MARKET WRAPS

Stocks:

European stocks were higher on Wednesday, supported by Wall Street's rally, and despite the likelihood that Europe's major central banks will increase rates by more than the Federal Reserve in policy decisions later.

Analysts said investors have cheered the Fed's acknowledgement that inflation is falling and anticipate a coming pause in rate rises, expecting the cumulative effect of last year's increases to slow the U.S. economy sharply this year.

"Long story short, the market thinks the inflation job is done, even if the Fed hasn't arrived at that conclusion yet. Consequently, this goes a long way to explaining why U.S. markets closed strongly higher," CMC Markets UK said.

Stocks to Watch

Fresenius is expected to continue being affected by a challenging environment at Fresenius Medical Care, weakness in the Vamed healthcare-facility business, and higher interest and tax, Jefferies said.

This could push a 2023 outlook below consensus. In particular, higher interest could affect Fresenius's net income guidance for 2023.

"Although we expect Fresenius to continue to be affected by the current macro environment, net income could be dampened by higher financial charges and tax," Jefferies said.

Management is also expected to give updates on group structure and potential reorganization when the company reports results on Feb. 22, Jefferies added. This should be a driver of the share price.

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Merck KGaA's long-term outlook is attractive, but its near-term share price outlook less so, Citi said.

"We find it difficult to see the shares outperform ahead of phase-3 evobrutinib data in December," Citi said, referring to the company's potential multiple-sclerosis treatment.

Consensus estimates for Merck's earnings will likely be lowered on the back of increasing foreign-exchange headwinds, prolonged weakness for the semiconductor and display solution businesses, and an underappreciated margin impact from Covid-related sales decline in the life-science business, Citi said.

It has downgraded the stock to neutral from buy.

U.S. Markets:

Futures are mostly gaining, putting stocks on pace to extend Wednesday's post-Fed bounce.

Strong results from Meta Platforms sent its stock flying in off-hours trading, in turn buoying Nasdaq futures.

It will be another busy day of earnings, with Eli Lilly, Honeywell, Alphabet, Amazon and Starbucks all scheduled to report.

Forex:

The dollar edged down, with Commerzbank saying Jerome Powell struggled to sound convincing about the Fed's resolve to fight inflation at Wednesday's policy meeting.

Currency traders seized every suggestion that the Fed was relaxing its stance, Commerzbank added.

"It made little difference that the Fed chair repeated over and over again that there would be further rate hikes and that there would probably be no rate cuts this year."

Fed-induced dollar volatility is likely to continue for some time as the Fed and markets disagree over the timing of rate cuts, Commerzbank said.

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The euro looks set to rise as the ECB is expected to raise interest rates by 50 basis points and signal further rate increases at Thursday's meeting, UniCredit Research said.

Christine Lagarde could sound "hawkish" again, reiterating the need for more policy tightening to curb inflation even as data on Wednesday showed inflation eased in January, UniCredit added.

"Tones of this type are set to convince investors to break further above [EUR/USD] 1.10, with 1.12 the next target on charts as a medium-term reference."

UOB Global Economics & Markets Research said EUR/USD may breach resistance at 1.1120, based on technical charts.

On Wednesday, the currency pair broke above its prior resistance level of 1.0930 and rose beyond the top of its weekly Ichimoku cloud for the first time since June 2021.

EUR/USD's movements have improved its technical outlook further, with UOB continuing to expect the currency pair to advance. However, it remains to be seen whether the 2022 high of 1.1495 is within reach over the next few months UOB added.

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Sterling hit a one-month low against the euro before Thirsday's rate decisions.

The ECB should increase rates by 50 basis points and reiterate the need to stay the course in policy tightening, arguably making it "the most hawkish G20 central bank," Vantage said.

The BOE is expected to lift rates by 50bp, although it could adopt a more cautious tone given receding inflation expectations and a slowing housing market, Vantage added. Some analysts see a risk of a smaller 25bp rise.

Read Pound's Losses May be Limited Even if BOE Lifts Rates By Less Than Forecast

Bonds:

Eurozone government bond yields were lower after the Fed slowed the pace of rate rises with a 25bp increase.

While the Fed intends to continue rate rises, it has given signals that it is approaching the end of the rising cycle, analysts said.

"The Fed made no attempts to push back against market pricing and the main message was that they are now data-dependent and more optimistic about inflation. This supports that the Fed is near the end of its hiking cycle," SEB said.

Energy:

Oil prices rose around 0.7%, helped in part from a weaker dollar.

Metals:

Metals prices in London made solid gains as the dollar extended its post-Fed losses.

