MARKET WRAPS
Watch For:
Services PMI data for eurozone, Germany, France, UK, Italy; EU
PPI, ECB survey of professional forecasters; EuroCOIN indicator of
euro area economic activity; France industrial production index; UK
official reserves; trading updates from Sanofi, Caixabank
Opening Call:
Disappointing earnings from Big Tech overnight could weigh on
European shares on Friday. Asian stock benchmarks were mixed; the
dollar regained some strength; while Treasury yields, oil and gold
fell.
Equities:
Stock futures point to mild declines in Europe at Friday's open,
as disappointing earnings from Apple, Amazon and Google after
Thursday's closing bell weighed on sentiment.
European and U.S. indexes had closed higher Thursday after the
European Central Bank and the Bank of England raised rates, and
were buoyed by upbeat results by Facebook parent Meta
Platforms.
Investors also found succor in Federal Reserve Chair Jerome
Powell's commentary on Wednesday, with the Fed chair coming off as
more dovish than many had expected.
Robert Conzo, CEO and managing director of The Wealth Alliance,
thinks that the markets have no problem fighting the Fed right now.
He said the markets believe there's a tailwind... making it feel
like it's time to recover, but Powell is not budging.
"The Fed needs to see economic data come down for at least
another six to nine months before we can expect a pivot. In the
meantime, investors will continue to see huge market swings if the
markets stay at odds with the Fed," said Conzo.
"You didn't get what the market expected, which was a strong
pushback against the loosening of financial conditions in the past
couple of months," said Jake Jolly, senior investment strategist at
BNY Mellon Investment Management. "Because you didn't get that, the
market is sensing that the end of this cycle is approaching. And
that's a good thing for equities."
Investors are now looking ahead to the monthly report on the
U.S. labor market from the Department of Labor later today.
Read: Stocks are at Wall Street's year-end target. It's only
early February.
Forex:
The dollar strengthened slightly in Asia. While expectations of
a Fed pause could support risk appetite, the coming visit by U.S.
Secretary of State Blinken to China may renew trade tensions
between the two countries, spurring safe-haven demand for the
greenback.
China is seeking to convince Japan and the Netherlands to ease
their ban on exports of semiconductor equipment, but these talks
are unlikely to succeed, so U.S.-China relations may continue to
deteriorate, said ING.
Further, "[markets] are digesting a lot of central-bank action,
it appears that we're pretty much at the end of central bank
tightening world-wide, the Fed is almost done and the ECB is
playing catchup but they'll be done after a couple more rate
hikes," Oanda's Edward Moya said.
Markets see a Fed rate cut or two by the end of the year, he
added.
Bonds:
Treasury yields fell early Friday, extending Thursday's declines
after a news conference held by Fed Chair Powell convinced traders
the interest rate-hike cycle was nearing an end.
Unlike in December, Powell did not push back on the change in
financial conditions that has seen assets like profitless
technology stocks and bitcoin surge. Powell also frequently
mentioned the disinflationary process as being underway, though he
characterized it as being at an early stage.
"Relative to FOMC press conferences, Powell tilted the balance
of his remarks in the direction of embracing the recent
disinflation. He also expressed far less worry about financial
conditions and the divergence between the Fed's policy rate path
and the market's," said Bank of America.
Meanwhile, European government bonds joined a global rally
Thursday, dropping sharply despite the European Central Bank
delivering an expected half percentage point interest rate hike and
saying it intends to raise by another half point in March.
While the ECB said it would need to keep raising interest rates
"significantly at a steady pace" to get inflation back down to its
2% target, market participants appeared convinced the hiking cycle
is nearing an end.
Earlier Thursday, the Bank of England lifted its key rate by
half a percentage point and also signaled it wasn't finished
tightening. In separate news conferences, ECB President Christine
Lagarde and BOE Governor Andrew Bailey both signaled further
tightening to come.
"While the tone of both press conferences would appear to
suggest that both central banks have further to go in raising
rates, markets appear to be taking the view that we're near a peak
as far as rates are concerned, and even if they aren't done yet,
they are close, sending bond yields falling sharply across the
board," said Michael Hewson, chief market analyst at CMC Markets
UK.
Read more.
Energy:
Oil futures rose in Asia, extending a rangebound trading pattern
so far this week.
Easing rate hike expectations have driven up a host of commodity
prices, but Baocheng Futures thinks oil prices may suffer some
near-term volatility as elevated prices raise profit-taking
pressure.
