MARKET WRAPS
Watch For:
EU Special Summit; U.K. Bank of England Governor Andrew Bailey appears before the Treasury Committee; Germany Provisional CPI; trading updates from Credit Agricole, Credit Suisse, AstraZeneca, Unilever, Aegon, Zurich Insurance, Atos, Enel, L'Oreal, Vinci, Nexi, Legrand, Bollore, British American Tobacco, Compass Group, easyJet, Euronext, International Distributions Services
Opening Call:
Shares look set to advance in Europe on Thursday despite a negative lead from Wall Street after hawkish comments from Fed officials. In Asia, stock benchmarks were mostly lower; Treasury yields were mixed; the dollar weakened; oil fell and gold edged higher.
Equities:
European stocks may rise at the open, as investors digest comments from a cluster of Federal Reserve speakers which exacerbated concerns that the central bank still has more interest rate rises ahead and will keep monetary policy restrictive.
Fed Gov. Christopher Waller warned that the inflation fight is not over and could result in higher interest rates to make sure intense price pressures are eradicated.
New York Fed President John Williams said the Fed needs to maintain "restrictive" interest rates for a few years to make sure high inflation is restored to low pre-pandemic levels.
Yet despite a strong January jobs report, Williams said it was appropriate for the Fed to step down to a quarter point rate rise after a series of 50 basis points rate increases through most of 2022.
"Williams quickly sank risk appetite after he reminded Wall Street that if financial conditions loosen, higher rates may be needed. Financial conditions have been easing since October and this is why the Fed needed to pushback on how the markets have been pricing in rate cuts at the end of the year." Oanda said.
Forex:
The dollar was weaker as investors digested hawkish remarks from Fed officials, and await fresh inflation data.
Four Fed officials uniformly reiterated a need to keep monetary policy restrictive overnight, said DBS Group Research.
The Fed's rhetoric is now clearly at odds with market pricing of rate cuts later this year, it added.
However, Oanda said, "there's no fedspeak that will unnerve the market" ahead of Tuesday's CPI numbers.
It expects the U.S. currency to bounce back as monetary tightening moves on.
"The Fed is going to continue the job. We'll probably see a move back in the dollar." For now, though, uncertainty is mounting.
Bonds:
Treasury yields were mixed as markets are already turning their attention to CPI data due next week, with some forecasters projecting a decline but with upside risks.
Inflation traders have penciled in the likelihood that inflation, as measured by the annual headline rate on the consumer-price index, will fall below 3% by June and stay in the vicinity of 2% for the entire second half of 2023.
"Fed officials continue to beat the drum of more rate hikes to come despite the market continuing to question the Fed's resolve for further tightening and pricing in a rate cut in the second half of the year," said Lindsey Piegza and Lauren Henderson, economists at Stifel, Nicolaus & Co.
"The key takeaway from Powell's remarks was further hikes to come, potentially resulting in a higher-for-longer scenario," they said.
Energy:
Oil futures were slightly lower, weighed down by a larger-than-expected increase in U.S. oil inventories.
The weekly EIA report released overnight showed a 2.4 million-barrel rise in U.S. commercial crude oil inventories, a moderately bearish surprise compared to expectations for 2 million-barrel increase, said Citi Research analysts.
Overall, "an improving outlook for the health of the U.S. economy in the wake of the January jobs report, and ongoing optimism about the positive demand impact of China's rapid reopening process are offering support to global oil markets right now," Sevens Report Research said.
Traders are "clinging to hopes that consumer demand will rebound during a possible soft landing" for the economy, but "there is still significant downside risk for oil prices" this year, with the potential for oil to hit $60 in the first half of 2023 "if growth begins to meaningfully roll over."
Metals:
Gold prices edged higher early Thursday, maintaining its upward trajectory.
New York Fed President John Williams and Fed Gov. Lisa Cook are supporting the argument that the U.S. central bank has two more rate increases and that rates may need to stay higher for some time, Oanda said.
The precious metals looks like it will consolidate until after the coming U.S. inflation report, it added.
Prices for the yellow metal are likely to remain volatile while investors continue to digest the message from the Fed chairman, who "actually stimulated a bumpy ride for the dollar index," said Naeem Aslam, chief market analyst at AvaTrade.
