MARKET WRAPS

Stocks:

European stocks were struggling for traction on Wednesday as investors await the Federal Reserve's policy decision later today.

"The Fed is expected to raise its interest rates by 25bp today," Swissquote Bank said, "but unlike Canada, the Fed will certainly not announce the end of the tightening cycle today."

Swissquote added that "Jerome Powell will likely point out that inflation remains high, risks to inflation remain to the upside, and that the job is not done yet."

"He will surely push back the expectation of any rate cut this year."

Economic Insight

The ECB is expected to continue to carry out significant interest rate rises in the coming months, bringing the peak deposit rate to 3.5% in the second quarter, Generali Investments said.

"We think that the ECB will walk the hawkish talk from the December meeting and lift the depo rate by 50 basis points in February and March, followed by further hikes to a peak rate of 3.5% in Q2."

Inflation remains still far too high, core inflation is not set to recede lastingly in 2023 and inflation expectations are still above target, Generali said.

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The eurozone economy is likely to grow in 2023 as the scenario of a winter recession has been averted, Generali Investments said.

The eurozone's GDP is expected to expand 0.7% this year, sharply above the 0.2% increase previously expected and the consensus of a broadly stagnating economy, Generali added.

"With the energy disruption risks off, lower energy prices, receding inflation and impulses from Chinese reopening ahead, we see a return to growth."

However, the economy isn't expected to boom either as higher interest rates will take a toll on activity, Generali said, adding that inflation is expected to average 5.5% this year, lower than the 6.0% previously anticipated.

U.S. Markets:

Stock futures wobbled ahead of the Fed's monetary policy decision, earnings from major companies, and a slew of economic data releases.

The 10-year yield declined to 3.482%, from 3.527% Monday.

"It's all about the Fed and what they tell us," Pictet Asset Management said. "The focus is on how the real economy can digest what central banks have done. So all eyes are on the earnings season and what cues we can get on a soft landing."

Earnings ahead include T-Mobile, Peloton, and Altria ahead of the bell. Meta Platforms is due to report after markets close.

Economic data due today include ADP's January employment report, and data on the manufacturing sector and job openings.

Forex:

The euro could rise strongly if the Fed slows the pace of interest rate rises to 25 bps, as expected, and scales back its rate outlook at today's meeting, Tickmill Group said.

The euro would benefit from such a move from the Fed given expectations for the ECB to take a restrictive policy stance at Thursday's meeting, Tickmill said.

The ECB could raise rates 50 bps and signal further such increases to come, it said. "This should help keep EUR/USD well supported near-term."

Read Euro Stays Higher After Eurozone Inflation Data

Read Euro's Reaction to ECB Decision Depends on Rate Signals

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Sterling faces sustained weakness on concerns about the U.K.'s worse economic outlook compared to elsewhere, Commerzbank said.

IMF said Tuesday the U.K. will be the only major economy to shrink this year, which is bad news for sterling, as it's unclear whether this growth gap will be long-term, Commerzbank added.

"If that was the case, we would have to fear that the relation of British to U.S. and European per capita gross domestic product was deteriorating."

The lower the per capita GDP of an economy, the lower the currency is valued, Commerzbank said.

Read Sterling Should Rise if BOE Lifts Rates By 50Bp, Will Fall Sharply on 25Bp Increase

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The dollar traded flat as investors exercised caution ahead of the Fed's policy decision.

"We expect the post-meeting statement to reiterate that further rate rises are likely, while Jerome Powell will likely push back against market expectations for rate cuts this year," Unicredit Research said.

"The more the Fed wrong-foots investors, the greater the impact on the USD will be."

However, it's "extremely difficult" to imagine either another 50bp rate hike or Powell accelerating policy easing, UniCredit added.

Read Dollar Could Fall But Only Briefly if Fed Signals Pause

Bonds:

Bond markets seem confident heading into key data releases, such as eurozone inflation, and the Fed's policy meeting, Commerzbank said.

In particular, French inflation data on Tuesday, coming in line, soothed market concerns after a bounce triggered by the upside surprise in the Spanish inflation data on Monday, Commerzbank said.

As regards the Fed meeting, a 25 basis point interest-rate rise is a foregone conclusion, it added.

Energy:

Oil prices edged higher ahead of the Fed meeting and an OPEC+ panel.

While both meetings have the potential to move the oil market, the likely outcomes have been well flagged ahead of Wednesday.

