MARKET WRAPS

Watch For:

EU monetary developments in the euro area; France consumer confidence survey, housing starts; Italy industrial turnover; UK capital issuance statistics; trading updates from Remy Cointreau, H&M

Opening Call:

Shares in Europe may rise at the open on Friday after U.S. data and tech gains boosted sentiment ahead of a slew of central bank decisions next week. In Asia, stock benchmarks advanced; Treasury yields largely rose; the dollar was steady; oil futures strengthened; while gold fell.

Equities:

European shares look set to rise at Friday's open, after U.S. indexes closed higher overnight, helped by a tech rally.

"Thursday's GDP report suggests that the [U.S.] economy is relatively strong even in the face of aggressive measures by the Federal Reserve to calm inflation," said Carol Schleif, chief investment officer at BMO Family Office.

Markets cheered the latest data as evidence that the U.S. economy might achieve a soft landing, rather than slumping into a recession. Hopes also have been building that lower inflation readings could result in less aggressive interest-rate hikes by the Federal Reserve.

But some strategists also worry economic data might not yet show the full effects of the restrictive policy.

"The economy continues to act like a forward moving ocean liner, but I do see the GDP report as kind of looking in the rearview mirror. The Fed hikes started about a year ago. They [rate hikes] take a year to 18 months to really take effect, so I think by the middle of the year we will see a market slowdown, and I would suspect a good chance of negative GDP by mid-year," said Chris Grisanti, chief equity strategist at MAI Capital Management.

While investors heralded it as the latest sign that the U.S. economy is holding up well despite the Fed's aggressive interest-rate hikes, Grisanti suspects the economic slowdown will happen faster than investors are pricing in.

"The current situation is like a horror movie with two monsters. Monster No. 1 is the Federal Reserve's rate hikes," Grisanti said. "The second monster is the economic slowdown," he said. "We think the economy will slow relatively quickly as winter moves into spring."

Next week, the Fed is expected to continue moderating its rate increases to a quarter-percentage point, down from a half-percentage point at the previous meeting, after a key metric showed inflation slowed for the sixth straight month in December. On Friday, the Fed's preferred inflation gauge is set to be released.

Read: The US Economy Isn't as Strong as It Looks. Get Ready for Another Stock Market Tumble.

Forex:

The dollar wavered early Friday in Asia. Among the factors weighing on the dollar lately are U.S. CPI showing inflation pressures easing, lower U.S. government-bond yields compared with other developed markets, news of China's reopening and positive economic surprises out of Europe, Capital Economics said.

"That said, we think the weakness in the dollar associated with both the Fed 'pivot' and brighter economic prospects has largely run its course. Even if much of the economic weakness in the next quarter or two is concentrated in the US, our view is that 'risky' assets in the US and elsewhere have yet to fully discount a downturn in the US and that a renewed tightening of financial conditions will push up the dollar."

Bonds:

Treasury yields were mostly higher early Friday, after edging higher overnight as a positive tone in equity markets curtailed demand for fixed income products.

Yields initially added to their rise after U.S. GDP data topped expectations, though economists cautioned the backward-looking data could mark a last gasp of solid growth. The economy is widely expected to slow sharply in 2023, with some economists arguing a recession may have already begun. Yields trimmed their rise later in the session.

"The most current fundamental update on Thursday came in the form of initial jobless claims, which declined to just 186k for the week of Jan. 22 -- too late in the month to be influential for [nonfarm payrolls] estimates for next week," said BMO Capital Markets.

"Nonetheless, the outright level of claims is consistent with the ongoing strength in the labor market that continues to provide the FOMC with not only cover to tighten further but increasingly with justification in light of the Committee's objective of seeing a higher unemployment rate before flying the mission accomplished banner on re-establishing price stability."

Energy:

Crude oil futures rose in Asia, buoyed by signs of rising demand from China, ANZ said.

Traders are likely focusing on the outcome of the OPEC+ review meeting taking place next week, where delegates are expecting an advisory committee of ministers to recommend keeping crude-oil production unchanged, ANZ added.

Metals:

Gold fell slightly early Friday. Oanda senior market analyst Edward Moya said the precious metal softened a bit as stronger-than-expected U.S. GDP figures lent support to the view that the Fed might be able to deliver a soft landing, but he reckons that safe-haven demand will continue as consumer spending is clearly weakening.

"We will probably need to wait a little longer for GDP and claims data to catch up." Focus will be on the Fed's rate decision next week, which typically influences the price of the metal.

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Copper strengthened on continued optimism over Chinese demand spurred by the country's reopening.

The copper market is now pricing a booming China and a soft U.S. and Europe, said Citi.

Around $6.7 billion of funds have flowed into LME/Comex copper in the year-to-date, Citi estimated, adding that there has been a huge 750,000 tons of net buying over the past three weeks.

