MARKET WRAPS

Stocks:

European shares started 2023 higher, with the Stoxx Europe 600 rebounding after recent losses but staying within the relatively tight range traded over the end-of-year holiday period.

Auto-related stocks were among the biggest risers, with the real-estate and tech sectors also performing well.

Trading was thin, however, with U.S. and U.K. markets closed for public holidays, while investors remained wary about recession risks and high inflation.

"A new year kicks off with continued focus on central banks and inflation, as well as on signals of how long and deep a recession are we heading into," Danske Bank said.

SPI Asset Management said the week's main event will be Friday's U.S. employment report.

"However, given the absence of Fedspeak since the December FOMC meeting, Wednesday's minutes from that meeting will also be a keen policy plot developer."

Stocks to Watch

Atos shares were up 14% after Les Echos reported that Airbus was in preliminary discussions to take a minority stake in Evidian, its cybersecurity business.

Economic Insight

Eurozone economic data have held up reasonably well so far, and if the European Central Bank ends up raising interest rates in line with market expectations, "it is unlikely to cause a significant deterioration in growth from the current base," Pimco said.

However, if inflation dynamics force the ECB to tighten financial conditions by significantly more than current market rates, risks to growth would certainly increase, Pimco said.

In such a situation, fiscal authorities would probably intervene to support growth, ideally in a way that doesn't add fuel to the inflationary fire.

Forex:

As 2023 gets underway, dollar weakness remains "the dominating subject" for the FX market, as investors believe the Fed will slow interest-rate rises and eventually have to cut them, Commerzbank said. "The market still does not believe the Fed's affirmations that it will not cut the key rate."

Meanwhile, a relatively mild winter means gas shortages are no longer a concern for the euro, while the U.S. economy may suffer from "much more aggressive" rate rises previously, Commerzbank said, noting the DXY dollar index was trading close to six-month lows while EUR/USD was close to a six-month high.

Bonds:

Eurozone government bonds were slightly firmer, with Commerzbank pointing to 10-year Bund yields above 2.5%, relaxed year-end trading and the probable drop in the eurozone CPI "raising hopes for an upbeat start" to the year.

Bond auctions are scheduled from Germany and France this week, while Commerzbank's strategists point to Italy and Slovenia as likely candidates for bond syndications.

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Danske Bank said gross issuance of government bonds in the eurozone is expected to increase to EUR1.237 trillion in 2023 from EUR1.103 trillion in 2022 due to rising budget deficits and extra spending on energy packages relative to last year. Net issuance should rise to EUR416 billion in 2023 from EUR369 billion in 2022, it added.

The planned supply of German government bonds is historically high, while there were no significant surprises in other eurozone countries' issuance plans for this year.

DOW JONES NEWSPLUS


EMEA HEADLINES

Deutsche Bank to Hold Higher Capital Buffer in 2023

Deutsche Bank AG said it will have to back its business with more capital in 2023 than last year, based on European Central Bank regulations.

The German lender said Friday that its pillar 2 capital requirements will rise by 20 basis points to 2.7% under the ECB's supervisory review and evaluation process, known as SREP.


Ukraine Begins 2023 Under Attack From Russian Drone Swarm

KYIV, Ukraine-Russia attacked Ukraine with a swarm of 45 drones overnight, hours after firing a salvo of missiles at Kyiv and other regions in what many Ukrainians saw as an effort to mar the start of the new year.

Air-raid sirens sounded in Kyiv less than one hour after Ukrainian President Volodymyr Zelensky delivered a New Year address just before midnight, hailing the sacrifices made by Ukrainians in the 10 months since Russia invaded their country.


Europe Goes on Blackout Watch as Winter Descends

LONDON-Europe's energy-squeezed winter has sent power operators and businesses into high alert for blackout risks, heightened by Russia's war in Ukraine.

In a control room in Glasgow, dozens of engineers and supervisors for months have been executing a series of "desktop rehearsals," in which they game out the many various ways a blackout could unfold.


Russia's Oil Ban Accelerates Shift in Global Energy Flows

Western sanctions on Russian fossil fuels are accelerating the shift in global energy flows, with China and India increasingly taking advantage of Russian oil discounts and Middle Eastern suppliers redirecting their crude to Europe.