The OPEC+ panel is largely expected to recommend keeping output levels unchanged while the Fed is broadly seen raising interest rates by half a percentage point.

The OPEC+ meeting will not consist of all the group members and so is unlikely to see a big change in policy, ING said.

"The meeting could shed some more light on how the group sees the outlook evolving in the months ahead."

Metals:

Base metal prices were slipping ahead of today's Fed decision on interest rates, with the market largely expecting a 25 basis-point hike.

The market is entering a pivotal spot for risk markets, with the Fed able to set the tone for the months ahead, SPI Asset Management said.

While the market is widely expecting a 25bp hike, a less hawkish outcome would be welcomed by investors, SPI added.

Read Barron's Gold Is Gaining Ground. Here's How to Play It.

DOW JONES NEWSPLUS


EMEA HEADLINES

OPEC+ Ministers Set to Stay the Course on Oil Production Amid China Covid Woes

An OPEC+ panel will likely recommend keeping the group's current oil-production policy unchanged Wednesday, delegates said, amid uncertainties about demand in China and the impact of sanctions on Russian crude supplies.

Maintaining the status quo will allow the Organization of the Petroleum Exporting Countries and a group of producers led by Russia-collectively known as OPEC+-to take more time to assess consumption data from China, the world's biggest oil importer, and determine how a resurgence of Covid-19 cases there and European Union sanctions on Moscow have affected demand.


Eurozone Inflation Eases for Third Month as ECB Rate Rises Bite

The eurozone's annual rate of inflation fell for the third-straight month in January as energy prices continued to pull back from recent peaks-a slide that is unlikely to deter the European Central Bank from raising interest rates further this week.

Russia's invasion of Ukraine pushed energy prices and eurozone inflation sharply higher through much of last year, but warmer-than-usual temperatures, high natural-gas storage levels across Europe and various government programs to cap energy prices started to reverse that move as 2022 drew to a close.


Eurozone Unemployment Rate Stabilized in December, Signaling Labor-Market Resilience

The eurozone's unemployment rate held up at its record low in December, highlighting the strength of the labor market at the end of the year even as the economy lost steam.

The eurozone unemployment rate was 6.6% in December, unchanged from November, according to data from the European Union's statistics agency Eurostat released Wednesday. This is the lowest level of the historical series, after October and November unemployment rates were revised to 6.6% from the initially estimated 6.5%.


GSK 4Q Sales and Earnings Rose, Driven by Specialty Medicines, Vaccines - Update

GSK PLC on Wednesday posted rising earnings and sales for the fourth quarter, which the company said were boosted by its specialty medicines and vaccines businesses.

The British pharma major reported net profit of 1.50 billion pounds ($1.85 billion) in the fourth quarter, up from GBP749 million for the same quarter of 2021, on sales that grew to GBP7.33 billion from GBP7.08 billion.


Novartis Lifts Dividend Despite 4Q Sales, Profit Decline

Novartis AG on Wednesday posted lower sales and profit as it took a hit from generic medicines competition and higher restructuring costs, but increased its dividend for 2022.

The Swiss pharma major posted net profit of $1.47 billion, down from $16.31 billion the year prior, when it benefited from the sale of its investment in Roche Holding AG. Sales declined to $12.69 billion from $13.23 billion in the fourth quarter of 2021 due to price erosion and negative impact from generic drug competition, the company said.


Vodafone Says It Is on Track to Meet FY 2023 Guidance After 3Q Total Revenue Fell Slightly

Vodafone Group PLC said Wednesday that third-quarter total revenue fell slightly on year and that it is on track to meet its updated fiscal 2023 guidance.

The U.K.-based telecommunications company said group service revenue growth for the period ended Dec. 31 was 1.8% on an organic basis compared with 2.7% a year earlier.


Ukraine Denounces Western Executives at Russian Companies

Ukraine is ratcheting up pressure on Western executives who have retained posts at Russian companies, saying their presence is indirectly supporting Moscow's war effort.

Many Western executives cut ties with Russia after it invaded Ukraine last year, sometimes in opposition to the war or to comply with Western sanctions. Others remained for various reasons, including saying they had a fiduciary duty to their investors, a responsibility to local employees or yearslong ties to Russia that were hard to break.


Ukraine Braces for Major Russian Offensive

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02-01-23 0624ET