Silver vs Gold

Silver has sharply outpaced gold's gains in the past three months, and its classification as both an industrial and precious metal may lead it on a path to even higher prices.

From Oct. 31 to Jan. 31, Comex silver futures climbed nearly 25%, outpacing gold's almost 19% climb, a "statistically unusual amount that shows the precious metals market is bullish on global economic growth in 2023," DataTrek Research said.

Read more here .

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

ECB and Bank of England Set to Top Fed With Bigger Rate Hikes

Europe's major central banks are set to increase interest rates by more than the Federal Reserve's move on Wednesday.

The European Central Bank and the Bank of England are both expected to lift their benchmarks by a half point, compared with the Fed's quarter-point rise yesterday.

   
 
 

Deutsche Bank Profit Rises on Booming Lending Business

Deutsche Bank AG's net profit rose in the fourth quarter on the back of higher interest rates and a tax gain, driving the lender to post its strongest year since 2007.

However, the fourth-quarter pretax results missed analysts' expectations as the investment-banking performance disappointed. Deutsche Bank shares fell as much as 4% Thursday in German trading, though remained up around 40% over the past six months.

   
 
 

Shell Posts $42 Billion Profit, Adding to Industry's Record Haul

LONDON-Shell PLC became the latest oil giant to post a record annual profit last year, joining American peers in surging back from early pandemic losses on soaring energy prices.

Shell's $41.6 billion full-year profit surpassed the London-based company's previous record of $31.4 billion in 2008, measured on a net current-cost-of-supplies basis-a figure similar to the net income that U.S. oil companies report.

   
 
 

KKR Makes Bid for Stake in Telecom Italia's Fixed-Network Assets

Telecom Italia SpA said Thursday it has received a nonbinding offer from KKR & Co. for a stake of a new entity that would house the Italian telecommunications company's fixed-line network management and infrastructure assets.

The company said the offer is for a stake to be defined, but on the understanding that the acquisition would result in the loss of vertical integration in relation to the company. No terms other for the offer were disclosed.

   
 
 

Roche 2022 Sales Grew, But Expects 2023 Decline on Covid-19 Products

Roche Holding AG reported sales growth in 2022, but said it expects a decrease in sales for 2023 due to a drop in the sale of Covid-19 products.

The Swiss pharma major posted sales of 63.28 billion Swiss francs ($69.65 billion) for the full year 2022, up from CHF62.80 billion in 2021 and in line with consensus expectations. Net profit declined to CHF13.53 billion from CHF14.94 billion the year prior, missing analysts' expectations of CHF15.09 billion.

   
 
 

Infineon 1Q Revenue Increased Amid Strong Automotive, Industrial Demand - Update

Infineon Technologies AG on Thursday posted higher revenue and profit for its fiscal first quarter as strong chips sales in the automotive and industrial segments offset weaker demand for smartphones, computers and data centers.

The German chip maker said revenue for the three months ended Dec. 31 climbed to 3.95 billion euros ($4.34 billion) from EUR3.16 billion the prior-year quarter. Infineon's automotive segment contributed EUR1.87 billion to the total.

   
 
 

Germany's Trade Balance Fell Slightly on Month in December as Exports Declined Sharply

Germany's trade surplus fell in December compared with the previous month as both exports and imports declined sharply, reflecting continued weakness in global demand and lower energy prices.

The country's adjusted trade surplus-the balance of exports and imports of goods-fell to 10.0 billion euros ($10.99 billion) in December from EUR10.9 billion in November, data from the country's statistics office Destatis showed Wednesday.

   
 
 

Santander Sees Higher Profitability in 2023

Banco Santander SA said Thursday that it expects higher profitability in 2023 after the bank reported a broadly flat net profit for the fourth quarter.

The Spanish lender said it is targeting double-digit revenue growth and a return on tangible equity-a key measure of profitability-above 15% in 2023.

   
 
 

ABB 4Q Net Profit Fell, Orders Declined

ABB Ltd said Thursday that its net profit declined in the final quarter of 2022 as orders declined.

The Swiss technology group said it made $1.13 billion in net profit for the fourth quarter compared with $2.64 billion for the prior-year period on revenue that increased 3% to $7.82 billion.

   
 
 

Publicis Reports 9.4% Organic Revenue Growth for Fourth Quarter

Publicis Groupe SA said Thursday that organic revenue grew 9.4% in the fourth quarter as its data and technology services continued to capture a shift in client spending.

The Paris-based advertising holding company, which owns agencies such as Saatchi & Saatchi, Leo Burnett and Zenith, said brands continued to move spending to tasks like managing first-party data collected from their consumers. It also cited demand for its digital business transformation offerings. The company and its competitors have developed consulting businesses to help clients adapt their businesses digitally, whether it be building apps or developing new e-commerce strategies.

