MARKET WRAPS

Stocks:

European stocks traded lower on Friday, as strong U.S. macro and inflation data have undercut the idea that the Federal Reserve is nearly done raising rates.

"With the Fed hawks starting to float a 50 bp hike in March and the market warming up to that idea, U.S. economic data and the Fed response to higher inflation signals will be spaces to watch going forward," SPI Asset Management said.

Stocks to Watch

Pernod Ricard's sales growth is likely to slow in fiscal 2H amid trend normalization and less of a pricing boost, Bryan Garnier said.

The French distiller booked 12% organic sales growth in the fiscal half-year to Dec. 31 but didn't specify quantitative guidance for its 2H top line, saying only that it expects "dynamic" growth in a normalizing environment.

This should mean growth of around 8% in 2H and 10% for the year, with a stable margin as lower cost inflation is offset by higher marketing spend, BG said.

BG raised its target price on the stock to EUR215 from EUR210, keeping a buy rating.

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Ubisoft posted lower net bookings for its fiscal third quarter, though the closely watched metric came above consensus forecasts, Citi said.

The maker of the 'Assassin's Creed' videogame series posted net bookings of EUR726.9 million for the three months ended Dec. 31, in line with company guidance of around EUR725 million.

The figure is below Citi's EUR728 million forecast, but above consensus of EUR723 million, Citi said.

"We take some comfort from the relatively robust performance of Rainbow Six and it is good to get confirmation both of the 2023E and 2024E financial guidance targets."

Read Ubisoft's Commentary on Established Brands Seen as Comforting

Economic Insight

The Fed and the European Central Bank are expected to raise interest rates beyond May with the ECB deposit rate reaching a plateau at 3.5% and Fed rates peaking at 5.5% in June, Commerzbank said.

It raised its forecast for eurozone core inflation to 5% from 4.5% in 2023 with a peak at 5.6% in June, and rates still above 4% at year-end.

"Even though headline inflation looks set to fall swiftly thanks to lower energy prices and massive base effects, the central bank focus needs to be on the core measures and wages."

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Swedish CPIF inflation probably peaked in December, and Nordea thinks CPIF excluding energy also hit its highest reading by the end of 2022, but that call is more uncertain, the bank said.

That said, Nordea expects inflation to drop substantially during the course of 2023, but it will probably take a couple of months before the on-year figures start to decline more markedly.

"The January reading is associated with unusually high uncertainty, so be prepared for surprises," Nordea said.

It expects the Riksbank to hike rates by 25 basis points in April and to stay on hold during the remainder of 2023, but says risks are clearly tilted to more rate hikes.

U.S. Markets:

Stocks were poised for losses as investors amped up bets on how far the Fed will raise interest rates in the coming months.

The yield on 10-year notes rose to 3.904% from 3.842% Thursday. Ten-year yields haven't closed above 3.9% since early November.

The economic calendar includes two more Fed officials, Richmond Fed President Tom Barkin and Fed Gov. Michelle Bowman, ahead of the three-day weekend in observance of Presidents Day on Monday.

Forex:

The euro fell against the dollar after more cautious remarks from ECB members came in contrast to comments from Fed officials about the need for decisive interest rate rises.

"It is clear that the faster than expected decline in inflation in the eurozone has encouraged some ECB Governing Council members to speak more forcefully on the dangers of over-tightening," MUFG said, noting remarks from Yannis Stournaras, Philip Lane and Fabio Panetta yesterday.

In contrast, Fed officials Loretta Mester and James Bullard said yesterday the Fed should have raised rates more aggressively early this month.

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Sterling fell after Bank of England's Huw Pill suggested the central bank could slow the pace of interest rate rises.

Speaking at the Warwick Think Tank yesterday, Pill said there's a risk of excessive monetary policy tightening if the pace of rate rises over the past few months is maintained.

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The dollar rose as further signs of stubborn U.S. inflationary pressures and remarks from Fed officials fuel expectations for continued interest-rate rises.

"The odds for a 50 basis points hike at the March Fed meeting stand now around 18%, whereas this probability was just around 9% at the start of this week," Swissquote Bank said.

