MARKET WRAPS
Watch For:
U.K. KPMG and REC report on jobs, Chancellor Jeremy Hunt takes
questions in the House of Commons, Bank of England Deputy Governor
David Ramsden and Chief Economist Huw Pill speak at U.K. Women in
Economics Network launch event, Bank of England Deputy Governor Sir
Jon Cunliffe speech on 'Update on Central Bank Digital Currency';
Germany Industrial Production Index; France foreign trade, balance
of payments; trading updates from BP, BNP Paribas, TotalEnergies,
TUI, Finnair, SAS, SSE, Impala Platinum Holdings, Micro Focus
International
Opening Call:
Shares may edge higher at the open in Europe on Tuesday after
the U.S. monthly jobs report beat expectations, stoking fears that
interest rate increases may continue longer than expected. In Asia,
stock benchmarks were higher; Treasury yields and the dollar fell;
while oil and gold advanced.
Equities:
European shares are likely to rise despite Wall Street's
weakness on Monday.
U.S. stocks declined Monday, continuing their decline after
strong jobs data last week raised the prospect of additional
interest-rate increases by the Federal Reserve.
"With a better-than-expected jobs report on Friday, good news is
bad news for the market," said Mark Hackett, chief of investment
research at Nationwide.
In other words, strong jobs data is bad news for stocks because
it boosts expectations the Federal Reserve will need to move rates
higher for longer to combat inflation.
"The selloff in the last couple of days might be some
realization, particularly on the rates side of things, that the
markets got carried away," said Edward Smith, co-chief investment
officer at Rathbones.
Given how rapidly prices have been rising, Mr. Smith added,
"We've got a long way to go. That's going to keep the Fed from
delivering those rate cuts."
Fed Chairman Jerome Powell is due to give an interview Tuesday.
Investors will trawl his remarks for clues about the central bank's
response to the job numbers.
The focus will be on whether Mr. Powell emphasizes the central
bank's view that short-term rates will peak at more than 5%, said
Jim Reid, a strategist at Deutsche Bank, compared with the current
range of 4.5% to 4.75%.
Forex:
The dollar weakened early Tuesday reversing course from the
previous day's gains as investors adjust to Friday's surprisingly
robust jobs data and its implication for the Fed's rate path.
"The declining inflation/improving growth backdrop remains
intact and in favor of high beta FX, but strong payrolls have
challenged market pricing for the Fed," JPMorgan analysts said.
"High beta FX has historically been resilient to a Fed
re-pricing so long as growth remains robust; usually the lowest
yielders are a casualty of a Fed re-think. Carry-seeking behavior
continues to dominate FX," they said, referring to a strategy that
trades on interest-rate differentials in a currency pair.
"A Fed re-pricing benefits carry."
Read: How the U.S. dollar could put this stock-market rally to a
big test
--
The euro could extend its losses against the dollar following
the European Central Bank's latest policy decision and Friday's
strong U.S nonfarm payrolls data, forex broker Tickmill said.
Long euro positions, which expect it to rise, were unwound after
the ECB said Thursday that it will evaluate the interest-rate path
after March and take a data-dependent, meeting by meeting approach,
Tickmill said.
Meanwhile, Friday's robust U.S. jobs data boosted the dollar as
U.S. rate hike projections came into question, it said.
"With the risk now that USD remains well-bid near term while EUR
continues to sell-off, EUR/USD looks poised for further
losses."
Bonds:
Treasury bonds yields fell early Tuesday as traders digest an
increased likelihood that the Federal Reserve will hike rates a few
more times after January's strong jobs report.
"The January employment report does not change our view of the
labor market. It's still resoundingly strong," said BofA Securities
economist Michael Gapen and others.
"While one month may not make a trend, the data do suggest
economic activity may be accelerating rather than slowing."
"The report gives us more confidence in our outlook for two
additional 25bp rate hikes and a terminal rate of 5.0-5.25%," they
said.
