MARKET WRAPS
Watch For:
EU ECB governing council non-monetary policy meeting; Germany CPI, business climate index; France monthly business survey (goods-producing industries); Italy CPI; trading updates from Fresenius SE, Fresenius Medical Care, Iberdrola, Danone, Pirelli, Sberbank, AngloGold Ashanti, Rio Tinto, Lloyds Banking, Stellantis, Wolters Kluwer, British American Tobacco
Opening Call:
Shares could head lower in Europe on interest-rate concerns. In Asia, stock benchmarks fell; Treasury yields mostly dropped; the dollar softened; oil declined while gold advanced.
Equities:
European stocks are poised for a retreat on Wednesday amid growing concerns the Federal Reserve will keep interest rates higher for longer.
Stock-market bulls who see recession as off the table and await the next leg of the rally are setting themselves up for disappointment as the fallout from the Fed's monetary tightening is "still ahead of us," according to JPMorgan Chase & Co.
It is premature for stock-market investors to believe that the pain to the economy from tighter monetary policy is already behind us or well-absorbed, as the impact of interest-rate hikes typically feed through to the economy with a lag of between one to two years, JPMorgan said.
Traders continue to nudge up expectations for the peak in the fed-funds rate, with a few traders now penciling in a peak near 6%. Overall, traders have only recently come around to the Fed's expectation for the fed-funds rate to peak just above 5%.
"While the stock market has staged an impressive rebound so far this year, markets are still trying to adjust to the reality that the Fed is unlikely to pivot and is instead still focused on fighting inflation, which suggests that investors should be prepared for interest rates to stay higher for longer," said BMO Family Office in Minneapolis.
"Wednesday's FOMC minutes report is bound to reveal a closer look into the Fed's thinking, especially given the recently released inflation and jobs numbers, which are still elevated and illustrative of a hot economy, " it said.
Minutes of the Fed's Jan. 31-Feb. 1 policy meeting will be published on Wednesday 2 p.m. Eastern.
Forex:
The dollar weakened in Asia amid risk-off sentiment.
There is risk aversion regarding U.S. rate increases, MUFG Bank said.
Analysts expect the Fed's policy to remain tighter than other central banks' due to a resilient economy and inflation in the U.S.
Geopolitical concerns are also increasing after Russian President Vladimir Putin said Moscow would step back from the last remaining major nuclear-arms-control treaty between the U.S. and Russia.
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Sterling may remain close to current levels against the euro for now but looks set to rise slightly in coming months, Danske Bank said.
"In the very near-term, we expect EUR outperformance and lower energy prices to keep EUR/GBP close to current levels," Danske said.
"Further out, we remain cautiously optimistic that [EUR/GBP] will head modestly lower as a global growth slowdown and the relative appeal of U.K. assets to investors are a positive for GBP relative to EUR."
Bonds:
Treasury yields broadly declined after jumping to new multiyear highs on Tuesday, as traders returned from the extended Presidents Day weekend and priced in expectations for higher-for-longer U.S. interest rates this year.
Amid heightened sensitivity to the prospect of a return to jumbo-size rate hikes, traders see a growing, though still very slim, chance that the Fed's benchmark rate target could climb toward 6% by July.
On Tuesday, traders were pricing in a 76% probability that the Fed will raise interest rates by another quarter-of-a percentage-point to between 4.75% to 5% on March 22, and a 24% chance of a bigger half-point move, according to the CME FedWatch tool.
The central bank is mostly expected to take its fed-funds rate target to between 5.25% and 5.5% - or higher - by September, according to 30-day fed funds futures.
A "no landing" is not an option for the Fed, SPI Asset Management said.
"While most anticipate that the Fed will continue in 25bp increments and that the bar for returning to a 50bp pace is high, it is not insurmountable. Indeed, if U.S. economic data continues to run hot, it would likely make for a more compelling case for returning briefly to a larger incremental rate hike regime," it added.
Energy:
Oil weakened in Asia. Crude prices appear to be struggling, weighed by renewed concerns about global growth, following soft European manufacturing-activity data and a surge in global bond yields, Oanda said.
"Central banks globally are about to take policy into even more restrictive levels and that is countering China's reopening momentum," it added.
Market focus will also remain on the coming release of minutes from the Fed's latest meeting, ANZ said, adding that further rate increases could damp oil demand.
The rise in both the U.S. dollar and short-duration Treasury yields stoked concerns about the Fed crushing the economy with "too-aggressive policy decisions this year," according to Sevens Report Research.
