MARKET WRAPS
Stocks:
Stocks were mostly in negative territory on Friday as disappointing results from a trio of U.S. Big Tech weighed on sentiment and dragged down Nasdaq futures.
Caution will likely dominate in Europe at least until the U.S. jobs report, due at 1330 GMT. Nonfarm payrolls are expected to have grown by 187,000 in January, with the unemployment rate forecast at 3.6%, ticking up from 3.5% one month earlier.
Stocks to Watch
Inditex has proved robust in the face of consumer clouds and is making headway on sustainability concerns, Deutsche Bank said, raising its rating on the stock to hold from sell and lifting its target price to EUR27 from EUR23.
The Zara-owner's sales growth has held up better than expected, as have margins, with greater online sales not eating heavily into the gross margin, Deutsche Bank said.
Inditex has meanwhile leveraged its size to secure more sustainable raw materials than smaller competitors. In any case, sustainability isn't proving to be as big an issue in fast fashion as previously thought, Deutsche Bank said.
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Rio Tinto could declare a special dividend for 2H 2023 if it doesn't pursue any major acquisitions in the short term, Macquarie said, adding that the miner's balance sheet remains strong even after buying Turquoise Hill.
Macquarie said its final-dividend forecast for 2022 is $1.87/share, which is in the lower half of market consensus. Although there's upside to that estimate, it said, highlighting recent strength in iron-ore prices. Rio Tinto is due to report FY earnings on Feb. 22.
"We believe capex and opex updates could be an interesting area to follow during the earnings release" while "the company could also provide an update on Western Ranges, Rhodes Ridge and Rincon, in addition to its decarbonization programs."
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U.K. retailers ended 2022 with a surprisingly positive performance, and the 2023 outlook is also becoming less bearish, Deutsche Bank said.
With inflationary pressures in cost of goods sold expected to become a tailwind into 2H and beyond, operating cost inflation--specially regarding wage inflation--will remain the biggest challenge.
"Our thesis has evolved to prefer clothing retailers over hardlines, discount over mainstream and physical retail over online."
Deutsche Bank has upgraded B&M and Marks & Spencer to buy from hold and downgraded ASOS, Kingfisher, Pets at Home and Wickes to hold from buy.
Economic Insight:
With the end of central banks' interest rate rises in sight, it seems like investors no longer worry about inflation or about going long duration, Societe Generale said.
"This seems premature in Europe, with core inflation still rising and showing no signs of a turn. A pause [in interest rate rises] beyond the summer is highly likely, but the pricing of rate cuts from late 2023 relies on inflation quickly returning to sensible levels."
Societe Generale continues to underweight EUR rates versus U.S. rates, seeing a bullish outlook more plausible in Treasurys as the Federal Reserve is approaching the pivot, while the European Central Bank is lagging.
U.S. Markets:
Stock futures pointed to losses, with shares of Apple, Alphabet and Amazon down between 3.7% and 5.6% in premarket trading.
The big three all reported December quarter results that showed the effects of the weakening global economy across most of the companies' diverse business lines.
Shares of retailer Nordstrom surged premarket after the Wall Street Journal reported that activist investor Ryan Cohen has taken a big stake in the company. Nordstrom was recently up 31%.
Cohen, known for sparking big jumps in meme stocks such as GameStop a few years ago, has become one of the top five nonfamily shareholders of the company.
The labor-market update bookends a busy week of data and central-bank decisions and will give investors another read on the U.S. labor market.
Forex:
The ECB's unclear communications is causing the euro to weaken, ING said. Christine Lagarde's press conference brought "more fog than clarity" about the rate path beyond March, ING said.
"We remain of the view that at least 75bp of extra tightening will be delivered by the ECB, which still puts EUR/USD in a position for a big rally in the second quarter--when U.S. short-term rates may come off more steadily. The ECB communication troubles may cap EUR/USD before then."
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The dollar could fall if U.S. nonfarm payrolls data for January, due at 1330 GMT, are weaker, UniCredit Research said.
"A slide in the number of nonfarm payrolls [we expect 190,000 from the previous 223,000] is not too heavy but, coupled with a rise in the unemployment rate to 3.6%, might still weigh on the greenback and allow EUR/USD to steady back above 1.10 as the week concludes," UniCredit said.
