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EMEA Morning Briefing: Stocks to Rise After Wall Street Comeback

01/25/2022 | 12:37am EDT

MARKET WRAPS

Watch For:

UK Public sector finances; ECOFIN's Le Maire appears at European Parliament Committee on Economic and Monetary Affairs; Germany Ifo Business Climate Index; U.S. Federal Open Market Committee meeting; updates from LVMH, Alstom, Remy Cointreau, Tod's Group.

Opening Call:

European stocks could open higher, while Asia suffers sharp losses and U.S. stock futures come under pressure. The U.S. dollar strengthens. Oil rises, gold is little changed.

Equities:

European stocks are set to open higher following a volatile day on Wall Street. Inflation-fighting measures from the Federal Reserve and the possibility of conflict between Russia and Ukraine are overhanging markets.

U.S. markets whipsawed Monday, with the Nasdaq Composite declining as much as 4.9% before rallying to close 0.6% higher. The S&P 500 and Dow Jones Industrial Average also staged similar comebacks.

Early Tuesday, futures on key indexes fell, suggesting U.S. markets could come under fresh pressure on Tuesday after starting the week with a roller-coaster trading session.

Market volatility has picked up in recent sessions, as investors have grown anxious about how rapidly the Federal Reserve will act to combat inflation by raising interest rates and shrinking its balance sheet.

"We're in this wait-and-see mode, which is almost the most uncomfortable place to be, so I think the market is really grappling with that," said Lindsey Bell, chief markets and money strategist at Ally Invest.

The market is waiting to hear from chair Jerome Powell Wednesday after Fed policymakers conclude a two-day meeting and offer their latest thinking on the economy and interest rates.

In Asia, shares skidded Tuesday. Major decliners included the technology and telecoms giant SoftBank which fell 3.7%, and Sony, the electronics and entertainment conglomerate, which dropped 2.5%.

Hong Kong's Hang Seng Index dropped, with the banks HSBC and Standard Chartered both losing roughly 3%.

"The surprise turnaround in U.S. market does not seem to provide any relief into Asia's session today," said Yeap Jun Rong, market strategist at IG.

Forex:

The U.S. dollar strengthened broadly, including slight firming against the euro and yen, as stocks sell off and investors look for safer assets. The dollar had a lackluster week last week, JPMorgan said, "with neither an extension in US real yields nor a pullback in US equities lending a great deal of support."

The firm continues: "Positioning, a broadening spectrum of hawkish central banks vs. the Fed, and some stabilization in global growth expectations all look like plausible near-term USD headwinds. But the risk of earlier/faster USD liquidity withdrawal from the Fed, or an accelerated pace of hikes that can serve to lift pricing of the terminal rate, suggests it is too early to discount completely the potential for a rates-led USD rebound this year."

Deutsche Bank raises its year-end forecast for the euro-dollar exchange rate as it expects the European Central Bank to raise interest rates earlier than previously anticipated.

The German bank expects EUR/USD to end 2022 at 1.15, compared to its previous forecast of 1.08, and sees it rising to 1.20 by end-2023, to 1.25 by end-2024 and 1.30 by end-2025. EUR/USD last trades at 1.1311.

"We now expect the ECB to initiate policy rate liftoff with a 25 basis points hike in December 2022 (previous view: +10 basis points in December 2023)," Deutsche Bank analysts said.

"After the latest upgrading of our HICP inflation forecasts, the ECB's 'triple lock' liftoff criteria are set to be met earlier than previously anticipated."

The JPY strengthened against most G-10 and Asian currencies in early Asian trade as continuing concerns over Fed tightening and rising geopolitical tensions boost the safe-haven allure of the Japanese currency.

Prospects of a Fed rate-increase cycle and balance-sheet reduction to tackle inflation is rattling markets, Phillip Securities Research said, adding that escalating U.S.-Russia tensions over Ukraine has encouraged demand for havens.

Bonds:

The yield on the benchmark 10-year U.S. Treasury note rose was fell 0.01 percentage point to 1.76%.