   
 
 

ING 4Q Net Profit, Final Dividend Beats Expectations

ING Groep NV reported Thursday fourth-quarter net profit ahead of expectations and proposed a final dividend.

The Dutch bank posted a net profit of 1.09 billion euros ($1.20 billion), compared with EUR945 million a year earlier and with the EUR931 million expected in a company-compiled consensus. Net interest income was EUR3.86 billion, against consensus' expectation of EUR3.79 billion, which excludes a EUR315 million charge related to the change in targeted longer-term refinancing operations (TLTRO) terms.

   
 
 

Telenor Lifts Dividend After 4Q Earnings Beat Forecasts

Norwegian telecommunications provider Telenor ASA on Thursday posted a forecast-beating fourth-quarter net profit and raised its dividend as improved mobile growth in the Nordics boosted service revenue and earnings, despite increased energy costs.

The company posted a net profit of 37.91 billion kroner ($3.82 billion), compared with a net profit of NOK587 million a year earlier and versus a company-compiled median consensus of NOK31.32 billion. The company registered a gain of NOK32.9 billion in the quarter after closing the merger between its Malaysian mobile operator Digi and Axiata Group Bhd's Celcom.

   
 
 

EU Doubles Ukraine Military Training Effort

KYIV, Ukraine-The European Union will double the number of Ukrainian troops it trains to 30,000, a senior EU official said, in a sign of the bloc's continued support for Kyiv's war effort.

The EU launched a training mission for Ukraine's military in November and at the time said the aim was to teach battlefield skills to 15,000 people by May. EU officials say 10,000 Ukrainians have already been trained or are currently receiving individual, collective or specialized training.

   
 
 

Russia Claims Gains in Battle for Bakhmut

KYIV, Ukraine-Russian forces claimed new advances in their effort to encircle the eastern Ukrainian city of Bakhmut, while European leaders arrived in Kyiv to discuss further military aid.

Yevgeny Prigozhin, leader of Wagner Group, a Russian paramilitary organization that is leading the assault in Ukraine's east, said Wednesday that his forces had seized the village of Sacco and Vanzetti, north of Bakhmut. Rybar, a Telegram channel linked to the Kremlin, said Thursday that Wagner was claiming territory on the contested east side of the city, seizing a sparkling-wine factory and a meat-processing plant.

   
 
 

Ukraine Ramps Up Corruption Fight as Zelensky Races to Assure Wary West

Ukrainian authorities launched criminal cases against six former defense-ministry officials and raided the home of a former political backer of President Volodymyr Zelensky Wednesday, amid a flurry of attempts by Mr. Zelensky to show Western governments that he is serious about an anticorruption drive.

With billions of dollars in aid flowing into Ukraine monthly, Mr. Zelensky is under pressure from Western backers to take a firm stance against endemic Ukrainian corruption. He also faces calls from ordinary Ukrainians who are fighting and dying in the country's war with Russia to uproot corruption for good.

   
 
 

Airbus Revives Order From Qatar Airways Following Paint-Dispute Settlement

LONDON-Airbus SE agreed to revive orders for close to 75 aircraft from Qatar Airways after reaching a settlement with the Middle East airline over a long-running dispute about chipping paint on its A350 wide-body models.

A spokesman for Airbus said it would now go ahead with delivering 50 A321 narrow-bodies and 23 remaining A350 twin-aisles previously ordered by Qatar.

   
 
 

EU Tightens Oversight of Data-Privacy Regulators to Speed Up Decisions

European officials are introducing a new oversight process to monitor major data-privacy investigations following criticism of the glacial pace of enforcement, particularly against multinational tech firms.

Regulators that handle large-scale cases affecting people in more than one European Union country will need to report on their progress every other month to the European Commission, the EU's executive arm. The commission disclosed the new procedure in response to a complaint alleging that the commission itself had violated EU law by not properly overseeing the Irish privacy regulator.

   
 
 
   
 
 

GLOBAL NEWS

Stock, Bond and Crypto Investors Call Fed's Bluff on Interest Rates

The market's big comeback in January is indicative of one thing: Investors don't believe the Federal Reserve is going to keep interest rates high for long.

Stock and bond prices have jumped to start the year. Particularly risky assets have run up even faster.

   
 
 

Beneath the Surface, Fed Sees No Letup in Inflation Pressure

Recent readings on wages and prices have markets increasingly optimistic inflation can be brought down without a recession.

