners, including children, come to work, instead of 5,000, the researchers noted.

"Global companies buying cobalt need to encourage the formalization and responsible extraction of the mineral rather than engaging in a futile attempt to avoid cobalt associated with artisanal mining."

DOW JONES NEWSPLUS

EMEA HEADLINES

VW Says 2022 Sales and Profit in Line With Forecasts

BERLIN-Volkswagen AG said Tuesday that 2022 sales and operating earnings were largely in line with forecasts, but that cash flow, a key measure for investors, fell short of expectations as supply-chain woes led to higher unsold inventory at the end of the year.

VW and other auto makers have struggled over the past year with continued disruptions to supply chains in the wake of the war in Ukraine and amid a resurgence in Covid-19 infections in China that hit supply chains, making it difficult to maintain production at constant levels.

Maersk Raises Dividend But Expects Earnings to Slide This Year

A.P. Moeller-Maersk AS on Wednesday raised its dividend but cautioned that earnings this year will plunge as the shipping market normalizes with lower volumes caused by weakening demand and lower freight rates.

The Danish shipping giant reported a quarterly net profit of $4.95 billion, down from $6.09 billion, as revenue fell 3.7% to $17.82 billion. A company-compiled consensus had seen net profit at $4.98 billion on revenue of $19.3 billion.

TotalEnergies Boosts Shareholders Returns on Strong 2022

TotalEnergies SE boosted shareholders returns for the current year after overall performance in 2022 benefited from strong hydrocarbon production and gas sales despite Russia impairments.

The French major said Wednesday that it targets an increase in interim dividends of more than 7% to 0.74 European cents ($0.79) a share and buybacks of $2 billion in the first quarter, confirming that it aims for a payout of between 35%-40% for shareholders in 2023.

Societe Generale Beats 4Q Expectations as Revenue Lifts - Update

Societe Generale SA said Wednesday that its fourth-quarter profit beat expectations on strong revenue after resilient performances in its international investment-banking and retail operations, though flagged an uplift in provisions for 2023.

The French lender reported quarterly net profit of 1.16 billion euros ($1.24 billion) in the three months to the end of December, down from EUR1.79 billion in the same period of 2021.

ABN AMRO Launches EUR500 Mln Buyback After 4Q Net Profit, Income Beat Expectations - Update

ABN AMRO Bank NV on Wednesday posted operating income and net profit ahead of expectations for the fourth quarter of 2022 and launched a 500 million-euro ($536.5 million) share buyback program.

The Dutch lender posted a net profit of EUR354 million for the three months to Dec. 31, as it recorded lower-than-expected impairments. This compares with the EUR80 million expected by a company-complied consensus from 18 analysts' estimates and with EUR552 million a year earlier.

Akzo Nobel 4Q Operating Income Fell on Lower Volumes, Higher Costs

Akzo Nobel NV said Wednesday that its fourth-quarter operating income fell on lower volumes, higher raw material prices and freight costs and inflation on operating expenses, though revenue rose.

The Dutch paints company-which houses the Dulux, Polycell and Cuprinol brands-posted an operating income for the quarter of 103 million euros ($110.5 million) compared with EUR205 million a year earlier.

Handelsbanken 4Q Boosted by Higher Interest Margins

Svenska Handelsbanken on Wednesday reported a 13% rise in fourth quarter net profit on higher net interest income that benefited from a recovery in interest margins.

The Swedish bank made a net profit for the quarter of 5.92 billion Swedish kronor ($559.8 million) compared with SEK5.22 billion for the same period a year earlier.

Pandora Launches New Buyback as 4Q Earnings Beat Forecasts

Pandora AS on Wednesday launched a new share buyback program after posting a forecast-beating fourth-quarter net profit.

The Danish jeweler said trading in the first quarter has been solid and it is pleased with underlying trading, which has continued in line with the fourth quarter.

European Officials Push for Joint Effort With U.S. on Green-Technology Minerals

WASHINGTON-Representatives of Europe's two top economies proposed new efforts with the U.S. to strengthen supply chains for critical minerals used in electric vehicles and other green-technology products, even as they continued to press the U.S. about its clean energy legislation.