Baocheng added that looming global recession fears and tight
monetary policies globally are likely to further cap upside.
Metals:
Gold prices were slightly higher early Friday. Investor
expectations of easing interest rate rises look "relatively
optimistic" for now, which could buoy gold prices in the near term,
Jinshi Futures said.
But the brokerage cautioned that profit-taking pressure may
emerge as the recent gains have priced in most positive factors and
advised against aggressively chasing the upturn.
Looking ahead, Chintan Karnani, director of research at Insignia
Consultants, said the Fed and every central bank will "scrutinize
inflation and growth every month with a microscopic lens."
"Any significant trend of a potential reversal to higher
inflation will cause central banks to choose inflation over
growth," he said. "Rising interest rate trends can be reintroduced
with a pause in such a scenario."
Once traders "realize that interest rate pause can be followed
by a hike (if needed), then there will be a sell off in precious
metals [and] base metals" along with a rise in bond yields, said
Karnani. "Volatility in gold and silver and base metals will rise
as a result of this potential scenario."
Read: Why silver is outperforming gold
-
Copper edged lower in a likely technical correction following
recent gains, but losses may be limited. Supply-side disruptions
have continued to support copper prices, said ING.
MMG's Las Bambas mine has halted operations amid protests in
Peru with the mine now entering maintenance, while First Quantum
Minerals said operations at its Sentinel open-pit copper mine in
Zambia have been suspended after a traffic accident, ING noted.
-
Chinese iron ore futures declined as demand for the steel
ingredient weakened.
"The demand for steel is still weak, with the inventory
replenishment of steel mills slow," CFC Financial said, adding that
iron ore prices are likely capped.
Prices for commodities such as iron ore, steel and coal have
fallen in the last few days and CFC Financial believes that is due
to faded market expectations.
TODAY'S TOP HEADLINES
Global Minimum Tax Deal Advances With Partial Reprieve for
U.S.-Based Companies
WASHINGTON-The U.S. prodded other major countries to agree to a
coordinated global corporate tax increase. Now, international
officials are moving ahead with their tax increases while giving
U.S. companies a temporary break from some tax hikes in hopes of
prompting the U.S. to implement the deal.
The Organization for Economic Cooperation and Development on
Thursday spelled out how the U.S. tax system will interact with the
minimum taxes being implemented in the European Union, the U.K.,
South Korea and other countries. The rules offer a partial reprieve
for U.S. companies through 2025. Still, U.S. companies are likely
to face higher taxes abroad.
New York Fed Names Economist to Top Markets Post
The Federal Reserve Bank of New York said Thursday that Roberto
Perli, an economist who previously served on the Fed's staff in
Washington, would become the manager of the system's asset
portfolio, one of the most important staff positions at the central
bank.
Mr. Perli is currently head of global policy research at
investment bank Piper Sandler Cos. and was a co-founder of
Cornerstone Macro, a research firm.
Russia Claims Gains in Battle for Bakhmut
KYIV, Ukraine-Russian forces claimed new advances in their
effort to encircle the eastern Ukrainian city of Bakhmut, while
European leaders arrived in Kyiv to discuss further military
aid.
Yevgeny Prigozhin, leader of Wagner Group, a Russian
paramilitary organization that is leading the assault in Ukraine's
east, said Wednesday that his forces had seized the village of
Sacco and Vanzetti, north of Bakhmut. Rybar, a Telegram channel
linked to the Kremlin, said Thursday that Wagner was claiming
territory on the contested east side of the city, expanding control
around a sparkling-wine factory and a meat-processing plant.
Vladimir Putin Rallies Russian Support at Stalingrad
Anniversary, Warns of Reprisals
MOSCOW-Russian President Vladimir Putin used the commemoration
of a pivotal World War II battle to marshal support for his
military campaign in Ukraine, threatening again to unleash the most
powerful weapons at his disposal to thwart what he said were the
West's attempts to ensure Russia's defeat.
Mr. Putin's remarks in Volgograd, formerly Stalingrad, where 80
years ago the Soviet Union's Red Army blocked advancing Nazi forces
in one of the bloodiest episodes of the entire war, were heavy with
symbolism.
Big Tech Didn't Quite Clear the Bar
Big tech just closed out a rough year. The current one won't get
much better soon.
Apple, Amazon.com and Google parent Alphabet Inc. all reported
December quarter results Thursday afternoon that showed the effects
of the weakening global economy across most of the companies'
diverse business lines. These include online advertising,
cloud-computing services, e-commerce and tech gadgets such as
smartphones, laptops and smartwatches. These are big businesses,
totaling nearly $1.2 trillion in revenue for the three companies in
2022.
