MARKET WRAPS
Stocks:
European stocks traded higher on Wednesday as investors reacted to a less hawkish-than-feared Jerome Powell.
However, some analysts pondered what Powell's remarks on Tuesday could mean for the path of interest rates.
"Powell has given a clear message that if traders think that the Fed is done with the process of interest rate hikes, then they definitely need to rekindle their expectations as economic data suggests that they can push the curve a lot more," AvaTrade said.
SPI Asset Management said that "for the next little while, the central banks aren't as important as the economic data will be. With markets operating in a macro vacuum today, investors aren't exactly scrambling to put on risk."
Stocks to Watch
High inventories are likely to weigh on Puma's 4Q and full-year results, Warburg Research said.
Like U.S. rival Nike, the German sportswear firm should book strong sales growth for the period, driven by the soccer World Cup and despite declining sales in lockdown-hit China, it added.
But high levels of stock have kept the market promotional, which will weigh on the quarter's gross margin, Warburg said.
While control of operational expenses should balance this somewhat, Puma is still likely to meet only the lower half of its full-year operating-profit target, at some EUR 645 million, according to Warburg's estimates.
The research firm trimmed its price target on the stock to EUR 94 from EUR 96, keeping a buy rating.
European Central Bank
Goldman Sachs Asset Management affirmed its expectation that ECB's deposit rate--which is currently 2.50%--will peak at 3.50% by the summer.
However, the asset manager sees risks as being skewed toward an earlier pause in tightening, it says.
It envisages a 50 basis-point interest-rate rise at the March meeting, matching last week's rate increase, but says that the ECB's assessment of a more balanced inflation outlook leaves the policy outlook more uncertain from the second quarter.
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The ECB's decision to lower the ceiling for remuneration of euro area government deposits to 20 basis points below the euro short-term rate, effective May 1, is less drastic than feared, SEB said.
"Markets were discounting risks of the ECB introducing an even lower rate than [the euro short-term rate] minus 20bps, which would have encouraged governments to move money from deposits to money market instruments that offer a better yield for their cash balances," SEB said.
"As the rate paid for government deposits was reduced only modestly, risks for a worsening squeeze declined and especially short bond yields reacted by jumping higher."
U.S. Markets:
Stock futures edged lower, suggesting a rally in markets could pause, as investors digested Powell's remarks and waited to hear from a cluster of Federal Reserve speakers.
Earnings are due from several major companies. Before the opening bell, investors will get results from Uber and CVS Health. Robinhood and Walt Disney will report after U.S. markets close.
For economic data, revised wholesale inventories are due.
Stocks to Watch
Bed Bath & Beyond shares remained highly volatile as the troubled retailer landed a rescue financing deal with Hudson Bay Capital Management. After almost halving in regular trading Tuesday, the stock gained 4% premarket.
Manchester United shares rose 13% in premarket trade after a report of an imminent Qatari bid for the team. The Daily Mail reported the bid from Qatar, which hosted the World Cup, will "blow away" other offers.
Microsoft is integrating the technology behind the viral chatbot ChatGPT into its Bing search engine. Microsoft shares rose 2% premarket, building on Tuesday's 4% rally.
Forex:
The ECB's decision to cut interest rates on government deposits to encourage fund withdrawals shouldn't have strong implications for the euro, ING said.
"The policy discussion remains much more central, with [ECB member] Isabel Schnabel delivering hawkish statements yesterday and warning against the risk of inflation becoming entrenched in the medium term."
ECB officials may continue delivering hawkish remarks that signal further interest-rate rises after the central bank's meeting last Thursday failed to convince markets of its resolve to fight inflation, although this appears to have been largely factored in by markets, ING said.
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Sterling is the second worst performing G10 currency after the Norwegian krone so far in February and faces further underperformance, MUFG Bank said.
"If inflation angst was to return and given the less compelling evidence of an inflation drop in the UK compared to elsewhere, we could see further underperformance."
The OECD forecast more sticky inflation in the U.K. compared with elsewhere, MUFG said.
Meanwhile, data since Brexit showed the U.K. suffered the highest increase in inflation compared with the U.S., eurozone and Japan, MUFG added.
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The dollar fell as Powell failed to meet expectations to sound more hawkish about the need for further interest rate rises, MUFG Bank said.