Robert Habeck, German vice chancellor and minister for economic affairs and climate action, proposed Tuesday creating a "critical minerals club" with the U.S. during a trip to Washington where he met with Treasury Secretary Janet Yellen; Commerce Secretary Gina Raimondo; and Brian Deese, director of the White House National Economic Council, among others. Bruno Le Maire, French minister for finance, economy and industry, also attended the meetings.

GLOBAL NEWS

Strong Dollar Still Rattles U.S. Multinational Corporate Earnings

A reversal in the epic U.S. dollar rally hasn't yet provided much respite to large U.S. multinational companies.

Companies in the S&P 500 that derive more than half of their revenue outside the U.S. are on pace to post an 8.7% slide in fourth-quarter earnings, according to FactSet data through Monday. In contrast, companies with most of their sales in the U.S. are poised to record a 3% earnings drop. About 55% of the companies in the index have reported so far.

Chinese Consumers Hoard Cash After Confidence Takes a Hit

Beijing is trying to kick-start economic growth after lifting its stringent Covid-19 restrictions. One challenge: Chinese citizens borrowed less and saved more last year and it isn't clear how long it will take to return to freer-spending ways.

Individuals in China took out the equivalent of $564 billion in new loans in 2022, down more than half from a year earlier, marking the lowest total since 2014 according to government data. The big drop was largely due to a decline in home sales, which translated into lower demand for new mortgages. Everyday consumer spending also took a hit during lockdowns that affected many Chinese cities, reducing the need for short-term borrowing.

India's Central Bank Raises Rate to Tame Inflation

India's central bank raised its policy rate on Wednesday in a bid to tame inflation.

Reserve Bank of India Gov. Shaktikanta Das said that the RBI's monetary-policy committee had decided to increase its policy repo rate by 25 basis points to 6.50%, effective immediately.

China Car Sales Slump in January

HONG KONG-China's passenger car retail sales plunged 37.9% last month as businesses shut down for an early Lunar New Year holiday and nationwide vehicle purchase tax cuts and electric-car subsidies ended.

China's car makers and dealers sold 1.3 million passenger cars in January, down 40% from December, the China Passenger Car Association said Wednesday.

Consumer Weakness Could Turn Into a Second-Half Tailwind, Trucking Firm Says

There is a lot of concern about recession floating about markets, and a weakening consumer is a big reason why.

Things in 2023 might eventually turn out better than feared, though. Just look at what logistics provider RXO (ticker: RXO) sees for the back half of this year.

Joe Biden Pushes Economic Gains, Jousts With GOP in State of the Union Speech

WASHINGTON-President Biden used his State of the Union address to try to sell Americans on his economic agenda and called for renewed bipartisanship, but his appeals for unity were punctuated by Republican lawmakers' loud objections to his remarks.

The annual speech-delivered in the House chamber before a joint session of the newly divided Congress on Tuesday-gave Mr. Biden, 80, a chance to test his message in front of a large audience weeks or months before he is expected to announce his reelection bid. Recent polls show a majority of Democratic voters don't want him to run for a second term, and his approval ratings remain low.

Russian Forces Press Ukrainian Defense in Northeast

Russian armed forces were trying to break through Ukrainian defense lines in Ukraine's northeast on Wednesday, Ukrainian officials said, a sign of building Russian pressure across the front.

Serhiy Haidai, governor of Ukraine's eastern Luhansk province, said the number of Russian attacks around the city of Kreminna, long a target for Ukrainian troops, had soared. Russian forces were also assaulting Bilohorivka, he said, a much-contested village to the south of Kreminna.

Former Twitter Executives to Face GOP Scrutiny on Hunter Biden Laptop Decisions

WASHINGTON-House Republicans are set Wednesday to launch hearings into what they describe as collusion between social-media companies and Democrats-starting with their scrutiny of the 2020 episode involving Hunter Biden's laptop.