Meta Platforms Shares Surge 23% on Cost Cuts, Stock Buyback
Facebook parent Meta Platforms Inc. shares soared to their best
day in nearly a decade after the company embraced investor-friendly
moves including boosting its stock through a $40 billion buyback
and cutting expenses in the face of increased competition.
Shares of the social-media company closed Thursday up 23% to
$188.87 and are up 57% year to date. The stock recorded its largest
percentage increase since July 2013, when it rose nearly 30%.
Google Parent Alphabet Posts Drop in Ad Revenue Amid
Slowdown
Google reported its first drop in advertising revenue since the
beginning of the pandemic, as a slowdown in online marketing
continues to weigh on the search giant's business.
Alphabet Inc., Google's parent company, reported $59 billion in
advertising revenue for the fourth quarter, a decrease of 3.6% from
the same period in 2021. Those results marked the second time ad
sales fell since Google became a publicly traded company in
2004.
Apple Sales Shrink as Pandemic Rally Ends for iPhone Maker,
Other Tech Giants
Apple Inc. reported disappointing quarterly results that ended
its three-year streak of sales and profit records, capping an
earnings season in which the world's biggest technology companies
mostly struggled to shake off a postpandemic hangover.
The iPhone maker announced its first quarterly revenue decline
in nearly four years as manufacturing disruptions in China curbed
its ability to deliver premium iPhones. Its results came the same
day that Amazon.com Inc. reported growth that, while beating
expectations, nonetheless concerned investors, because of slowdowns
in its online shopping and cloud computing businesses, and Google
parent Alphabet Inc. said it was hit by a broad slowdown in the
digital ad market.
Amazon Warns of Period of Slower Growth
Amazon.com Inc. warned of a period of reduced growth and
signaled the difficult economic environment is denting the
performance of its cloud-computing business that has been a profit
engine for the company.
"We do expect to see some slower growth rates for the next few
quarters, " Brian Olsavsky, Amazon's chief financial officer, said
Thursday on a call with reporters. The guidance, he said, reflects
the uncertainty the company continues to have about both consumer
and corporate spending in the U.S. and overseas.
FTC Denies Meta's Bid to Disqualify Chair Lina Khan From
Antitrust Lawsuit
WASHINGTON-Members of the Federal Trade Commission rejected a
complaint from Meta Platforms Inc. asking them to disqualify the
agency's chair from judging the company's proposed acquisition of
virtual-reality company Within Unlimited Inc.
The FTC voted 2-1, along partisan lines, to allow Lina Khan to
participate in the legal case against the Meta-Within deal,
according to an order made public Thursday. The agency's Democratic
commissioners said federal ethics rules don't require Ms. Khan's
disqualification, even if her prior work and statements were
critical of Meta, the Facebook owner that rebranded itself as a
company focused on developing immersive virtual worlds, or
metaverses.
Twitter to Remove Free API Access in Elon Musk's Latest Revenue
Push
Twitter Inc. said it would start charging for API access as it
tries to monetize more of its services under Elon Musk's
ownership.
The company said that starting on Feb. 9, it would offer a paid
basic tier to access its application programming interface, or API,
which lets developers analyze some internal data, including tweets,
and build tools with it.
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Expected Major Events for Friday
00:01/UK: Jan BRC-Sensormatic IQ Footfall Monitor
01:01/IRL: Jan Ireland Services PMI
07:00/TUR: Jan CPI
07:00/TUR: Jan PPI
07:45/FRA: Dec Industrial production index
08:00/CZE: 4Q LFSS Employment & Unemployment
08:15/SPN: Jan Spain Services PMI
08:30/EU: Jan EuroCOIN indicator of euro area economic
activity
08:45/ITA: Jan Italy Services PMI
08:50/FRA: Jan France Services PMI
08:55/GER: Jan Germany Services PMI
09:00/EU: Jan Eurozone Services PMI
09:30/UK: Jan S&P Global / CIPS UK Services PMI
09:30/UK: Jan UK Official Reserves
10:00/EU: Dec PPI
10:00/CYP: Jan Registered Unemployed
10:00/CYP: Jan CPI
11:00/IRL: Jan Irish Live Register latest monthly figures
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(END) Dow Jones Newswires
February 03, 2023 00:17 ET (05:17 GMT)
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