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EUROPEAN MIDDAY BRIEFING - Stocks Charge Ahead as Fed Clarity Eyed

01/26/2022 | 05:55am EDT

MARKET WRAPS

Stocks:

European stocks climbed Wednesday, heading for a two-day winning streak, with gains led by financials and the travel sector, as investors looked ahead to the Federal Reserve announcement that is expected to provide clarity on coming interest-rate rises.

Shares have been rocked in recent days by expectations the Fed will embark on a series of rate increases this year to temper heightened inflation. The prospect of a shrinking balance sheet and higher rates has prompted some to sell risky assets, including shares of technology companies that promise future returns, and cryptocurrencies.

Investors are also monitoring rising tensions between Russia and Ukraine that have drawn the focus of NATO allies.

"Today the focus is going to be on the Fed," said Luca Paolini, chief strategist at Pictet Asset Management. "It's more about the tone of the press conference. People may have an expectation that given the market turmoil and the geopolitical tensions the Fed may tone down its rhetoric."

Stocks on the Move:

Major European and U.K. airlines rose sharply after the EU lifted Covid-19 travel restrictions in the bloc following Britain's new guidance for vaccinated passengers.

Airlines have argued that travel restrictions haven't significantly slowed rising case numbers of the Omicron variant in the region.

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Shares in Fresnillo fell 15% after the precious-metals miner reported disappointing fourth-quarter figures, with production missing estimates by 8%-9% for silver and gold, said Jefferies. Guidance was well below consensus estimates too, particularly for silver, Jefferies added.

"Beyond the delay in Juanicipio, announced in December, Fresnillo is citing lower volume of ore at Saucito due to personnel shortages, Covid-related absenteeism and instability caused by increased seismicity in the Jarillas vein," Jefferies said.

Economic Insight:

Oxford Economics' eurozone recovery tracker rose 1.4 points to 80.3 in the two weeks ended Jan. 9, driven by a recovery in mobility due to a rise in movement in workplaces after the holidays.

"We view the reading with a bit of caution, as it may reflect a reflexive rebound following the Christmas dip rather than the start of a steady improvement, as high-frequency data tend to be noisy at the start of the year," Oxford Economics' chief French economist Daniela Ordonez said.

Although Oxford Economics expects the Omicron wave to be sharp but short, health metrics in several countries indicate infections have yet to peak, she says. While the recovery tracker has likely troughed, Ordonez expects it to remain restrained for some weeks.

U.S. Markets:

Stock futures gained ahead of the Fed announcement.

"Trading in U.S. equities remains hectic, unpredictable and full of surprises," wrote Ipek Ozkardeskaya, Senior Analyst at Swissquote.

"The escalating tensions on the Ukrainian border, Biden threatening Putin with personal sanctions, IMF cutting U.S. and Chinese growth outlooks, combined with hawkish Fed expectations are mostly responsible for the rising volatility and confusion among investors."

Forex:

Concerns over Russia-Ukraine tensions are likely to prevent the euro from rising considerably against the dollar even if the greenback falls after the Fed's policy decision, said ING.

"The implications of forthcoming sanctions to Russia for the EU-Russia relationships [in particular related to the gas supply] are important factors for the EUR's short-term outlook," ING analysts said.

Until these implications become clearer, the euro will "keep feeling the drag" of Russia-Ukraine tensions so a weaker dollar after the Fed's decision wouldn't be enough to significantly lift EUR/USD.

The market has fully priced in a 25bp rate rise by the Fed in March and will be looking for a confirmation of that at today's meeting, but the Fed's hints on the terminal rate for USD could be more of a mover for euro duration, Citi's rates strategists said.

Citi's rates strategists' base case is four interest rate hikes by the Fed in 2022, each for 25 bps. "For euro duration, what perhaps matters more is not what the Fed signals for 2022--where the ECB effectively has closed the hiking window--but if the Fed says anything to prompt a re-pricing of the terminal rate for USD, to which EUR is currently trading with a high beta," Citi said.

Bonds:

Eurozone government bond yields edged higher with the market's focus on the Fed and the likely confirmation of a first interest rate rise in March, analysts said.

"The market will be expecting to see a strong signal from the Fed of a 25bp hike to come in March, with more later on," said Mizuho's rates strategists.

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Inflation fears and some extra yield should spur demand for the U.K. Debt Management Office's planned sale of GBP600 million in the 0.125% March 2051 index-linked gilt, said RBC Capital Markets.

"While the bond does not stand out as particularly cheap compared to its nearest neighbours, there are some signs that a concession has been priced into the sector ahead of today's auction," analysts at the bank said.

This combined with continuing fears of higher inflation should help support the take-down of today's auction. The next index-linked auction will be on March 15.

Commodities:

Oil prices ticked higher in Europe as supply remains tight and tensions continue to linger in Ukraine, with market participants concerned about dwindling spare capacity.

"With OPEC's effective spare capacity razor thin, any given nation's underproduction is increasingly difficult to offset," said TD Securities. It added: "The conflict between Russia and Ukraine and tensions in the Middle East [is] the largest source of supply uncertainty."

Copper rose 1.5% on the LME as traders awaited the conclusion of the Fed meeting for guidance on rate rises, with TD Securities saying "a growing cohort of participants [are] hoping the Fed will manage to provide a soothing tone for markets."

TD Securities said that with the central bank's stated goal to dampen inflation, "it's unlikely the Fed will pivot from its plan to start hiking rates as soon as March."

