MARKET WRAPS
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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
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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.
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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
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02-03-23 0017ET
