MARKET WRAPS
Watch For:
Flash PMIs for Eurozone, U.K., France, Germany; ECB Governing Council informal working meeting ahead of tomorrow’s non-monetary policy meeting; U.K. public sector finances; Germany ZEW indicator of economic sentiment; trading updates from InterContinental Hotels Group, Sasol, Smith & Nephew, Capgemini, Engie, Antofagasta
Opening Call:
Shares could be little changed in Europe on Tuesday. In Asia, stock benchmarks were mixed; U.S. treasury yields broadly rose; the dollar strengthened; oil prices were mixed, while gold fell.
Equities:
A subdued open is likely for European stocks on Tuesday, as investor concerns over the interest-rate outlook and global growth persist.
Investors have largely come round to the Fed’s view that interest rates will need to rise higher than markets had anticipated just a few weeks ago.
“The bottom line is that higher interest rates for longer is negative for consumer spending, capex spending, and corporate earnings,” said Torsten Slok, chief economist and partner at Apollo Global Management.
Growing interest in the no landing scenario has divided traders “over what matters more to the stock market — rising rates or a resilient economy,” said Matthew Weller, global head of research at Forex.com and City Index.
Optimism over a resilient economy may explain the continued outperformance of technology and other growth stocks in the face of a continued rise in Treasury yields, “as traders weighed still-high prices against recent economic and earnings data that give scant sign of a serious slowdown,” he said.
However, Slok cautioned that a “no landing” scenario is bad news for stocks, particularly rate-sensitive tech and growth names, and in the end only delays a hard landing.
Read: Investors have pushed stocks into the death zone, warns Morgan Stanley’s Mike Wilson
Forex:
The U.S. dollar strengthened early Tuesday, supported by worries over the interest-rate outlook.
Sentiment towards the dollar has improved in February following strong U.S. economic data and this has further to run, Rabobank said.
Robust U.S. data on the labor market, inflation and retail sales this month have made the U.S. Federal Reserve’s warnings of higher-for-longer interest rates harder to ignore, it said.
Echoing a similar view DBS Group Research said that concerns over Fed tightening haven’t gone away.
After the strong U.S. nonfarm payrolls and CPI readings released recently, markets are bracing for another surprise in this Friday’s U.S. PCE data, it said.
“Given our expectation that the FOMC is likely to take the top of the target range for the Fed Funds to 5.5%, we see scope for the USD to remain well-supported into the middle of the year,” Rabobank said.
Rabobank said it expected EUR/USD to fall to 1.06 in three months and sees scope for dips towards 1.03.
Bonds:
U.S. bond yields were mixed after being closed on Monday in observance of Presidents Day.
U.K. gilts and U.S. Treasurys are preferred compared to German Bunds as Bund yields are currently fairly valued, said ING analysts.
Bund yields at around 2.5% are “close to where we think fair value is, and so we would favour buying gilts or Treasurys instead,” they said.
Energy:
Oil futures were mixed early Tuesday, as traders continue to weigh worries over geopolitical tensions against hopes of a reopening-driven recovery from China supporting demand.
“The geopolitical backdrop is adding uncertainty,” ANZ analysts said, adding that Israel’s prime minister has blamed Iran for an attack on an oil tanker in the Persian Gulf.
“The U.S. is also planning new export controls and a fresh round of sanctions on Russia, targeting the defense and energy sectors,” they added.
Relations between Washington and Beijing have also been increasingly tense lately after the U.S. shot down a Chinese balloon in its territory earlier this month.
Metals:
Gold edged slightly lower in choppy trade in Asia with focus on the FOMC minutes due later this week.
The market is now pricing in a 25 basis point rate hike at each of the next three FOMC meetings, DailyFX said.
“If the FOMC minutes show that there was support for a 50bp hike at the last meeting, these market expectations may move higher still, boosting bond yields and the US dollar and weighing on the price of gold,” it added.
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Copper fell in possible position adjustment in Asia, but the metal’s drop is likely to be limited.
Optimism about China’s demand recovery has returned, providing a bid to metals and crude oil, said Saxo Markets.
BHP Group’s Chief Executive Mike Henry said earlier today that the world’s largest miner by market value is positive on the outlook for commodity demand this year, in large part due to China’s projected economic recovery.
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Chinese iron-ore futures were higher, extending yesterday’s gains.