The recovery in EUR/USD might be even more evident if the U.S. ISM non-manufacturing survey at 1500 GMT disappoints expectations with the index remaining below 50, signalling a contraction in sector activity, as UniCredit expects.
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The Bank of England's policy decision prompted the market to scale back interest rate expectations for the U.K. more than elsewhere, weakening sterling, MUFG Bank said.
While the Fed and ECB decisions also encouraged markets to lower rate-rise bets, the biggest adjustment was expectations for the BOE, MUFG added.
"The U.K. rate market had been expecting the BOE to lift the policy rate up to a terminal rate of 4.50% but is now only pricing in one final 25 basis points hike in either March or May."
Read Sterling Could Fall Further as BOE May Have Reached Peak Rates
Bonds:
Eurozone government bond yields were higher in early trading, reversing Thursday's rally which was initially driven by the prospect of an approaching peak in Federal Reserve rate rises, with the rally later reinforced by the ECB's meeting.
Algebris Investments said the ECB's "tone was much more dovish than the guidance communicated in December, with less emphasis on recent data improvement and core inflation stickiness than in the past few talks."
Post-ECB Reaction
Early signs suggest that the bond market isn't buying what Christine Lagarde is selling, "with signs emerging that [market] participants wish to price in the peak in rates," Insight Investment said.
Given the likelihood that some inflationary inputs such as energy prices will potentially subside during 2023, this is understandable, it said.
"However, while intentions are not promises, should the ECB stay the course there is significant potential for market disappointment."
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The eurozone government bond market's initial reaction to the ECB was too dovish, SEB said, which continues to see the risks to core inflation on the upside.
"We expect that the inflation outlook over the coming months will likely be in line with the ECB staff projections, but still with risks tilted to the upside."
Read Market Seems to be Interpreting ECB Stance as Dovish
Read Market Reaction to ECB Suggests Even Pause in Rate Rises Is Possible
Read Government Bond Rally in Europe Looks Too Early
Energy:
Crude futures ticked lower despite an impending European Union ban on Russian oil product exports which is expected to tighten crude markets further.
The EU's ban is set to come into force Sunday. Ample time to prepare and strong Russian exports of crude and oil products ahead of the ban are keeping prices in check, ING said.
"Despite this imminent disruption to flows, the market appears relatively calm...the market has had a significant amount of time to prepare for the ban. We have seen strong inflows of middle distillates into Europe ahead of Feb. 5."
Metals:
Base metals were mixed, with gold slightly weaker, as investors awaited the nonfarm payroll data.
This week has been a bumper data week, with more positive data out of China meeting Western central banks indicating more monetary tightening may be needed in March as they seek to taper inflation.
"Despite Chinese growth outperforming, slowing economic growth elsewhere globally will result in muted global demand growth for metals," Fitch said.
It sees metal prices climbing this year on Chinese demand but elsewhere the picture looks less clear.
DOW JONES NEWSPLUS
EMEA HEADLINES
Sanofi Upbeat on 2023 Earnings After 4Q Growth; Raises Dividend - Update
Sanofi SA on Friday posted rising earnings and sales for the fourth quarter, said it expects its earnings per share to grow in 2023, and raised its dividend for the year.
The French pharma major reported net profit of 1.46 billion euros ($1.59 billion) for the quarter, up from EUR1.13 billion in the same quarter of 2021, on sales that grew to EUR10.73 billion from EUR9.99 billion in the previous year.
French Industrial Production Rose More Than Expected in December
French industrial production increased more than expected in December, suggesting the country's manufacturing sector held up at year-end despite high energy prices and increasing interest rates.
Industrial output-comprising output in manufacturing, energy and construction-increased 1.1% on month after rising 2% in November, according to data from the country's statistics office Insee published Friday. November's sharp increase represented a rebound from October, when output declined markedly amid strikes at some of the countries' biggest refineries.
TotalEnergies reveals $3.1 billion exposure to Adani
TotalEnergies, a French-headquartered energy company, has told investors it has a "limited" $3.1 billion exposure to Indian conglomerate Adani Group, representing a 2.4% of its worldwide investment activities.
In a statement posted on its website Friday, the multinational oil giant outlined the extent of its exposure to the struggling Adani Group, which has to date, lost more than $110 billion in market value since short seller Hindenburg Research alleged fraud at the Adani-linked companies over a week ago.
Zur Rose Shares Skyrocket Amid Deal to Sell Switzerland Business
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02-03-23 0553ET
