MARKET WRAPS
Stocks:
European stocks traded lower on Wednesday as investors continued to digest Jerome Powell's hawkish comments, and as they awaited his second testimony.
Swissquote Bank said that "the next few data points will be VERY important in cementing the expectation of a 50bp hike at the March 21-22 FOMC meeting."
"If the fresh data doesn't go where the Fed wants to see them, bigger rate hikes will be on the menu, and hope of soft-landing and easy disinflation could fade away."
Stocks to Watch
John Wood Group's confirmation of a fourth cash offer proposal which is 3% higher than the previous one suggests serious intent by acquirer Apollo Global Management, Jefferies said.
The U.S. bank cut its rating on the engineering and consulting company to hold from buy, seeing valuation risk reward played out, and raised its target price to 237 pence to meet the latest offer price.
"We read a softening of language in the board's response suggesting the parties are closer in terms of value expectation," Jefferies said, pointing to the board's statement that it is "minded to reject" the offer compared with its response to the previous 230 pence a share offer which it "unanimously rejected".
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The outlook for Vestas is becoming brighter, but muted margin guidance for 2023 suggests that the company is not out of the woods yet, Berenberg said.
Average selling prices are sharply higher for new orders while the outlook for new orders appears materially better, underpinned by the U.S. Inflation Reduction Act and rising urgency to build more renewables in Europe, the bank said.
However, significant uncertainty regarding some cost headwinds leaves the extent of the margin recovery uncertain over the coming 2-3 years, it added.
Berenberg maintained its hold rating and lifted its price target to DKK225 from DKK200.
U.S. Markets:
Stock futures hovered close to flat, while government bonds continued to sell off, ahead of more congressional testimony by Powell and new data on the labor market.
Data due today includes the ADP's national employment report, followed by the JOLTS job openings.
A high ADP number would prompt discussions about whether the labor market remained very hot, Legal & General Investment Management said.
"There's this growing concern about a 'no landing' scenario, effectively where it turns out that the Fed and other central banks have just not done anywhere near enough," it added.
Forex:
The dollar was slightly higher in early trading, adding to Tuesday's post-Powell gains, and ING said it's risky to bet the currency has peaked.
ING said EUR/USD could fall below 1.0500 ahead of Friday's jobs data due to elevated volatility and deteriorating market sentiment.
"Such a break lower would however continue to mirror primarily dollar strength as opposed to a lack of faith in the euro's fundamentals," ING added.
The euro currently lacks catalysts to fight dollar strength in the absence of any market-moving eurozone data.
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Sterling could extend its recent fall against the euro following a deterioration in sentiment after Jerome Powell warned of higher interest rates and due to the euro's better fundamentals, ING said.
EUR/GBP faces "upside risks" every time the Fed signals higher rates because sterling is more sensitive to risk sentiment, ING added.
Incidentally, the euro looks more attractive than sterling due to rising European Central Bank rate expectations and a more encouraging domestic outlook, it said.
Bonds:
While the yields of shorter-dated German Bunds and U.S. Treasuries still haven't really reached their highs, letting the inversion of the two bond curves continue, prominent intermediate highs in the 10-year maturity are shaping , Metzler said.
Although the inflation surprises have once again caused longer yields to rise significantly, they are reaching marks that are no longer easily exceeded, at least in the long term , Metzler added.
Should yields be able to hold at these levels, Metzler believes this development will create good conditions for a much more pronounced countermovement as soon as the expected decline in inflation rates materializes.
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Investors should consider buying Irish government bonds at Thursday's auction versus matching French and Belgian government bonds amid widening Irish spreads, Danske Bank said.
Ireland's National Treasury Management Agency will auction EUR1 billion-EUR1.25 billion in 2032- and 2037-dated bonds tomorrow.
"We have seen a modest widening of the spread between Irish government bonds and France/Belgium in the 10Y to 15Y segment... which is a bit of a surprise as Ireland has a modest issuance target for 2023 and public finances are continuing along the strong positive path of 2022," Danske said.
In an other trade idea, the bank recommends investors selling 5-7-year Irish bonds and buying either bond on offer at the auction.
Energy:
Oil prices retreated, giving up minor gains in Asia, as hawkish comments from Jerome Powell weighed on sentiment.