The Federal Reserve will put its likely March rate rise in play with new language on the job market's state of affairs, according to Oxford Economics' Kathy Bostjancic.

"The FOMC should alter its forward guidance in the policy statement to reflect their view that the labor market has now reached maximum employment--given the disappointingly slow rebound in labor force participation," she said, adding "this will indicate that policymakers are poised to imminently raise the Fed funds target range."

Over recent weeks, some Fed officials said full employment is here for now, at least until labor-force participation rates start to improve, which they see as a longer-run possibility. St. Louis Fed leader James Bullard noted in a recent interview that he sees the jobless rate under 3% by year's end.

Energy:

Oil rose in early Asian trading amid signs of market tightness, with rising uncertainties around Russia-Ukraine tensions also supporting prices, ING said.

The bank said capacity constraints and other production issues among OPEC+ producers may mean supplies could increase at a slower pace than the agreed monthly increment of 400 million barrels a day.

Citing Commodity Futures Trading Commission data, ING noted that traders have increased their net long positions in WTI over the previous week, reflecting demand optimism.

Metals:

Gold was little changed in early Asian trade, although prices of the precious metal may find support from rising ETF inflows amid rising geopolitical risks. Inflows into gold backed ETFs continue to surge thanks largely to the metal's draw as a safe-haven asset, ANZ said.

"A laundry list of geopolitical risks will likely lead to safe-haven flows for gold that should help it soon break above the $1,850 level," Oanda said. Spot gold is flitting between positive and negative and was last flat.

Nickel was lower in early trade after top producer Tsingshan Holding said it will boost supply for the key battery metal, ANZ said. The Chinese nickel producer recently shipped its first cargo of nickel matte from its Indonesian operations.

ANZ expects nickel prices to remain supported by the surging demand for electric vehicles, as Chinese EV sales rose 35% on month in December. The three-month forward LME nickel contract was 1.4% lower.


TODAY'S TOP HEADLINES

Treasury Wants Banks to Loop in Foreign Affiliates on Suspicious Transactions

The U.S. Treasury Department's Financial Crimes Enforcement Network has proposed a new rule that would allow banks to share so-called suspicious activity reports more readily with foreign affiliates.

The proposed rule, which FinCEN announced Monday, would create a pilot program to allow banks to share SARs with foreign branches and affiliates, a bid to improve financial institutions' ability to counter money laundering. The new program was mandated under the Anti-Money Laundering Act, which came into force in January 2021.


Australia's Core Inflation Rose at Fastest Pace Since 2014

SYDNEY-Australian consumer prices rose by much more than expected in the fourth quarter of 2021, which could set the stage for Australia's first rise in official interest rates in over a decade.

The consumer-price index rose 1.3% in the final three months of 2021, and 3.5% annually, according to the Australian Bureau of Statistics.


Glynn's Take: RBA Set to Entertain Interest Rate Rise in 2022, Exit QE in Feb

SYDNEY-In a significant rethink of the economic outlook, the Reserve Bank of Australia is set to concede that an interest-rate increase is now highly possible by late 2022, but reject money-market bets that it will keep pace with U.S. interest rate increases.

The RBA's first policy meeting for 2022 on Feb. 1 will also see its program of government bond buying wound up entirely, as it publishes revised economic forecasts that include the unemployment rate soon falling below 4.0%, its lowest since the 1970s.


Singapore Central Bank Tightens Policy in Surprise Move

Singapore's central bank on Tuesday unexpectedly tightened its currency policy as a pre-emptive move to stem the inflationary impact of supply-side constraints and rising commodity prices.

In an announcement before its scheduled policy meeting in April, the Monetary Authority of Singapore said it would slightly raise the rate of the Singapore dollar's appreciation against a basket of currencies.


SEC Looks to Bolster Market's Cyber Defenses

WASHINGTON-The Securities and Exchange Commission is exploring ways to improve cybersecurity in capital markets, including by extending compliance obligations to companies that currently don't have to meet them, Chairman Gary Gensler said Monday.