The China Securities Regulatory Commission said late Monday that it will launch a pilot program for real-estate private equity investment funds to boost the embattled property sector.
Optimism in the property market lifted its downstream sectors including steel and ferrous metal.
Steel mills are resuming production and replenishing their stock, said analysts from Nanhua Futures.
Fundamentals for iron ore, which is used in steel making, appear strong on increasing demand, they added.
TODAY’S TOP HEADLINES
Hong Kong’s Proposed Crypto Rules Seek Investor, Deposit Protection
Hong Kong’s securities regulator said cryptocurrency-trading companies would need to leave the city if they don’t plan on getting licenses and released proposed new rules seeking to better protect investors in the wake of the collapse of FTX.
The Securities and Futures Commission would require crypto exchanges to ringfence customer deposits, put controls in place to keep crypto keys secure and make sure that no more than 2% of customer funds are stored in a so-called “hot wallet,” which is a less secure way to hold crypto assets, according to the proposed rules.
HSBC’s Fourth-Quarter Profit More Than Doubled
HSBC Holdings PLC’s fourth-quarter net profit more than doubled compared with the same period a year earlier, as higher interest rates boosted its top-line growth while better cost efficiency further supported profitability.
Net profit surged to $4.62 billion, sharply higher from the $1.79 billion profit in the same period a year earlier, the Asia-focused lender said Tuesday.
Ericsson to Cut 1,400 Jobs as Orders Slow
STOCKHOLM-Ericsson AB plans to cut around 1,400 jobs in Sweden as the telecommunications-equipment giant grapples with slowing demand for its 5G gear in markets like the U.S.
The cuts are part of an effort the company announced late last year to reduce costs by 9 billion Swedish kronor, equivalent to about $861 million, by the end of 2023 through streamlining processes, closing facilities and using fewer consultants.
Manchester United Begins Sifting Through Numerous Bids for Club
Three months after announcing that they were open to selling one of the most prized assets in sports, the Glazer family received a set of preliminary bids for soccer giant Manchester United before a deadline on Friday evening. Though two were made public by the bidders, several more offers poured in for both partial stakes in the club and to acquire the team outright, according to a person familiar with the process.
United itself hasn’t commented on the sale process since the initial deadline on Friday, and the valuations of the bids aren’t known. The multiple offers-including one from the chairman of a Qatar bank and the other from a British billionaire-could put the Glazers in a position to capitalize on a hot market that has recently pushed the valuation of top sports properties to new record highs.
BHP’s First-Half Net Profit Fell on Weaker Commodity Prices
BHP Group Ltd. reported a 32% fall in first-half net profit and pared its interim dividend from a record-high level, mostly because of weaker prices for some of the commodities it sells, including steel ingredient iron ore and industrial metal copper.
The world’s largest miner by market value said it made a net profit of $6.46 billion in the six months through December. It made a profit of $9.44 billion in the same period a year earlier, when strong commodity prices boosted its bottom line.
Israeli Parliament Begins Voting on Judicial Overhaul
JERUSALEM-The government of Israeli Prime Minister Benjamin Netanyahu pushed ahead Monday with voting on an overhaul of Israel’s judicial system that has bitterly divided the country, despite calls from the U.S. to delay the process and build consensus.
Lawmakers voted Monday night on the first reading of a bill that will grant Israel’s ruling coalition effective control over the appointment of judges and ban judicial review over laws that have quasi-constitutional power, known as Basic Laws. The bill passed 63 to 47, with the votes in favor coming entirely from the coalition.
Hungary Extends Warm Welcome to Top Chinese Diplomat
China’s top diplomat, Wang Yi, visited Hungary, one of Beijing’s staunchest European partners, where Prime Minister Viktor Orban signaled Budapest’s determination to strengthen ties with Beijing despite U.S. concern over growing Chinese investment in the country.
The visit stood in contrast to other meetings during Mr. Wang’s weeklong visit to Europe, where he aims to strengthen ties on the continent at a time of growing tension with the U.S.
New Earthquake Hits Southern Turkey and Syria
GAZIANTEP, Turkey-A strong earthquake and its aftershocks struck southern Turkey and Syria on Monday, causing buildings to collapse and killing at least three people, Turkish officials said, in a sign of the region’s vulnerability after it was devastated earlier this month by its worst seismic event in decades.
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February 21, 2023 00:16 ET (05:16 GMT)
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