Markets are now baking in two 25-basis point rate increases,
with a cut coming in December rather than in November, as expected
before the labor data.
Energy:
Oil futures gained in Asia on supply concerns spurred by the
earthquakes that struck Turkey and northern Syria.
The earthquakes forced shutdowns at a Turkish oil terminal,
which has implications for Iraqi oil along with Syria's primary oil
refinery.
Operations at Turkey's oil terminal in Ceyhan stopped after an
earthquake struck nearby on Monday, according to an official at
Tribeca Shipping, a shipping-services provider that assists vessels
going to Ceyhan.
"But as long as inspections don't reveal any major damage that
will keep the pipeline or port operations offline for more than a
few days, the market impact should be limited," Tyler Richey,
co-editor at Sevens Report Research said.
Meanwhile, the European Union on Sunday imposed a ban on Russian
refined energy products, following on an earlier ban on seaborne
Russian crude.
The G-7 set a price cap of $100 on so-called "high-value"
Russian exports such as diesel and gasoline and $45 on
"lower-value" products such as fuel oil.
The price caps are above the market price for reformulated
gasoline and nearly in line with the market price for diesel, said
Troy Vincent, senior market analyst at DTN.
"It is unlikely that the caps will have a material impact on
global supply."
Metals:
Gold edged higher early Tuesday, buoyed by safe-haven
demand.
Rising geopolitical tensions have spurred this demand, said ANZ
Research analysts.
U.S.-China tensions have risen after the U.S. recently shot down
a suspected Chinese spy balloon over U.S. territory, the analysts
added.
Kinesis Money pointed out that prices for the precious metal had
surged above $1,900 an ounce and remained there for most of January
on the prospect of the Federal Reserve soon ending its policy of
interest rate hikes to curb persistently high inflation.
However, the "massively positive jobs figures...delivered the
shock that gold investors were fearing as the strong state of the
world's largest economy gives the Fed plenty more room to continue
its policy of rate hikes without fearing triggering a recession,"
it said.
"With more hikes now likely, gold has suffered due its lack of
yield making it less attractive at times of rising interest
rates."
--
Aluminum prices gained in Asia amid media reports that the U.S.
could levy a 200% tariff on Russian aluminum.
If such a tariff is imposed, it could act as a de-facto ban on
Russian aluminum imports by the U.S., said Citi Research
analysts.
However, this would only likely affect roughly 3% of aluminum
imported during 2022, they added.
Given that Russian aluminum makes up a low proportion of U.S.
aluminum imports, the tariff is unlikely to be a game changer with
regard to U.S. market balances, the analysts said.
---
Chinese iron-ore futures were little changed, as traders wait
for the next rally amid expectations that China's economic recovery
will likely lift demand for the commodity.
"Given the impact of production restrictions last year, demand
is expected to be higher this year," analysts from GF Futures said,
adding that prices are likely to go up as factories reopen after
the Lunar New Year holiday.
TODAY'S TOP HEADLINES
Biden to Urge Quadrupling New 1% Tax on Stock Buybacks
WASHINGTON-President Biden plans to propose quadrupling the 1%
tax on stock buybacks that took effect in January, which the White
House said would encourage companies to invest in their growth
instead of boosting shareholders.
Mr. Biden will discuss the proposed change during his State of
the Union speech on Tuesday, the White House said in a preview of
the address, in which the president will also tout economic
progress since the early days of the Covid-19 pandemic. The plan to
boost the buyback tax might struggle to advance through the divided
Congress, where Republicans control the House.
Reserve Bank of Australia Delivers Ninth Consecutive Rate
Increase, Stays Hawkish
SYDNEY-The Reserve Bank of Australia delivered a record ninth
consecutive interest rate rise at its first policy meeting for this
year, citing the stubbornness of inflation pressures and increased
potential for a big jump in wages.