Powell's comments mean oil is "snared between misaligned macro drivers--a more robust China outlook versus hawkish Fed," SPI Asset Management said.
U.K. Energy
A cold spell forced the U.K. to resort to backup coal power for the first time yesterday.
The U.K.'s National Grid ESO said two coal units at an EDF-controlled plant had helped it meet peak evening demand. Low wind has sapped the effectiveness of the nation's wind turbines just as a cold spell hit the U.K.
The coal units were only active for a short time and the amount of power provided was small, National Grid said, and added coal provided 0.8% of the U.K's energy yesterday.
Temperatures in London were expected to be 1.8 degrees Celsius Wednesday, nearly 6 degrees lower than average for early March, according to Maxar WeatherDesk.
Metals:
Base metals and gold prices were lower following Jerome Powell's hawkish testimony.
Markets are pricing in four interest-rate hikes, with a terminal rate of 5.7%, Peak Trading Research said.
"This hawkish shift in interest-rate expectations has strengthened the U.S. dollar, a structural headwind for our commodity markets."
DOW JONES NEWSPLUS
EMEA HEADLINES
German Industrial Production Rose in January by Largest Jump Since June 2020
Germany's industrial production rose in January by the biggest monthly increase since June 2020, suggesting resilience in the country's factory sector at the start of the new year despite continued economic uncertainty.
Industrial output-comprising production in manufacturing, energy and construction-increased by 3.5% in January, more than expected, after falling by a revised 2.4% in December, data from the German statistics office Destatis showed Wednesday.
UK, Swiss Regulators Probe Fragrance Market
LATEST: Fragrance Companies Could Face Fines of Up to 10% of Global Sales
0850 GMT - Fragrance companies could face fines of up to around 10% of their global turnover if evidence of wrongdoing is found in probes launched by the EU, U.K. and Swiss antitrust regulators, Citi analysts say in a research note. The U.K.'s Competition and Markets Authority and the Swiss Competition Commission mentioned Firmenich International, Givaudan, International Flavors & Fragrances and Symrise as being under investigation. "The impact is yet unclear given a lack of clarity around which particular products are being explored however, at the group level, could be in the low single digit percentage mark," Citi says. The outcome of the probes could take several months if not years, Citi says. Shares in Symrise and Givaudan fall 3.5% and 2.8%, respectively. (adria.calatayud@dowjones.com)
Thales's Shares Weighed Down by Cash Flow Guidance
Shares of Thales SA slipped in Wednesday morning trading after the French aerospace-and-defense company set weaker-than-expected cash flow guidance for the year, despite raising its dividend on higher earnings and sales for 2022.
At 0850 GMT, Thales shares were 3.2% lower at EUR128.35.
Adidas Slashes Dividend as Problems Mount
HERZOGENAURACH, Germany-A slump in China and a $6 billion mountain of unsold products are among the challenges facing Adidas AG after a bruising 2022 in which it dumped its chief executive and ended a partnership with rapper Kanye West.
The German sportswear giant's revenue increased 6% last year to 22.5 billion euros, equivalent to $23.7 billion, while its net profit fell 83% to EUR254 million. For the fourth quarter, Adidas slumped to a EUR482 million loss and slashed its dividend. The results out Wednesday largely confirmed preliminary figures from the company's profits warning in February.
Continental 2022 Profit Plunged; Expects Higher Sales, Earnings in 2023
Continental AG said that its 2022 performance was hit by material and energy price increases as well as the semiconductor shortage, but it foresees higher sales and earnings in the current year.
The German car-parts supplier on Wednesday reported net profit of 66.6 million euros ($70.8 million) in the full year compared with EUR1.44 billion a year prior.
Casino Eyes $600 Mln From Fresh Sale of Assai Stake
Casino Guichard-Perrachon SA is considering selling more of its stake in Brazilian cash-and-carry business Assai as it works to reduce its debt.
The French grocer is aiming to bring in around $600 million from a fresh stake sale in order to accelerate its deleveraging, it said late Tuesday.
Legal & General 2022 Operating Profit Beats Views
Legal & General Group PLC on Wednesday posted an operating profit beat for 2022 and said it is highly confident in its strategy to continue to deliver growth.
(MORE TO FOLLOW) Dow Jones Newswires
03-08-23 0623ET
