MARKET WRAPS
Stocks:
European stocks were higher on Friday, with U.S. futures pointing slightly upwards after three days in the red as worries over a slowing economy persist.
"Major banks and institutions agree that the US is faced with a mild recession," Swissquote Bank said.
London stocks were up, recovering from losses in the previous session. The FTSE 100 was buoyed by a "return to risk-on behavior," with miners and oil stocks especially in demand, Interactive Investor said.
"Stocks which could benefit from the China reopening, such as Standard Chartered, Prudential and Burberry, all found favor in early exchanges, with the premier index now ahead by 4.4% in the year to date."
Stocks to Watch
The worsening macroeconomic environment spells bad news for the tire industry, RBC Capital Markets warned, cutting its rating on Michelin to market perform from outperform.
Michelin's specialty business looks promising in the long term, offering a more profitable return and a boost to shares, RBC said, adding that the company still looks able to raise prices in order to offset cost inflation.
But buyers already seem to be delaying tire replacements amid economic uncertainty, especially in Europe, and Michelin may suffer from downtrading to lower-tier brands, it said.
RBC maintained a EUR28 target price on the stock.
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Auto suppliers can't maintain both volumes and pricing, analysts at Jefferies said, downgrading three sector stocks.
Suppliers seem more concerned about volume, but cost inflation looks a bigger headwind, Jefferies said, noting potential downside in higher wages and energy costs.
As original-equipment manufacturers cut prices to support demand, suppliers can't get both volume and price, Jefferies added, trimming 2023 growth estimates for the sector by around 15%.
The bank double-downgraded France's Faurecia to underperform from buy, cutting the target price to EUR15 from EUR22. It also cut German tire maker Continental and drivetrain manufacturer Vitesco to hold from buy, trimming the target prices to EUR70 and EUR58, respectively.
Economic Insight
BNP Paribas Markets 360's raised its outlook for the eurozone's gross domestic product growth for this year, expecting a 0.2% expansion in 2023 compared with its previous forecast of a 0.5% contraction.
There is less pessimism at the start of the year, it said.
"Sentiment towards the eurozone economic outlook has improved at the beginning of 2023, particularly compared with parts of mid-to-late 2022, when the risk of a deep and protracted energy-related downturn in activity seemed high."
However, it cautioned against an over-optimistic view on growth.
Read Eurozone Economy Expected to Grow More Than Previously Anticipated in 2023, MS Says
U.S. Markets:
Stock futures pointed to a modest recovery for markets Friday, after a three-day selloff in the S&P 500 driven by concerns about a slowing economy.
Bond prices edged lower, which drove the yield on the 10-year Treasury note up to 3.422% from 3.396% a day earlier.
Today's earning calendar is fairly light; SLB, State Street and Ally Financial are among firms expected to report results before the opening bell.
Forex:
The euro should rise further in the near term on the market's continued scaling back of Fed interest-rate expectations and the ECB's "hawkish" rhetoric, ING said.
"As long as U.S. data remains on the soft side, EUR/USD should benefit from a rather supportive rate differential."
EUR/USD could test 1.0900-1.0950 next week, but Friday may be quiet since the eurozone calendar is rather empty and ECB's Lagarde probably won't say anything new when she speaks again at Davos, ING said.
Lagarde signaled further large rate rises at Davos Thursday.
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Skepticism over the Bank of England's determination to fight inflation could put pressure on sterling ahead of the central bank's next meeting, Commerzbank said.
The BOE is largely expected to raise rates 50 basis points at its February 2 meeting as data this week showed U.K. inflation remains elevated and the labor market is still tight, Commerzbank added.
"Of course, it remains to be seen whether the BOE will actually deliver, as two of the nine members had already voted in favor of unchanged rates at the last meeting in December."
BOE Governor Andrew Bailey also suggested Thursday that the BOE won't lift rates aggressively as he sees inflation falling rapidly, Commerzbank said.
Read Sterling Falls After UK Retail Sales Data Miss Forecasts
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The dollar stabilized after recent losses as an underperformance in stocks offset the negative turn in U.S. economic data, ING said.
For now, markets may feel comfortable with current dollar levels ahead of next week's fresh round of U.S. data, ING added.
"The DXY dollar index could hold above 102.00 today, with some focus on housing data and two Federal Reserve speakers."
