MARKET WRAPS

Stocks:

European stocks edged higher on Tuesday as investors awaited Jerome Powell's congressional testimony.

"Ahead of Friday's February job report, [Powell] will probably try to strike a balance between highlighting progress in slowing inflation without job losses, while also noting that peak rates have not yet been reached," Danske Bank said.

Stocks to Watch

Puma's period of market share gains could soon come to an end as the sportswear company faces challenges, UBS said, downgrading the stock to neutral from buy at a target price of EUR63.

"The new CEO's decision to focus on improving the quality of distribution in the U.S. suggests the key engine of growth could pause," according to the Swiss bank.

The German player is also expected to suffer from uncertainties around market-share recovery in China and increasing competitive pressures from peers like Adidas and Nike in wholesale.

UBS forecast a 7% sales growth at constant currency and 9% EBIT margin by 2027 "due to slowing top-line momentum and less supportive industry dynamics," it said.

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Companies working to promote diversity and inclusion in the workplace should be able to outperform their peers through improved innovation and higher sales growth and profitability, UBS said.

Meanwhile, those that are slow to adapt will face increasing regulatory and reputational risks, UBS added.

Some European stocks with exposure to diversity and equality include Novartis, Roche and Sanofi in the pharma sector and luxury players LVMH and Kering.

Diversity matters to corporations' ability to grow, helps investors identify opportunities and is material to markets overall, the Swiss bank said.

U.S. Markets:

Stocks were poised for muted gains ahead of Powell's Senate appearance, which investors will parse for clues about the central bank's interest-rate decision later this month.

Economic updates set for release include January wholesale inventories and January consumer credit.

Stocks to Watch

Meta is set to lay off thousands more employees, according to a Bloomberg report. This comes after it slashed 13% of its workforce four months ago.

Rivian Automotive was down 6% premarket. It said it plans to sell $1.3 billion in convertible notes in a private offering.

Forex:

Remarks from European Central Bank official Robert Holzmann arguing for further aggressive interest-rate rises pushed EUR/GBP to the top of its 0.88-0.89 range and this trend could continue, ING said.

"We suspect that will be the direction of travel this year--helped later in the year when the Bank of England shifts into a formal pause with its tightening cycle."

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The dollar was little changed ahead of Powell's testimony, which will be important in determining whether the currency can continue rising, MUFG said.

Investors are looking for "clear signals" that Powell is considering adjusting his plans for only two more rate rises this year due to evidence of stronger economic activity.

If Powell remains cautious, however, "there could be some disappointment today that could trigger the dollar index to fall further below the 105.00-level," MUFG said.

Commerzbank said investors may be cautious about taking a strong position against the dollar ahead of the nonfarm payrolls report.

"Many market participants will still be apprehensive following the dollar's strong upside move four weeks ago after the surprisingly positive non-farm payrolls for January," Commerzbank said.

If the labor market doesn't show any signs of weakening despite past interest rate rises by the Federal Reserve, the market will bet on further rate increases and rates remaining at these levels for longer, supporting the dollar.

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Read Euro May Struggle to Rise Above Parity Vs Swiss Franc

Bonds:

With eurozone inflationary pressure proving stickier than expected, especially in terms of core inflation, the picture for eurozone government bonds remains uncertain, UniCredit Research said.

"The disagreement within the [European Central Bank's] Governing Council is not helping either and exposes government bonds to intraday fluctuations, as happened yesterday."

At next week's ECB meeting they see a 50 basis point interest rate rise as "almost a done deal", UniCredit said, adding that the recent increase in market-based inflation expectations is probably concerning for the Governing Council, especially for the most hawkish members.

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The German government bond curve flattening is reaching new extremes, with the 2-10-year spread collapsing by up to 8 basis points to minus 58 bps, "the most inverted level since the distortions after the German reunification," Commerzbank said.

The inversion, whereby shorter-dated bond yields are higher than longer-dated bond yields, is driven by a faster rise in short-end yields as markets prepare for further significant interest-rate rises by the ECB.

Energy:

Brent crude futures were unchanged, hovering around their highest level since mid-February, as investors sat tight ahead of Powell's testimony.

The appearance "is an opportunity for Mr. Powell to shape financial market expectations," UniCredit said.