Members of the House Oversight Committee plan to question former Twitter Inc. executives over their decision to limit the reach of two 2020 New York Post articles that contained disclosures from the president's son's laptop that was dropped off at a Delaware repair shop. The Post and The Wall Street Journal are both owned by News Corp.

China Refused U.S. Call After Downing of Suspected Spy Balloon, Pentagon Says

WASHINGTON-China's defense minister rejected a request from Defense Secretary Lloyd Austin to speak immediately after the U.S. downed a suspected Chinese spy balloon, the Pentagon said, indicating how the episode has further inflamed the powers' fraught relations.

The Defense Department submitted the request for Mr. Austin to speak over a secure line with Chinese Defense Minister Wei Fenghe after the Air Force shot down the balloon Saturday, said Pentagon spokesman Air Force Brig. Gen. Pat Ryder on Tuesday.

Republicans Home In on China Policy Following Balloon Shootdown

WASHINGTON-House Republicans held a pair of hearings Tuesday to weigh how best to counter Beijing's economic and military power, including the Pentagon's response to the suspected Chinese surveillance balloon shot down Saturday by the Air Force.

China represents "the single greatest threat to America's global standing," said Rep. Patrick McHenry (R., N.C.) the chairman of the House Financial Services Committee, at the start of a hearing about China's economic threats.

Ukraine's Zelensky Visits U.K. as Britain Steps Up Training, Military Aid

LONDON-Ukrainian President Volodymyr Zelensky traveled to the U.K. to address Parliament on Wednesday, his second known overseas trip since the Russian invasion as he seeks to build Western support for greater military aid to his country amid signs of an impending Russian offensive.

The U.K. government has proved a firm ally and vocal advocate of military aid to Ukraine ever since Russia's attack on the country last February. Successive U.K. leaders have urged allies in the North Atlantic Treaty Organization to lean toward boosting support for Ukraine by providing more lethal weaponry and funds, to try to tip the war decisively in Kyiv's favor.

On Wednesday, the British government said it would begin training Ukrainian jet-fighter pilots and marines and provide Ukraine with longer-range capabilities to strike Russian targets. Mr. Zelensky is set to meet with U.K. Prime Minister Rishi Sunak and address British lawmakers in Parliament, as well as visit Ukrainian troops in southern England being trained to drive Challenger tanks.

Poland Weighs More U.S. Weapons Ahead of Biden Visit

WASHINGTON-Poland is seeking advanced rocket launchers and other weaponry from the U.S. in a $10 billion deal announced Tuesday ahead of an expected visit later this month by President Biden around the first anniversary of Russia's invasion of Ukraine.

The proposed weapons deal and planning for the potential presidential trip come as the administration aims to shore up support for Ukraine at home and abroad.

Rescue Teams Race to Find Earthquake Survivors in Turkey, Syria

ISKENDERUN, Turkey-Rescue teams were in a race against time Wednesday to find survivors from the twin earthquakes that have killed more than 9,500 people in Turkey and Syria, as freezing temperatures continued to complicate humanitarian efforts and Turkish President Recep Tayyip Erdogan said he would visit the affected areas.

Mr. Erdogan on Tuesday declared a three-month state of emergency in the quake-hit southern regions of the country, describing the disaster as the worst in a century. Monday's magnitude-7.8 and -7.5 quakes wreaked havoc along the border, and so far have killed at least 7,100 in Turkey and 2,470 in Syria. Those numbers are expected to keep rising.

Syria Reels From Earthquakes but Struggles to Tap Outside Aid

As the scale of the devastation emerged in Syria from powerful earthquakes, the country faces hurdles tapping international aid because of border closures, the political isolation of President Bashar al-Assad and his government's policy of starving antigovernment rebels of assistance.

"The scale of destruction is enormous, and there is still no support from the outside," said Ammar Alselmo, a volunteer in rural Aleppo province with Syrian Civil Defense, also known as the White Helmets, which leads relief efforts in areas outside the government's control.

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(END) Dow Jones Newswires

February 08, 2023 06:39 ET (11:39 GMT)

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