The Federal Reserve would love to agree, but it can't. Not yet, anyway. In its quarter-percentage-point rate increase Wednesday, the accompanying statement and Chair Jerome Powell's press conference, the central bank made it clear its views had not changed. Inflation is still too high and won't return to its 2% target without higher interest rates and a weaker labor market.

   
 
 

Silver Is Outpacing Gold. That's a Good Sign for the Global Economy.

Silver has sharply outpaced gold's gains in the past three months, and its classification as both an industrial and precious metal may lead it on a path to even higher prices.

From Oct. 31 to Jan. 31, Comex silver futures climbed nearly 25%, outpacing gold's almost 19% climb, a "statistically unusual amount that shows the precious metals market is bullish on global economic growth in 2023," wrote Nicholas Colas, co-founder of DataTrek Research, in a Jan. 25 report.

   
 
 

Rising Jet-Fuel Costs Threaten to Send Airfares Higher

Airfares have eased from last year's highs. Now a resurgence in jet-fuel prices is threatening to push them higher again.

Prices for the kerosene-based product have been climbing since December, propelled by diminished supplies after winter storms shut down refineries. Swelling demand has also pushed up prices, as millions of Chinese travelers took to the skies to celebrate the Lunar New Year and newfound freedom from Covid restrictions.

   
 
 

BOJ Deputy Gov. Wakatabe: Commitment to Monetary Easing Hasn't Changed

Bank of Japan Deputy Gov. Masazumi Wakatabe said Thursday that the central bank's easy stance and its commitment to achieving sustainable 2% inflation remain unchanged.

"The bank's commitment to continuing with monetary easing has not changed at all," Mr. Wakatabe said in a speech.

   
 
 

Fed Slows Its Tightening With Quarter-Point Interest Rate Rise

WASHINGTON-The Federal Reserve nudged up short-term interest rates by a quarter-percentage point and signaled it was on track to do so again at its meeting next month while officials consider whether and when to pause increases late this spring.

The decision Wednesday to raise the Fed's benchmark federal-funds rate followed six larger, consecutive increases to combat inflation, which hit a 40-year high last year. Officials raised rates by a half point in December and by 0.75 point in November.

   
 
 

North Korea Accuses U.S. of Raising Tensions

SEOUL-North Korea said the U.S. had pushed tensions on the Korean Peninsula to an "extreme red line," responding to recent promises by U.S. Defense Secretary Lloyd Austin to expand joint military drills with South Korea and enhance nuclear deterrence.

North Korea said it isn't interested in any contact or dialogue with the U.S. as long as Washington pursues what Pyongyang describes as a hostile and confrontational policy. The U.S. actions threatened to turn the Korean Peninsula into a "huge war arsenal," Pyongyang's Foreign Ministry said Thursday, adding that it would respond to military moves by the U.S. with "overwhelming nuclear force."

   
 
 

Biden, McCarthy Start Debt-Ceiling Talks to Prevent Default

WASHINGTON-President Biden and House Speaker Kevin McCarthy began face-to-face debt-ceiling discussions, with the latter expressing cautious optimism that they can come to a deal to avoid the first-ever default of the country's debt.

The meeting Wednesday afternoon at the White House came as Republicans in their new House majority have said they want an agreement to cut government spending in exchange for voting to increase the nation's borrowing limit, but haven't agreed among themselves on what cuts they want. The White House has insisted that there will be no negotiating over the debt limit and reiterated on Wednesday that Congress should raise it without conditions, though past presidents of both parties have negotiated on the topic.

   
 
 

House Republicans Probe Covid-19 Origins, Government Response

House Republicans kicked off hearings exploring the origins of the Covid-19 pandemic and scrutinizing the federal government's response.

The hearings on Wednesday, by the House Oversight and Accountability committee and an Energy and Commerce subcommittee, were the first in what is expected to be a series by Republican lawmakers who had been airing concerns about the Biden administration's handling of the public-health crisis and are now in charge of the chamber.

   
 
 

U.S., Philippines Strike Military-Base Deal

The U.S. reached an agreement that gives it access to four more military bases in the Philippines, broadening Washington's efforts to counter China's influence and strengthening an alliance that a few years ago appeared in danger of collapse.

"These efforts are especially important as the People's Republic of China continues to advance its illegitimate claims," U.S. Defense Secretary Lloyd Austin said, referring to Beijing's territorial claims in the South China Sea. Mr. Austin, who announced the deal Thursday along with acting Philippine Defense Secretary Carlito Galvez Jr., said the two sides discussed ways to strengthen their alliance and military capabilities.

   
 
 

Write to paul.larkins@dowjones.com

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

 

(END) Dow Jones Newswires

February 02, 2023 05:59 ET (10:59 GMT)

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