Powell's comments were consistent with those made prior to last week's strong nonfarm payrolls report and the Fed meeting, MUFG said.
"With the overnight index swap curve already priced for two additional 25 basis points rate hikes there was no catalyst for a move higher in rates which propelled the dollar weaker."
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Read Polish Zloty's Scope to Recover Might Be Limited
Bonds:
Eurozone government bond yields were trading higher after Jerome Powell confirmed the prospect of further interest-rate rises to tame inflation.
"The Fed chair stuck to the point made at the FOMC meeting last week...(probably more rate hikes needed, disinflationary process has started but with a long and bumpy road ahead), seemingly ignoring the blow-out payrolls report and strong ISM services rebound at first," KBC Bank said.
That said, his speech didn't alter market expectations for a 5%-5.25% peak rate in the U.S., leaving the front end of the U.S. yield curve largely unchanged to slightly lower, KBC added.
Energy:
Oil prices rose about 0.5% thanks to a weaker dollar following Powell 's comments.
Investors were fearing the Fed Chairman could diverge significantly from his views on interest rates after a strong U.S. jobs report Friday. But while Powell warned that the fight against inflation would be long, he didn't indicate more aggressive rate hikes, as some had feared.
"He didn't choose this moment to notably change the script post payrolls. There was some fear that he would," Deutsche Bank said.
Metals:
Base metals and gold prices moved higher after the lack of alarm from Powell over nonfarm payrolls reassured markets, as did his commitment to being data dependent, Commodity Research Group said.
"Also reassuring, was Powell saying that many of the signs that precede typical recessions, such as excessive leverage and asset bubbles, are notably absent this time around, boding well for the economy and labor markets."
Cobalt
A project to formalize small-scale cobalt mining in the world's top producer, the Democratic Republic of Congo, is failing after being interrupted by pandemic shutdowns, New York University researchers said.
Small-scale miners in Congo account for about 10% of the global output of cobalt, a metal critical to the clean-energy transition.
A pilot open-pit mine, backed by Trafigura, in southern Congo has now been turned into dozens of poorly ventilated and unstable shafts, where more than 15,000 miners, including children, come to work, instead of 5,000, the researchers noted.
"Global companies buying cobalt need to encourage the formalization and responsible extraction of the mineral rather than engaging in a futile attempt to avoid cobalt associated with artisanal mining."
DOW JONES NEWSPLUS
EMEA HEADLINES
VW Says 2022 Sales and Profit in Line With Forecasts
BERLIN-Volkswagen AG said Tuesday that 2022 sales and operating earnings were largely in line with forecasts, but that cash flow, a key measure for investors, fell short of expectations as supply-chain woes led to higher unsold inventory at the end of the year.
VW and other auto makers have struggled over the past year with continued disruptions to supply chains in the wake of the war in Ukraine and amid a resurgence in Covid-19 infections in China that hit supply chains, making it difficult to maintain production at constant levels.
Maersk Raises Dividend But Expects Earnings to Slide This Year
A.P. Moeller-Maersk AS on Wednesday raised its dividend but cautioned that earnings this year will plunge as the shipping market normalizes with lower volumes caused by weakening demand and lower freight rates.
The Danish shipping giant reported a quarterly net profit of $4.95 billion, down from $6.09 billion, as revenue fell 3.7% to $17.82 billion. A company-compiled consensus had seen net profit at $4.98 billion on revenue of $19.3 billion.
TotalEnergies Boosts Shareholders Returns on Strong 2022
TotalEnergies SE boosted shareholders returns for the current year after overall performance in 2022 benefited from strong hydrocarbon production and gas sales despite Russia impairments.
The French major said Wednesday that it targets an increase in interim dividends of more than 7% to 0.74 European cents ($0.79) a share and buybacks of $2 billion in the first quarter, confirming that it aims for a payout of between 35%-40% for shareholders in 2023.
Societe Generale Beats 4Q Expectations as Revenue Lifts - Update
Societe Generale SA said Wednesday that its fourth-quarter profit beat expectations on strong revenue after resilient performances in its international investment-banking and retail operations, though flagged an uplift in provisions for 2023.
The French lender reported quarterly net profit of 1.16 billion euros ($1.24 billion) in the three months to the end of December, down from EUR1.79 billion in the same period of 2021.
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02-08-23 0639ET
