MARKET WRAPS

Stocks:

European stocks were higher on Thursday, as the mood lightened on the economic outlook for the area, and as traders awaited U.S. GDP figures.

"Following resilient activity data, lower gas prices, easier financial conditions and earlier China reopening, its goodbye recession hello global inflows for the Eurozone franchise as constructive commentary on the outlook for activity remains positive," SPI Asset Management said.

"Investors expect more robust Chinese demand and lower gas prices to support Euro area growth in the coming months," it added.

Stocks to Watch

RWE's preliminary results pointed to a strong performance in 2022 as the company benefited from trading and a flexible coal and gas capacity due to volatile power-market conditions, Citi said.

The energy company expects to report adjusted Ebitda of EUR6.3 billion and adjusted net income of EUR3.2 billion in the year, significantly above its guidance.

Yet, Citi said the hydro, biomass and gas and supply and trading divisions' results are likely to normalize somewhat in 2023, while the key driver of earnings in the current year will be assets with exposure to outright power prices like lignite and offshore.

According to Citi, a major catalyst is set to be guidance for 2023, to be released in March.

Central Banks

BNP Paribas Asset Management expects the European Central Bank to raise policy rates by 50 basis points at each of the next couple of policy meetings, before slowing to a 25bp pace and pausing, taking the deposit rate to 3.25%.

While inflation is still significantly above the ECB's target and underlying inflation is trending higher, downside economic risks have diminished, BNP Paribas AM said.

"We expect the ECB to hold policy rates at restrictive levels for longer than in previous cycles until there is convincing evidence that underlying inflation is slowing to a level consistent with its price stability mandate."

Read ECB Expected to Reiterate December's Message at February Meeting

---

The Bank of England is likely to vote 7-2 to raise interest rates by 50 basis points at its Feb. 2 meeting but the end of its policy tightening cycle is nearing, BNP Paribas said.

"Soon, we expect the Monetary Policy Committee to shift from increasing rates to emphasising that rates will need to stay at elevated levels for a long time in order to bring down underlying inflation."

The fact that the BOE is likely to still project inflation below its 2% target at the end of its forecast horizon despite strong wage growth supports this, BNP said, however, it probably won't cut rates before 2024.

U.S. Markets:

Stock futures edged higher as investors awaited a packed day of economic-data releases and corporate earnings reports.

The yield on the 10-year Treasury note flicked between small gains and losses, and was last at 3.458%, down from 3.461% on Wednesday.

GDP data, durable goods orders and weekly jobless claims are all due today.

The U.S. economy is expected to have grown at an annualized rate of 3.6% in 4Q compared with the previous quarter, more than the 3.2% expansion recorded in 3Q, UniCredit said.

Companies stepping up to the plate include McDonald's, Intel, Comcast, Visa, Dow, Whirlpool, Western Digital, and Northrop Grumman.

Forex:

The euro should remain supported by expectations for the ECB to deliver more aggressive interest rate rises but gains could prove limited in the near term, ING said.

"Investors may struggle to push EUR/USD through the 1.0950-1.1000 area ahead of next week's Federal Reserve and ECB risk events [meetings], though it looks like EUR/USD will stay bid."

The ECB is expected to raise rates 50 basis points in February and March followed by another 40bp over summer, while the Fed is expected to cut rates 50bp in the second half of 2023, ING said.

---

Sterling is at risk of falling as the Bank of England could issue a cautious policy outlook at its next meeting, MUFG Bank said.

The BOE is expected to lift interest rates by 50 basis points at the Feb. 2 meeting but the market is now fully pricing in at least one 25bps rate cut by year-end, it said.

"In light of the increasingly dovish outlook for U.K. rates later this year, market participants are expecting the guidance accompanying next week's rate hike to signal more caution over the need for further hikes."

The meeting poses downside risks for sterling, MUFG said.

---

Fourth-quarter U.S. GDP data at 1330 GMT may be stronger than expected, but that's unlikely to materially move the dollar, Commerzbank said.

The data are backwards looking so probably won't alter expectations that the Federal Reserve will downshift to a 25 basis points interest rate rise on Feb. 1, Commerzbank added.

However, if Thursday's more current U.S. data including initial jobless claims at 1330 GMT confirm that monetary policy tightening is increasingly having an impact on the real economy, "things will remain tough for the dollar," the bank said.

Bonds:

Eurozone government bond yields trade slightly lower but the recent rally might lose steam, Mizuho said.