RBA Gov. Philip Lowe on Tuesday announced a rise in the official
cash rate to 3.35% from 3.10%, saying the economy was witnessing
broad demand pressures despite a rapid exit from emergency interest
rate settings since May last year.
U.K. Regulators Are Urged to Address Pension Risks After Last
Year's Crisis
British regulators failed to properly monitor the risks created
by the derivatives-based investment strategy that upended the
U.K.'s pension sector last year, an investment approach that poses
a continuing risk to companies if changes aren't made, according to
a U.K. legislative panel.
Liability-driven investments, known as LDIs, invest in
derivatives that are tied to U.K. government bonds known as gilts.
They help pensions match long-term liabilities they have to
retirees with less capital than they would need had they owned
regular long-dated gilts. That allows them to manage exposure to
changes in bond yields and free the funds' balance sheets to invest
in higher-returning investments such as stocks, real estate or
private equity.
Russian Deficit Soars to $25 Billion on War Spending, Oil
Embargo
Western oil sanctions and soaring battlefield costs took a heavy
toll on Russia's finances last month, pushing the government budget
into its deepest deficit to start the year in more than a
decade.
Oil and gas revenues nearly halved, dropping 46% in January from
the same month last year, according to data from the Russian
Ministry of Finance published Monday. Government spending, driven
by military purchases, jumped by 59% from last January.
Ukraine Warns Russia Is Planning Major Offensive
DNIPRO, Ukraine-Ukraine warned that Russia was completing
preparations for a major new offensive this month as Kyiv signaled
a reshuffle in its military leadership amid a corruption scandal
that has rocked the Defense Ministry.
Serhiy Haidai, the governor of the Luhansk region in eastern
Ukraine, said Russia was continuing to bolster its offensive
capacity and bring in troops to front-line positions while
decreasing its rate of fire in certain areas to save ammunition for
the coming advance.
CVS Nearing $10.5 Billion Deal for Primary-Care Provider Oak
Street Health
CVS Health Corp. is close to an agreement to acquire Oak Street
Health Inc. for about $10.5 billion including debt, a deal that
would rapidly expand the big healthcare company's footprint of
primary-care doctors with a large network of senior-focused
clinics, according to people with knowledge of the matter.
The companies are discussing a price of about $39 a share, the
people said. The deal, if it goes through, could be announced as
soon as this week, they said. CVS is scheduled to report earnings
on Wednesday.
Google Opens ChatGPT Rival Bard for Testing, as AI War Heats
Up
Google is rolling out a new conversational
artificial-intelligence service to a select set of testers, and
plans a broader public launch in coming weeks, part of the
company's effort to play catch-up with challengers such as OpenAI,
creator of the popular chatbot ChatGPT.
The new experimental service, called Bard, generates textual
responses to questions posed by users, based on information drawn
from the web, Sundar Pichai, chief executive of Google parent
Alphabet Inc., said in a blog post published Monday.
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Expected Major Events for Tuesday
00:01/UK: Jan BRC-KPMG Retail Sales Monitor
06:45/SWI: Jan Unemployment
07:00/NOR: Dec Industrial Production Index
07:00/UK: Jan Halifax House Price Index
07:00/GER: Dec Industrial Production Index
07:00/FIN: Dec Foreign trade
07:30/HUN: Dec Preliminary Industrial Production
07:45/FRA: Dec Foreign trade
07:45/FRA: Dec Balance of payments
08:00/SWI: Jan SNB foreign currency reserves
08:00/AUT: Jan Wholesale Price Index
08:00/AUT: Nov Foreign Trade
08:00/CZE: Dec Retail trade
08:00/SPN: Dec Industrial Production
09:00/ICE: Jan External trade, preliminary figures
10:00/GRE: Dec External Trade (provisional data)
11:00/FRA: Dec OECD CPI
11:00/IRL: Dec Industrial Production and Turnover
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(END) Dow Jones Newswires
February 07, 2023 00:16 ET (05:16 GMT)
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