Russia is offering deep discounts to Asia's biggest oil buyers as it tries to retain market share after banning the sale of its crude and petroleum products to countries imposing a price cap. The cap bars the shipping, financing or insuring of Russia's seaborne crude unless it is sold for $60 a barrel or less-a sanction leveled in response to the invasion of Ukraine.


GLOBAL NEWS

Big Banks Predict Recession, Fed Pivot in 2023

Big banks are predicting that an economic downturn is fast approaching.

More than two-thirds of the economists at 23 large financial institutions that do business directly with the Federal Reserve are betting the U.S. will have a recession in 2023. Two others are predicting a recession in 2024.


For Battered Bonds, Threats of Further Losses Linger

The year 2022 marked a truly historic bust for the U.S. bond market. The question now is whether 2023 will produce any kind of meaningful rebound.

Normally a safe investment, U.S. bonds delivered losses over the past 12 months that far exceeded anything investors have seen in their careers. The Bloomberg U.S. Aggregate bond index dropped 13%, easily outdoing its previous worst year in data going back to the 1970s, when it declined 2.9% in 1994.


Chinese Factories, Restaurants Adjust to Life Without Zero-Covid

After three years of "zero-Covid" economic disruption, many Chinese businesses awoke to a happy new reality in December: No more restrictions.

But before they can take advantage, business owners in the world's second-largest economy say, they have to get their supply chains in order after a topsy-turvy time capped by this abrupt reversal-and withstand a wave of Covid-19 cases sweeping through employee ranks.


Robust Job and Wage Growth Showed Signs of Cooling in Late 2022

The labor market proved to be a resilient stabilizer in 2022 for a U.S. economy facing the highest inflation in four decades.

With the Federal Reserve having raised interest rates at the fastest pace since the early 1980s to fight inflation, however, the economy has slowed, and effects of that are filtering into hiring and wages.


The Year Big Tech Stocks Fell From Glory

The year 2022 turned many of the stock market's former darlings into duds.

For the better part of the previous decade, investors crowded into shares of fast-growing technology companies whose strong gains year after year reinforced bets that they had nowhere to go but up. Surging prices for such stocks as Facebook parent Meta Platforms Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google owner Alphabet Inc. propelled major indexes to dozens of new highs.


Congress Boosts Funding to Stockpile Key Metals, Battery Ingredients

WASHINGTON-The U.S. defense stockpile for hard-to-get metals and lithium-ion battery ingredients is getting a $1 billion boost from Congress, as tensions escalate with China and Russia-with both nations the source of some key minerals.

The money was included in the National Defense Authorization Act, signed Dec. 23 by President Biden. The funding is just one component of the NDAA, which sets military service members' pay and directs the Department of Defense which ships, airplanes and weapons to buy, among other initiatives.


Ample Jan. 6 Evidence Helps Secure High Conviction Rate in Capitol Riot

WASHINGTON-In the two years since a pro-Trump mob stormed the U.S. Capitol, prosecutors have secured guilty pleas from more than half the rioters they have charged, helping lead to a 99.8% conviction rate.

Dustin Thompson tried to beat those odds. The 38-year-old Ohioan pleaded not guilty and took the stand to say he was only answering President Trump's call that day to supporters to "fight like hell." Now he is serving a three-year sentence after jurors convicted him on a number of charges, talking to his wife twice a day from a jailhouse iPad.


North Korea's Kim Jong Un Vows to Expand Nuclear Arsenal

SEOUL-North Korean leader Kim Jong Un vowed to develop a new intercontinental ballistic missile system and exponentially increase his nuclear arsenal, according to year-end comments published by state media on Sunday.

At a meeting of the ruling Workers' Party, Mr. Kim called on the country to beef up its military strength and boost its nuclear arsenal to counter threats from the U.S. and South Korea. Mr. Kim said the U.S. and other hostile forces were "isolating and stifling" North Korea, calling it "unprecedented in human history," according to the Sunday state media report.


China's Xi Jinping Provides Rare Acknowledgment of Covid-19 Policies' Toll

SINGAPORE-China's leader Xi Jinping offered a rare acknowledgment of the difficulties that three years of pandemic controls-which were abruptly lifted this month-have imposed on the Chinese population. He called for more determination and promised better times ahead.

"It has not been an easy journey for anyone," Mr. Xi said during his annual New Year's Eve speech to the nation on Saturday. "Everyone is holding on with great fortitude, and the light of hope is right in front of us."


Write to paul.larkins@dowjones.com

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01-02-23 0633ET