Read Dollar May Stay Higher on Prospect of Further Hawkish Fed Remarks

Bonds:

The long end of European curves may initiate a steepening trend between spring and summer, which would be consistent with the ECB reaching its terminal rate in July, or possibly in September at the latest, Societe Generale said.

The yield curve typically reaches its most inverted level at around the last interest-rate rise by the central bank, SG said, adding that the long-end segments of the bond curve are typically first to steepen, while the front-end segments tend to lag.

"Lower rates volatility is already arguing for long-end steepening, but ECB terminal rate pricing has not peaked yet, suggesting it is too early for outright steepeners."

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Commerzbank raised its forecast for the 10-year German Bund yield, seeing it at 2.6% by mid-year compared with its previous forecast of 2.4%.

The Bund yield could peak slightly higher during the second quarter, falling back to 2% by year-end, Commerzbank said.

"The general profile of our yield forecasts remains unchanged with higher yields during 1H and lower yields by year-end, albeit at somewhat higher levels."

Meanwhile, Citi expects the Bund to average at 2.55% in the second quarter, compared with its previous projection 2.65%.

In the current quarter, the Bund yield should average at 2.40%, down from the previous forecast of 2.55%.

"We make 2.55% the average forecast for Q2, which allows for the potential for a further bearish overshoot on data strength, but ultimately arguing that a sustained shift higher is unlikely and to reflect our neutral stance," Citi said.

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Natixis Investment Managers sees it appropriate to start extending portfolio duration, namely in the U.S., it said.

In Europe, Natixis IM looks for better entry points, it said.

"Although we are increasing duration in diversified portfolios, we remain underexposed to European short-dated government bonds.".

"Investment-grade markets should offer opportunities as growth is not expected to suffer anywhere near what we have feared some months ago," but high-yield bonds remain less attractive on a relative basis as the risk of seeing default rates picking up does not compensate at current levels, Natixis said.

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Read Sweden Expected to Leave Bond Issuance Target Unchanged

Energy:

Oil fell around 2% as U.S. economic data added to fears about interest rates and a recession.

"Oil prices are trading lower because Fed hike fears keep the U.S. economy in a recession's shadow," SPI Asset Management said.

Metals:

Base metals and gold prices were falling in early trading, with a hawkish outlook from the Fed supporting the dollar and pressuring risk assets like commodities.

"Markets took a knock over the last 24 hours, with rates rising and equities selling off thanks to strong inflation data and hawkish central bank rhetoric, as some Fed officials even floated the prospect they might resume 50-basis-point hikes," Deutsche Bank said.

DOW JONES NEWSPLUS


EMEA HEADLINES

UK Retail Sales Rebounded in January, Boosted by Sales Promotions

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Retail sales volumes rose 0.5% in January from the previous month, data from the Office for National Statistics showed Friday, beating the 0.2% rise expected from economists polled by The Wall Street Journal.


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The U.K. bank posted a pretax profit of GBP1.43 billion for the three months to Dec. 31 compared with GBP543 million for the fourth quarter of 2021, against the GBP1.40 billion expected in a company-compiled consensus.


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Air France-KLM will continue to invest in new-generation aircraft after swinging to a profit and booking record revenue in the fourth quarter amid a surge in demand for air travel after years of restrictions and border closures.

The Franco-Dutch carrier group on Friday posted a net profit of 496 million euros ($529.3 million) compared with a EUR126 million loss in the fourth quarter of 2021. For the year, the company reported a profit of EUR728 million compared with a EUR3.29 billion loss in 2021.


Safran Hikes Dividend After Jump in 2022 Revenue, Operating Profit

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The French aerospace-industry supplier on Friday posted adjusted revenue of 19.04 billion euros ($20.32 billion), up 25% on year in reported terms and up 16% organically.


France's EDF Lost $19 Billion After Nuclear Outages

PARIS-EDF SA lost around $19 billion last year after outages at its nuclear reactors left the state-controlled power company-and much of Western Europe-more exposed to the energy crisis sparked by the war in Ukraine.

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02-17-23 0607ET