Developments in the energy markets and the notable fall in gas prices have largely fuelled the rally, while fears of a possible escalation of the war in Ukraine also played a part, it added.

"With the European Central Bank still adamant it will deliver 'significant' hikes, we don't expect EUR rates to hold onto the rally, especially in the very front-end of the curve."

Read Eurozone Government Bond Markets Seen Under Pressure Near Term

---

Euro corporate bond downgrades from investment-grade to high-yield status, also referred to as 'fallen angels', are expected to rise to EUR10-15 billion in 2023 from EUR5 billion in 2022 due to economic slowdown and weaker earnings, UniCredit Research said.

"We expect the earnings season to paint a gradually deteriorating picture of credit fundamentals, [and] are also likely to see more fallen angels in the coming months."

The downgrades will mainly be concentrated in the chemicals, travel and leisure and industrials sectors, according to UniCredit.

Read Euro Credit Spreads Likely to Widen Moderately in 1H 2023

Read High-Yield Bonds to Face Higher Refinancing Costs in 2023

---

The 10-year Italian BTP-German Bund yield spread is too tight, BNP Paribas Asset Management said, expecting eurozone peripheral government bond spreads to widen on the back of the European Central Bank's policy tightening.

"The ECB's intention to bring policy to restrictive levels should bode poorly for peripheral bond spreads."

Heavy bond issuance this year should also cause the BTP-Bund spread to widen, mainly in the first quarter as issuance will be front-loaded, BNP Paribas AM said.

Italy's political risk has receded, while cheap loans and grants from the Next Generation EU pandemic recovery program should improve the country's debt sustainability outlook, it added.

---

Fitch Ratings, which is scheduled to review Greece's 'BB' rating with positive outlook on Friday, is likely to wait with a rating upgrade, Citi said.

Although the fall in gas prices should assuage some of the rating agency concerns, and Citi strategists wouldn't rule out an upgrade to 'BB+', they tend to believe it is too early for such a move.

"We think the agency is likely to wait until the general election, which is due by July," it said.

Energy:

Oil prices were rising as positive sentiment about the global economy - especially for Asian demand - continued to grow.

Analysts are looking to Asia with buying expected to rise after the Lunar New Year.

"Asia is thirsty for crude, but India and China are consuming huge import volumes of Urals for their massive refining systems, leaving more Middle East Barrels on the Market," SPI Asset Management said.

"But given the bullish signals, one can only conclude that investors are waiting for the indisputable proof in the pudding before backing the truck up in the oil markets," SPI added.

Read Barron's Diesel Prices Are Headed Higher. It's Europe's New Ban on Russian Oil.

Metals:

Metal prices were mostly flat in early trading, despite equities and energy prices moving higher, as sentiment over the global economy improves.

DOW JONES NEWSPLUS


EMEA HEADLINES

SAP to Cut 3,000 Jobs After Profit Plunges

BERLIN-Software company SAP SE joined the ranks of tech companies announcing job cuts this year, saying it would shed up to 3,000 positions after a steep profit drop in late 2022.

After growing rapidly at the height of the Covid-19 pandemic, technology companies have been laying off workers mainly in the U.S., with large employers such as Facebook parent Meta Platforms Inc. and Amazon.com Inc. shedding thousands of jobs last year.


Nokia 4Q Profit Beat Forecasts Amid Strong Demand for Networks and Infrastructure

Nokia Corp. on Thursday posted a forecast-beating fourth-quarter net profit as demand for mobile networks and network infrastructure remained strong while demand trends remain solid looking into 2023.

The Finnish telecommunications company said its mobile networks unit delivered 3% growth in the quarter on a constant-currency basis, while the operating margin declined on year as expected due to changes in regional mix.


Volvo 4Q Net Profit Missed as Costs Continued to Rise

STOCKHOLM-Volvo AB on Thursday posted lower-than-expected fourth-quarter earnings as truck demand remained strong in Europe and North America but costs rose sharply and the company booked a write-off of Russian tax assets.

The Swedish truck maker reported net profit of 6.62 billion Swedish kronor ($648.5 million) compared with SEK8.0 billion a year earlier, missing a FactSet consensus forecast of SEK9.05 billion.


STMicroelectronics Shares Jump on Better-Than-Expected Revenue Guidance

(MORE TO FOLLOW) Dow Jones Newswires

01-26-23 0612ET