Investors who bet on gold ahead of the recent market turmoil are likely pleased to see that the precious metal has held on to recent gains while most other asset classes have suffered. Comex gold futures were down 0.4% Wednesday but have gained almost 1% so far this month.

"With most asset classes losing money in recent days, even standing still is helpful for an investor's portfolio, so gold has still performed its role as a safe haven," said Rupert Rowling, an analyst at Kinesis Money.

After shunning gold exchange-traded funds for months, investors are flocking back to them amid the turbulence in stock markets. The SPDR Gold Shares ETF saw its largest ever inflows of more than $1.6 billion on Friday, according to data from FactSet.

Inflows have continued this week with a further $273 million flowing into the fund on Monday. The sizable inflows coupled with more modest inflows into other, smaller funds means the 17 gold ETFs tracked by FactSet have seen net inflows of $2.35 billion dollars over the past 30 days.

DOW JONES NEWSPLUS


EMEA HEADLINES

Intel Wins EU Antitrust Appeal as Court Annuls $1.2 Billion Fine

BRUSSELS-Intel Corp. won an annulment of a $1.2 billion fine issued by the European Union's antitrust regulator more than a decade ago over allegations the microchip producer had used its commercial power to squeeze out a competitor.

The court's decision is a blow to the European Commission, the bloc's main antitrust regulator, which is seeking to expand its reach through new regulations and a reinterpretation of its existing powers. Lawyers said a ruling in favor of Intel could put a greater burden on the commission in pursuing some antitrust cases.


Vestas Prereleases Earnings, Guidance After Warning of Higher Costs

Vestas Wind Systems AS Wednesday released preliminary 2021 earnings and 2022 guidance after cautioning that the wind power industry continues to be challenged by supply-chain instability which is causing significant cost inflation and delays to projects while visibility and profitability remain severely affected.

The Danish wind-turbine maker posted preliminary full-year revenue of 15.59 billion euros ($17.6 billion) for 2021, within the company's guidance range of EUR15.5 billion-EUR16.5 billion, while pre-items earnings before interest and tax is expected to total EUR461 million, equating to a margin of 3.0%. The company had guided for a margin of around 4.0%.


Lonza Posts Higher 2021 Sales; Confirms Mid-Term Targets

Lonza Group AG on Wednesday posted higher sales for full-year 2021 and reconfirmed its mid-term guidance until 2024.

The Swiss life-sciences company said core earnings before interest, taxes, depreciation and amortization grew to 1.67 billion Swiss francs ($1.82 billion), from CHF1.38 billion the year prior, on sales that grew to CHF5.41 billion from CHF4.51 billion.


Metro Unveils Strategy Through 2030

Metro AG on Wednesday unveiled its strategic targets through 2030, saying it plans to focus on professional customers and expand its multichannel business model.

The German wholesale company said at its capital markets day that it targets total sales to grow at a compound annual rate of 3% to 5% in the 2022-25 period and reach over 40 billion euros ($45.19 billion) by 2030.


Wacker Chemie Posts Increased Profit for 2021

Wacker Chemie AG said Wednesday that profit more than tripled in 2021, citing preliminary figures.

The German chemicals company posted a net profit of 780 million euros ($881.5 million) for 2021 compared with a profit of EUR202 million in the previous year.


EU, U.K. Drop Border Travel Restrictions, Lessening Burden of Flying

LONDON-The European Union is lifting Covid-19 travel restrictions, allowing member countries to do away with quarantine and testing for vaccinated fliers traveling inside the bloc.

(MORE TO FOLLOW) Dow Jones Newswires

01-26-22 0554ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.38% 0.664 Delayed Quote.3.86%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.18% 0.71142 Delayed Quote.-2.40%
BRITISH POUND / EURO (GBP/EUR) 0.16% 1.1698 Delayed Quote.-1.13%
BRITISH POUND / US DOLLAR (GBP/USD) -0.05% 1.25355 Delayed Quote.-7.11%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.28% 0.72864 Delayed Quote.5.14%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.06% 0.78016 Delayed Quote.-1.14%
CECONOMY AG 1.88% 2.714 Delayed Quote.-28.39%
EURO / US DOLLAR (EUR/USD) -0.21% 1.071 Delayed Quote.-6.03%
FRESNILLO PLC 2.43% 818.8 Delayed Quote.-8.29%
GOLD -0.28% 1862.19 Delayed Quote.1.35%
INDIAN RUPEE / EURO (INR/EUR) 0.17% 0.012042 Delayed Quote.2.28%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.05% 0.012901 Delayed Quote.-3.95%
INTEL CORPORATION -0.79% 41.67 Delayed Quote.-19.09%
LONDON BRENT OIL 0.74% 114.83 Delayed Quote.44.68%
LONZA GROUP AG 0.04% 555 Delayed Quote.-27.15%
METRO AG -2.51% 7.775 Delayed Quote.-15.67%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.99% 0.65109 Delayed Quote.-5.73%
S&P GSCI PRECIOUS METALS INDEX -0.19% 2424.32 Real-time Quote.0.55%
SILVER -0.28% 22.03 Delayed Quote.-6.60%
SWISS LIFE HOLDING AG -0.22% 547 Delayed Quote.-1.93%
SWISSQUOTE GROUP HOLDING LTD -3.45% 117.7 Delayed Quote.-39.20%
US DOLLAR / EURO (USD/EUR) 0.21% 0.933707 Delayed Quote.6.42%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.25% 56.5157 Delayed Quote.-21.84%
WACKER CHEMIE AG -0.65% 159.8 Delayed Quote.21.43%
WTI 0.53% 111.05 Delayed Quote.46.38%
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