MARKET WRAPS
Watch For:
U.K. Halifax house price index; Germany manufacturing orders; France OECD CPI; trading updates from Zalando, Henkel, Traton, Ashtead Group, Fresnillo, Ferguson, SAS, Finnair, Orsted
Opening Call:
European shares appear set to rise at the open as investors brace for Federal Reserve Chairman Jerome Powell’s congressional testimony. In Asia, stock benchmarks rose; the dollar weakened; Treasury yields broadly fell; oil futures gained and gold declined.
Equities:
European stock futures point slightly higher at Tuesday’s open, ahead of Fed Chair Powell’s congressional testimony later in the day.
“Markets have been, and today are still, in a tug of war between hope and dread as to what the Fed might say or do,” Allspring Global Investments said.
“It’s the calm before the storm,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.
Investors are eagerly anticipating Mr. Powell’s testimony before Congress later today and on Wednesday, his first public remarks since government agencies reported higher-than-expected inflation data last month.
Investors will be watching to see whether last month’s data has significantly altered Mr. Powell’s view.
Then on Friday, employment data will provide the most important look yet at how the economy developed in February, with investors counting on a slowdown from the torrid pace of job gains that were reported for January.
“Looking at the latest set of data, the U-turn of easing inflation and last month’s blowout jobs figures, we don’t expect to hear anything less than hawkish from Mr. Powell. But it’s always possible that a word like ‘disinflation’ slips out of his mouth, and that we get a boost on risk,” Swissquote Bank said.
“Traders are still anticipating a 25-basis-point hike in a few weeks, and investors should prepare for volatility if the jobs read surprises in either direction, especially as some Fed officials have indicated a 50-basis-point hike remains on the table,” said Chris Larkin, managing director for trading at Morgan Stanley’s E-Trade.
Forex:
The dollar was slightly weaker in Asia, with the speed of monetary tightening remaining a key driver for FX.
Goldman Sachs analysts said that Chair Powell’s testimony in Congress Tuesday and Wednesday and Friday’s February payrolls “will be critical for determining how that settles.”
They add: “While there seems to be a high bar to return to 50bp increments, we also see little incentive for the Fed to push back on the market pricing some probability of a more aggressive approach…the balance of risks probably leans towards a slightly weaker Dollar over the near term.”
Bonds:
Treasury yields edged broadly lower early Tuesday.
“Following another week of large fluctuations in the core [bonds], short-term positions are trying to find a new level to operate on, but we believe some degree of volatility may persist in the system, as soft data in the U.S. continues to overperform the rest of G-10,” said strategist Luis E. Costa and others at Citi.
Fixed-income markets will likely be beholden in coming sessions to Powell’s semiannual congressional testimony on Tuesday and Wednesday, and then to February’s nonfarm payrolls report on Friday.
“It is going to be a heavy week in terms of economic data, ending with the [nonfarm payroll] number on Friday. Buckle up,” the Citi team said.
Deutsche Bank and Jefferies expect the payrolls data to come in way above the median forecast, for a 225,000-job gain seen by economists surveyed by the Wall Street Journal.
Markets are pricing in a 69.4% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5% on March 22, according to the CME FedWatch tool. In addition, there’s a 30.6% chance seen of a bigger, 50-basis-point hike.
Energy:
Oil futures rose in Asia on hopes that the Fed won’t spark a hard landing of the U.S. economy, which would undermine oil demand.
These hopes, along with other upside risks, should help crude-oil prices remain comfortably above the $80.00 per barrel level for now, Oanda said.
However, this week could deliver a make-or-break moment for risk appetite, given Fed Chair Powell’s congressional testimony and U.S. jobs data, it said.
Phil Flynn, senior market analyst at the Price Futures Group, said that the market may not be buying the Chinese growth expectation numbers.
“I suspect that they’re trying to talk down their growth so they can buy commodities cheaper,” he said.
“If you look at the surrounding evidence for the Chinese reopening, it’s clear that China most likely is going to aim low so they can exceed expectations.”
Also, geopolitical risks “remain elevated as some uncertainty was thrown into mix after reports that Russia and Iran could foster a secret nuclear deal that could give Iran uranium transfers,” Oanda added.
Metals:
Gold prices fell early Tuesday, ahead of U.S. Fed Chairman Powell’s congressional testimony later in the day.