"From a demand standpoint, recessions are clearly not a positive situation for consumption of refined products," it said.
Metals:
Gold edged higher. The U.S. dollar will likely remain the main driver of gold prices, given that the rise and fall in gold futures have broadly tracked in line with the inverse movements in the greenback and U.S. 10-year real yields, said CBA.
"The U.S. dollar will eventually give up its recent gains as the U.S. economy faces more strain from interest rate rises," it said, adding that a weaker dollar should help gold prices rise from current levels.
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Aluminum fell amid Fed tightening concerns, but further losses could be limited.
Aluminum is Citi Research's preferred bullish metal exposure across the metals complex over the next three months.
There are some upside risks for the industrial metal, including the possibility of sanctions on Russia affecting supply and El Niño risks to worsen China's supply situation, Citi said.
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Chinese iron-ore futures edged lower, retreating from Tuesday's gains.
"The supply and demand pattern of the market is healthy, and steel mills' resumption of production continues to lift the demand of iron ore, " Baocheng Futures said.
The analysts expect the price of the ferrous metal to remain strong for a while.
TODAY'S TOP HEADLINES
China's Xi Jinping Plans Russia Visit as Putin Wages War in Ukraine
HONG KONG-Chinese leader Xi Jinping is preparing to visit Moscow for a summit with Russia's president in the coming months, according to people familiar with the plan, as Vladimir Putin wages war in Ukraine and portrays himself as a standard-bearer against a U.S.-led global order.
Beijing says it wants to play a more active role aimed at ending the conflict, and the people familiar with Mr. Xi's trip plans said a meeting with Mr. Putin would be part of a push for multiparty peace talks and allow China to reiterate its calls that nuclear weapons not be used.
Chesapeake to Sell Shale Oil Assets to British Chemical Maker Ineos for $1.4 Billion
Chesapeake Energy Corp. said Tuesday that it has sold oil assets to a division of U.K. chemical maker Ineos Group AG for $1.4 billion.
The deal involves oil assets in the northern part of the Eagle Ford shale basin in South Texas. The sale marks the first foray of Ineos, one of the world's largest chemical producers, into U.S. oil and gas production, Ineos said in a news release.
Louis Vuitton Pressured to Pull Ads With Joan Mitchell Paintings
PARIS-The Joan Mitchell Foundation has sent Louis Vuitton a letter demanding it pull handbag advertisements featuring paintings by the late American artist, saying the ad campaign was shot without the foundation's permission.
The cease-and-desist letter-which was sent Tuesday by the foundation's lawyers to Louis Vuitton CEO Pietro Beccari and reviewed by The Wall Street Journal-alleges that Louis Vuitton illegally reproduced and used at least three works by artist Joan Mitchell for the promotion of its commercial goods.
Credit Suisse Chairman's Comments on Outflows Scrutinized by Regulators
Swiss regulators are reviewing comments made by Credit Suisse Group AG's chairman that were meant to reassure investors about the pace of customer outflows, according to people familiar with the matter.
Reports of the probe sent the Swiss bank's shares down 4% to 2.66 Swiss francs, their lowest closing level since at least 1985, according to FactSet.
Russia, China Challenge U.S.-Led World Order
A series of high-profile events on the international stage has laid bare the perilous state of great-power relations as Russia and China challenge the U.S.-led global order and raised the prospect that they could deteriorate further.
Russian President Vladimir Putin said Tuesday that Russia would suspend its participation in the last remaining nuclear-arms treaty between Moscow and Washington, a vestige of the security architecture that has helped keep the peace for decades.
Microsoft Softens Limits on Bing After User Requests
Microsoft Corp. said Tuesday it is loosening some caps it introduced last week on its new Bing search engine after requests from users.
The initial limits unveiled last week came after testers discovered the search engine, which uses the technology behind the viral chatbot ChatGPT, sometimes generated glaring mistakes and disturbing responses. In some cases, the search engine seemed to express anger and love.
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Expected Major Events for Wednesday
06:30/GER: Jan North Rhine Westphalia CPI
07:00/GER: Jan CPI
07:00/NOR: 4Q Labour Cost Index - preliminary figures
07:00/DEN: Jan Central Government Finance & Debt
07:00/DEN: 4Q Labour force survey
07:45/FRA: Feb Monthly business survey (goods-producing industries)
09:00/GER: Jan Bavaria CPI
09:00/GER: Jan Brandenburg CPI
(MORE TO FOLLOW) Dow Jones Newswires
02-22-23 0015ET