"Many in the market are now anticipating a possibility that it is highly likely that we are going to see more than one interest rate hike of 25 basis points" from the Fed, which means that the dollar index has more room to surge," said Aslam.
"Any strength in the dollar index basically represents a threat for the gold bulls who have been thinking that the glory days for the dollar index are well passed."
However, "if inflation readings do show a better performance, we could see a complete shift in the current narrative," he added.
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Aluminum rose early Thursday in a likely technical rebound after falling more than 1.7% overnight, but gains could be limited by signs of higher inventories.
There has been a surge in LME inventories of the metal in South Korean warehouses, viewed as the preferred storage hub for Russian metal, ING commodities strategists said.
This has spurred concerns about unwanted metal being offloaded to the exchange, the strategists added.
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Chinese iron-ore futures gained in early trade as steel mills increase their purchases, following the recent price decline.
Steel mills were starting to replenish stock after the Lunar New Year break as production has resumed and investors remained optimistic about the commodity's price, said Nanhua Futures Co.
Prices were also being supported by Australian miner BHP's decision to suspend operations at Western Australia's Pilbara region after a worker's death.
TODAY'S TOP HEADLINES
Fed Officials Signal Higher Interest Rates Will Be Needed to Contain Inflation
A senior Federal Reserve official said the economy will need higher borrowing costs for a few years to bring down inflation and prevent price pressures from strengthening.
"We still have some work to do to get interest rates in the right place, " said New York Fed President John Williams at The Wall Street Journal's CFO Network Summit in New York on Wednesday. "We need a sufficiently restrictive stance" of rates, and "we're going to need to maintain that for a few years to make sure we get inflation to 2%."
Finance Chiefs Are Optimistic Any Recession Will Be Short, but Challenges Remain
Finance chiefs are coming into the year grappling with a variety of challenges, from rising interest rates and inflation to managing labor disruptions, pricing and inventory. Yet many have cautiously optimistic outlooks.
While pockets of the economy are weak and highly indebted companies may face financing difficulties and default risks in the current environment, panelists at The Wall Street Journal's CFO Network Summit on Wednesday said companies in healthy sectors should be able to slog through any headwinds.
Turkey's Financial Markets Shudder as Earthquake Economic Costs Mount
Twin earthquakes in Turkey this week have rocked local financial markets and raised concerns about the nation's fragile economy, which is already struggling with high inflation and a reliance on foreign capital.
Stock-market officials suspended trading on Wednesday for five days, until the evening of Feb. 14. The benchmark Borsa Istanbul 100 has fallen 16% this week, with almost half of that decline coming early Wednesday before trading was halted. The country's benchmark borrowing costs have risen by roughly half a percentage point since the earthquakes hit Turkey and northern Syria on Monday.
Siemens Profit Falls, but Electronics Company Raises Outlook for Year
BERLIN-Siemens AG, the German electronics and mobility firm, said net earnings in the first three months of its business year fell, but that it was raising its outlook for the current fiscal year on the back of strong revenue and orders.
The Munich-based industrial and technology company said digital industries and infrastructure businesses, which provide equipment, software and services for factories, buildings, electricity grids, and other infrastructure, made a big contribution to revenue and earnings growth in the company's fiscal first quarter. Siemens's business year ends on Sept. 30.
Hermès Wins Case Against Artist Who Sold NFTs of Birkin Bags
French luxury brand Hermès prevailed in a closely watched intellectual-property trial over an artist who created and sold nonfungible tokens depicting the company's iconic Birkin handbag, a boost for companies seeking to protect their trademarks in the digital realm.
After a weeklong trial, a federal jury in Manhattan on Wednesday awarded Hermès $133,000 in damages from Mason Rothschild, a self-described entrepreneur and artist. While the dollar figure was relatively small, the legal principle was large. The company argued Mr. Rothschild was profiting unlawfully off the goodwill of its sought-after luxury product, with his actions pre-empting the company's ability to offer products and services in virtual marketplaces. Mr. Rothschild in response said he was engaged in artistic expression protected by the First Amendment.
Bayer Hires Former Roche Executive to Succeed CEO Werner Baumann
BERLIN-Bayer AG said it is replacing the company's embattled chief executive, Werner Baumann, with Bill Anderson, a 56-year-old American pharmaceuticals executive.
(MORE TO FOLLOW) Dow Jones Newswires
02-09-23 0015ET