   
 
 

TODAY'S TOP HEADLINES

Gas prices jump to $3.50 a gallon in January, pose threat to Fed's inflation fight

U.S. gasoline prices have shot up an unusually strong 9.2% in January to average about $3.50 a gallon as of Thursday, which could throw a wrench in the Federal Reserve's inflation fight, according to Bespoke Investment Group.

Prices at the pump fell sharply in the second half of 2022 to a low of $3.096 a gallon on Dec. 22, giving back all six months of earlier gains, plus some (see chart), according to Bespoke, when looking at the AAA reading of national average gas prices.

   
 
 

Airbus to Hire 13,000 Workers as Delivery Delays Rise

Airbus SE is recruiting over 13,000 new staffers this year-after hiring the same number in 2022-to help it accelerate production of its commercial jets, recover from escalating delivery delays and meet surging demand for new aircraft from its customers.

The Toulouse, France-based plane maker, which currently employs more than 130,000 people across its commercial jet, space, defense and helicopter businesses, said 9,000 of the new jobs would be based in Europe with the remainder spread across operations in places such as the U.S. and China.

   
 
 

U.S., Israel Send Message to Iran With Biggest-Ever Military Exercises

ABOARD THE USS GEORGE H.W. BUSH-Thousands of American and Israeli military personnel joined forces this week for an unprecedented exercise intended to send a message to adversaries like Iran that the U.S. isn't turning its back on the Middle East, even as it focuses on the war in Ukraine.

After four days of military exercises stretching from the Mediterranean Sea up into space, the U.S. and Israel fired more than 180,000 pounds of live munitions in the largest joint exercise ever carried out by the two allies. U.S. jet fighters roared off this ship, which served as a key hub for the military exercise off the Israeli coast, as top generals from both countries gathered on board to take stock of the week's operations.

   
 
 

Renault, Nissan Near Deal on Alliance Shake-Up

Renault SA and Nissan Motor Co. Ltd. are nearing a deal to reshape their 20-year-old alliance, according to people familiar with the matter, in a restructuring that would reduce the French car maker's shareholding in its Japanese partner and give both companies more autonomy.

A deal could be officially unveiled early next month, these people said, and would represent the most significant change in the car makers' alliance since it was forged amid a financial crisis at Nissan.

   
 
 

LVMH Posts Record Earnings on Surge in Demand for Luxury Goods

PARIS-LVMH Moët Hennessy Louis Vuitton SE reported record annual revenue and profit, as it rides a surge in demand for luxury goods that China's recently loosened Covid-19 restrictions could extend into this year.

Postpandemic demand for LVMH's dozens of brands, including fine wine, jewelry and fashion labels and upscale hotels, has cemented the group's position as the most valuable listed company in Europe. It has also helped its chief executive officer and controlling shareholder, Bernard Arnault, overtake Elon Musk as the world's richest person.

   
 
 

Intel Slumps on Disappointing Earnings Amid PC Weakness

Intel Corp. reported a fourth-quarter loss, hurt by a souring market for its chips and growing competition from rivals, as it also issued a gloomy outlook for the current quarter.

Semiconductor companies have seen a stark shift to a glut of chips amid recession fears from a period of shortage during the height of the pandemic driven by demand for all-things digital. Intel also has been battling loss of market share to rivals such as Advanced Micro Devices Inc. and companies that have embraced semiconductors based on technology from British chip-design specialist Arm Ltd.

   
 
 

Elliott Prepares to Nominate Slate of Directors at Salesforce

Activist investor Elliott Management Corp. is preparing to nominate a slate of directors at Salesforce Inc., according to people familiar with the matter, in a sign that a battle may be looming for board seats at the business-software maker.

Elliott is having conversations with numerous technology executives as well as those with other industry backgrounds, the people said.

   
 
 

Write to singaporeeditors@dowjones.com

   
 
 

Expected Major Events for Friday

00:01/UK: 4Q BRC-LDC Vacancy Monitor

06:00/FIN: Dec Labour force survey, incl unemployment

07:00/SWE: Dec Labour Force Survey

07:00/SWE: Dec Retail sales

07:00/NOR: Dec Retail Sales

07:30/HUN: Dec Employment & unemployment

07:45/FRA: Jan Consumer confidence survey

07:45/FRA: Dec Housing starts

08:00/SVK: Dec PPI

08:00/SPN: 4Q Preliminary GDP

09:00/ITA: Nov Industrial turnover

09:00/AUT: Jan Austria Manufacturing PMI

09:00/EU: Dec Monetary developments in the euro area (M3)

09:30/UK: Dec Capital issuance statistics

10:00/MLT: Nov Registered Unemployed

10:00/MLT: Dec Registered Unemployed

11:00/IRL: Dec Retail Sales Index

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

January 27, 2023 00:25 ET (05:25 GMT)

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