“Powell’s mission should be to continue to talk the hawkish talk, while preparing Congress for job losses,” Oanda said.
Given how tied up gold has been with the moves of the Fed, these two speeches by Powell will be a “big factor in driving the price of gold,” said Rupert Rowling, market analyst at Kinesis Money.
“In this environment of rising interest rates, gold becomes less attractive to investors due to its lack of yield, so holders of the precious metal will be hoping that Powell doesn’t strike a more hawkish tone than his fellow committee members,” Rowling said.
Apart from Powell’s talking points, Oanda said it believed the markets were close to peak tightening globally as the Bank of Canada was expected to hold rates steady again and as the Reserve Bank of Australia nears the end of its rate hiking cycle.
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Aluminum prices gained on ongoing hopes for a China demand rebound.
Funds’ positioning across base metals remains broadly net long on expectations of such a rebound, Citi Research analysts said.
Aluminum is Citi’s preferred exposure to the China reopening trade and the most exposed to a recovery in net long positioning and prices, supported by its relatively bullish supply-side dynamics, the analysts added.
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Chinese iron-ore futures were higher, erasing the previous day’s losses, as investors digest Beijing’s modest 2023 growth target of around 5% released over the weekend.
However, short-term iron ore prices remain under pressure given increasing regulatory risks and dashed expectations from China’s annual parliamentary meeting, Nanhua Futures analysts said.
TODAY’S TOP HEADLINES
What stock-market investors want to hear when Fed’s Powell testifies before Congress this week
The stock market’s bounce back from last year’s carnage will be again put to the test as investors closely listen to Federal Reserve Chairman Jerome Powell’s testimony before Congress this week for clues to just how high interest rates need to go to win the fight against inflation.
Powell will deliver the latest semiannual report on monetary policy and the economy on Tuesday to the Senate Banking Committee and on Wednesday to the House Financial Services panel. Both hearings begin at 10 a.m. Eastern. Powell’s testimony will probably be his last public remarks before the next policy meeting of the Federal Open Market Committee, or FOMC, on March 21-22.
China’s Xi Jinping Takes Rare Direct Aim at U.S. in Speech
Chinese leader Xi Jinping issued an unusually blunt rebuke of U.S. policy on Monday, blaming what he termed a Washington-led campaign to suppress China for recent challenges facing his country.
“Western countries-led by the U.S.-have implemented all-round containment, encirclement and suppression against us, bringing unprecedentedly severe challenges to our country’s development,” Mr. Xi was quoted by state media as saying on Monday.
Falling Oil Revenues, Soaring War Costs Squeeze Russia’s Finances
Russia’s government budget plunged into a deeper deficit in February, heaping pressure on the Kremlin to square the ballooning costs of its war in Ukraine with falling oil revenues caused by a raft of Western sanctions.
The soaring budget hole comes after both the Russian economy and the state have weathered Western sanctions better than expected during the first year of the war. Some economists have warned the pain would rise as time went by, with new sanctions targeting Russia’s ability to turn its extensive natural resources into cash-historically its main source of revenue.
Europe to Target ‘Big Fish’ Companies in New Foreign-Subsidy Rules
BRUSSELS-The European Union will aim to minimize the burden on companies to comply with tough new rules for reporting foreign subsidies, the bloc’s competition chief said, focusing instead on what she referred to as the “big fish” that distort the European market.
The new foreign-subsidy rules, set to take effect later this year, could allow the EU to bar companies from making certain acquisitions or winning large public contracts if they previously received government aid that regulators consider to be distortive.
Rio Tinto to Pay SEC $15 Million Over Foreign Bribery Charges
Mining and metals company Rio Tinto PLC agreed to pay a $15 million civil penalty to settle a yearslong probe into allegations it violated U.S. foreign bribery law, the Securities and Exchange Commission said Monday.
The payments allegedly made by Rio Tinto have prompted multiple corruption investigations in the U.S., U.K. and Australia. The company disclosed in a November 2016 filing that it became aware of email correspondence from 2011 relating to payments to a consultant and launched an internal investigation.
TikTok Rolls Out ‘Project Clover’ to Assure Europeans on Data
LONDON-TikTok executives are rolling out what they call “Project Clover, ” a charm offensive aimed at convincing European politicians that the video-sharing app is safeguarding user data on the continent.
(MORE TO FOLLOW) Dow Jones Newswires
March 07, 2023 00:14 ET (05:14 GMT)
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