"The economic cost of cyberattacks is estimated to be at least in the billions, and possibly in the trillions, of dollars," Mr. Gensler said in a virtual speech to the Northwestern Pritzker School of Law's annual Securities Regulation Institute conference. "We at the SEC are working to improve the overall cybersecurity posture and resiliency of the financial sector."


Bitcoin Bounces Back After Falling Below $33,000

Bitcoin rallied on Monday afternoon, trading above $37,000, after falling to a seven-month low in the morning, as the cryptocurrency moved in lockstep with a swift rally in risk assets.

Bitcoin was trading at $36,800 at 5 p.m., up, 4.7% on the day, according to CoinDesk. In the morning, it traded below $33,000 for the first time since July. That extended its selloff to a more than 50% loss from its record high of $68,990.90, set on Nov. 10.


Evergrande Asks Overseas Creditors for More Time

China Evergrande Group asked international creditors to give the giant property developer more time to get a grip on its complicated financial situation, and warned that drastic legal action could be destabilizing.

(MORE TO FOLLOW) Dow Jones Newswires

01-25-22 0036ET

Stocks mentioned in the article
ChangeLast1st jan.
ALSTOM 0.33% 24.04 Real-time Quote.-23.25%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.11% 0.66723 Delayed Quote.4.29%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.49% 0.7093 Delayed Quote.-3.14%
BITCOIN (BTC/EUR) 2.83% 28640.1 End-of-day quote.-31.86%
BITCOIN (BTC/USD) 3.13% 30331.7 End-of-day quote.-36.46%
BRITISH POUND / EURO (GBP/EUR) -0.21% 1.18041 Delayed Quote.-0.63%
BRITISH POUND / US DOLLAR (GBP/USD) 0.40% 1.25516 Delayed Quote.-7.70%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.47% 0.734851 Delayed Quote.5.94%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.18% 0.78102 Delayed Quote.-1.59%
CHINA EVERGRANDE GROUP 8.55% 1.65 End-of-day quote.3.77%
DEUTSCHE BANK AG 3.67% 9.71 Delayed Quote.-15.03%
DJ INDUSTRIAL 0.03% 31261.9 Real-time Quote.-13.99%
EURO / US DOLLAR (EUR/USD) 0.62% 1.06328 Delayed Quote.-7.23%
HANG SENG -1.19% 20470.06 Delayed Quote.-11.46%
HSBC HOLDINGS PLC 0.40% 492.45 Delayed Quote.9.38%
INDIAN RUPEE / EURO (INR/EUR) 0.10% 0.012156 Delayed Quote.3.10%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.32% 0.012885 Delayed Quote.-4.36%
JPMORGAN CHASE & CO. -0.82% 117.34 Delayed Quote.-25.90%
LONDON BRENT OIL 0.50% 113.01 Delayed Quote.42.93%
LVMH MOËT HENNESSY LOUIS VUITTON SE -0.75% 552.2 Real-time Quote.-23.44%
MSCI SINGAPORE (GDTR) 1.76% 5645.21 Real-time Quote.-11.64%
NASDAQ COMP. -0.30% 11354.62 Real-time Quote.-27.42%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.71% 0.64632 Delayed Quote.-6.31%
NORTHWESTERN CORPORATION -0.62% 60.63 Delayed Quote.6.07%
S&P 500 0.01% 3901.36 Real-time Quote.-18.14%
S&P GSCI CRUDE OIL INDEX 0.84% 609.7773 Real-time Quote.46.63%
SOFTBANK GROUP CORP. 0.84% 5276 Delayed Quote.-3.72%
SONY GROUP CORPORATION -0.65% 11450 Delayed Quote.-20.38%
STANDARD CHARTERED PLC 0.48% 589.4 Delayed Quote.30.82%
STEM, INC. -1.30% 7.59 Delayed Quote.-59.99%
US DOLLAR / EURO (USD/EUR) -0.61% 0.940557 Delayed Quote.7.79%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -4.00% 58.409 Delayed Quote.-17.60%
WTI 0.51% 110.659 Delayed Quote.44.84%
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