"We expect Mr. Powell to reiterate that further rate hikes are needed and, if the data were to continue to surprise to the upside, the peak rate would likely need to be higher than the central bank had previously expected."

Metals:

Base metals were weaker, with gold little moved.

"Investors have been worried about the hawkish Fed's 'higher for longer' interest rate projections, which have strengthened the U.S. dollar over the past month-a structural headwind for our commodity markets," Peak Trading Research said.

Peak Trading said the market is pricing a 30% chance of a 50-basis-point hike but those odds are likely to shift after Powell's speech.

Gold

Gold has traditionally followed an inverse relationship with Treasury yields, but last year the relationship broke, with yields rising much more than gold fell.

However, the relationship was reestablished in the first two months of 2023, albeit with prices resetting at a higher level, Morgan Stanley said.

"For 2023, we need to consider both macro and demand-side factors, but the new trendline suggests gold is likely to be more reactive to changes in yields than it was in 2022."

Given that 10-year real yields aren't far off the highs seen in 2022, gold prices could rise to $2,160 a troy ounce from $1,849 an ounce today, if interest rates are cut later this year, Morgan Stanley said.

Cobalt

Cobalt prices are likely to remain under pressure as slowing production of electric vehicles cuts demand for key battery materials.

LME cobalt prices have slumped to $34,180 a metric ton from May 2022's peak of $82,000 a ton. Prices are likely to be capped due to slowing demand for EV batteries in China, while inventories of key materials are also high, Fitch said.

The market is pricing in flat growth for the rest of the year with the December 2023 contract closing at $36,751 a ton on Feb. 15, Fitch added.

Cobalt is likely to see further pressure as more firms adopt cobalt-free battery chemistries amid worries around ESG and mining in Congo.

DOW JONES NEWSPLUS


EMEA HEADLINES

German Factory Orders Unexpectedly Rose in January on Higher Aircraft Demand

New orders at German factories increased in January for the second month in a row boosted by the more-volatile component of aircraft orders, but the outlook for the country's manufacturing sector remains clouded by rapidly rising interest rates.

Manufacturing orders rose 1% in January compared with the previous month, according to price-adjusted data from the German statistics office Destatis published Tuesday, beating the 1% drop expected by economists in a poll from The Wall Street Journal.


UK Retail Sales Rose in February Amid Valentine's Day Boost

U.K. retail sales rose in February despite lower volumes year-on-year, as Valentine's Day boosted growth compared with January, the latest report by KPMG and the British Retail Consortium showed.

Total sales for the four weeks to Feb. 25 rose 5.2% year-on-year, above previous months growth levels of 4.2%, while remaining below the three-month average of 5.5%, the report said.


Traton Targets Higher Return on Sales in 2023 After 2022 Sales Top EUR40 Bln

Traton SE topped 40 billion euros ($42.74 billion) in sales in 2022, overcoming supply bottlenecks and elevated energy prices, as it targeted a higher return on sales in 2023 on a strong order backlog.

The truck and bus subsidiary of Volkswagen AG said Tuesday that sales were EUR40.34 billion in 2022, up 32% on year, with its adjusted operating result jumping to EUR2.07 billion from EUR1.60 billion.


Henkel Guides for Subdued 2023 After 2022 Operating Profit Tumbles

Henkel AG on Tuesday flagged a tough 2023 outlook, based on continued inflationary headwinds, after operating profit tumbled in 2022.

The German consumer-goods company said labor-cost increases and continued high energy and commodity costs, alongside elevated prices for direct materials, would mean it expects organic sales growth of between 1% and 3% in 2023, well down from 8.8% in 2022.


Zalando Shares Surge on Profitability Focus

Shares of Zalando SE jumped in Tuesday morning trading after the German online retailer said it would simplify the organization, invest selectively and work on improving its margin this year as more consumers go back to in-store shopping.

At 0830 GMT, Zalando shares traded 5% higher at EUR41.06.


Rio Tinto to Pay SEC $15 Million Over Foreign Bribery Charges

Mining and metals company Rio Tinto PLC agreed to pay a $15 million civil penalty to settle a yearslong probe into allegations it violated U.S. foreign bribery law, the Securities and Exchange Commission said Monday.

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03-07-23 0621ET