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The Swiss franc could fall as the Swiss National Bank may be nearing the end of its interest rate rise cycle, Commerzbank said.
The SNB could reduce the pace of rate rises to 25 basis points in March with an end to hiking potentially imminent if inflation eases further, it added.
"As the ECB is likely to raise its key rate by another 100bp by March, we see depreciation pressure on the franc against the euro in the coming months."
However, the SNB could use foreign exchange interventions to prevent any significant franc depreciation as it tackles inflation, Commerzbank said.
It sees EUR/CHF rising to 1.03 by December from 0.9974 currently.
Bonds:
The rally in duration is impressive versus record breaking net government bond issuance in the eurozone but the real test is yet to come, Citi said.
The market is well used to making space for front-loaded government bond issuance--a seasonal pattern in the eurozone where sovereigns hurry to sell a large volume of bonds in the early months of the year.
"The big difference this year is that supply pressure will persist," Citi said, adding that the market will need to absorb more net issuance in the second quarter than the entirety of 2022.
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Next week's moderate total government bond auction volume of around EUR9 billion from Germany and Italy keeps the door open for further bond syndications in the eurozone, Commerzbank said.
Spain and Cyprus seem the most likely candidates, while France may wait until early February for its long-end syndication, it added.
A new 30-year French OAT--flagged by the French Treasury Agency in its indicative funding program for 2023--is more likely to come after the usual long-end OAT auction on the first Thursday of the month as well as the European Central Bank's meeting--both scheduled for Feb. 2, Commerzbank said.
Finland tends to be an early-February issuer, so a 10-year benchmark could come in the week of Feb. 6, it added.
Energy:
Prices for crude oil were moving higher in early trading, with traders taking stock ahead of Lunar New Year celebrations starting this weekend.
The market should exercise more caution in the near term as higher covid cases in China is likely to affect oil demand in the near term, despite long term support for prices, SPI Asset Management said.
"Speaking from a long oil position, the market is too far over their skis at this stage of the reopening. And very susceptible to both the U.S. recession and central bank rate hike risk."
Metals:
Metal prices were higher ahead of Lunar New Year celebrations starting this weekend, which are likely to significantly reduce Asian trade over the next week.
Optimism is running high in the metals market, Fitch Solutions said.
It sees significant upside to prices despite weak demand currently in China with buying likely to rise after the seasonal lull.
A weaker U.S. dollar should "place a floor under metals priced in the currency as demand from emerging markets get a boost," Fitch said.
Copper Outlook
Swiss investment bank UBS is forecasting copper prices to continue rising this year, amid strong demand from China after its reopening from Covid-19 lockdowns.
The bank is forecasting prices to hit $10,250 a metric ton by September with this price to hold through to December, up from the $9,360 a ton seen today in London.
UBS said that low inventories and strong Chinese demand should result in a 70,000 ton market deficit in 2023.
"Grid-related infrastructure projects and electric vehicles should help Chinese copper demand expand 2.6% in 2023," it said, adding global copper demand should rise 3.1% this year.
DOW JONES NEWSPLUS
EMEA HEADLINES
Ericsson Cautions on Near-Term Outlook After 4Q Net Profit Missed Forecasts
STOCKHOLM-Ericsson AB on Friday posted lower-than-expected fourth-quarter net profit and cautioned that the near-term outlook is uncertain, with operators holding off placing new orders as they rebalance inventories and assess economic headwinds.
The Swedish telecommunications-equipment company said these trends started to hurt its key networks unit in the fourth quarter and that it expects them to continue at least during the first half of 2023.
Siemens Gamesa Needs Time to Fix Fleet Component Failures, CEO Says
Siemens Gamesa Renewable Energy SA said Friday that it will take time to work through component failures of the company's installed fleet, but expects the long-term industry outlook to improve.
On an analyst call, Chief Executive Jochen Eickholt said failures are affecting components of different turbine platforms onshore and offshore, which could take up to eight years to work through. During this time, warranty claims are expected to have a negative impact on cash flow, in the mid-double-digit million range in the current fiscal year, he said.
'Angry Birds' Owner Gets Takeover Bid From Playtika
Rovio Entertainment Oyj said it received a takeover proposal from Israel's Playtika Holding Corp. for 751 million euros, equivalent to $813.5 million, sending its shares up 38% Friday.
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01-20-23 0628ET
