MARKET PACKAGING
Watch for:
Preliminary Flash Estimate of EU GDP, ECB Bank Lending Survey; Germany foreign trade price indices, retail trade, unemployment; France First estimate of GDP, consumer spending, PPI, provisional CPI; Unemployment in Italy, preliminary estimate of GDP; UK money and credit; trade updates from Hapag Lloyd, UBS, Unicredit, Swedbank
Opening call:
Stocks could start lower in Europe on Tuesday ahead of a wave of central bank meetings and corporate earnings this week. In Asia, equity benchmarks declined; Treasury yields earned; the dollar was stable; while oil and gold have lost ground.
Actions:
European equities are expected to pull back on Tuesday as investors remain cautious ahead of a slew of economic and corporate news in the coming week.
“Investors will have a better idea (we hope) of the outlook once the central bank decisions, job numbers and earnings reports are in the stock market,” IG said.
Federal Reserve officials are generally expected to raise interest rates by a quarter of a percentage point when their two-day meeting concludes Wednesday, trimming the size of the hike for a second straight meeting.
“The market has had a flying couple of weeks. But as we get closer to the Fed meeting, caution is something that is sure to creep in,” said Principal Asset Management. “We’ll probably see Powell reiterating that I’m not done yet.”
The European Central Bank and the Bank of England are also expected to hike interest rates this week, with policy decisions from both expected on Thursday. Inflation in Europe has yet to show the sustained decline that was seen in the US
“There is an emerging divergence between the Fed and the ECB,” Mediolanum International Funds said. “Forward-looking inflation data continues to fall in the US. In Europe, it is clear that the data is not doing the same yet.”
Forex:
The dollar was stable in Asia ahead of the two-day FOMC meeting.
Right now, the Fed seems unlikely to want to appear dovish, Pepperstone said.
So, with risks leaning towards a hawkish Fed in a market where leveraged funds are short in USD, the bias is slightly skewed towards USD rally, he added.
“The dollar is ending January with a familiar routine of death by a thousand cuts, bringing a new round of controlled bloodletting every week,” JPMorgan said, citing the Bank of Japan’s “(non)-drama” two weeks ago and the Bank of Japan’s latest alleged hike in Canada’s cyclical rate which spurred “an end to mini-tightening euphoria in cyclical FX”.
“The large decline in G10 money market yields this month has fostered a general sense of relief from central bank tightening pressures as global disinflationary trends have widened, in favor of risky exchange rates and at the expense of the dollar even as US-RoW rates have gone down not necessarily played ball.”
Bonds:
Treasury yields climbed as investors waited for the Fed’s decision, along with clues about future moves.
The expected 25 basis point increase represents a decline from the extraordinary 75 and 50 basis point increases seen in 2022, which contributed to a sharp sell-off in both bonds and equities.
“January saw the strongest offers for Treasuries since October 2021,” said Navellier & Associates. “Bond investors expect inflation to cool and the Fed’s key interest rate hikes to end soon.”
Another 25bp hike is expected in March when the Fed’s economic projections are updated. Two reports on non-farm jobs will be released ahead of the March meeting.
The Fed is likely to reiterate that it expects ‘continued hikes’ in interest rates to be appropriate. And Chairman Powell will likely use his press conference to dismiss market expectations for 50bps of rate cuts in the second half of this year. year,” UniCredit Bank said.
“To reinforce the message, the Fed may decide to include a line in the post-meeting statement that once rates climb to ‘tight enough’ levels, they will likely stay there for ‘some time.'”
Power:
Oil weakened in Asia, as strong Russian oil exports eased some fears about tight supply.
Uncertainty surrounds the demand and production outlook ahead of an expected interest rate hike by the Fed and a committee meeting of the Organization of the Petroleum Exporting Countries and their Allies, both scheduled for Wednesday.
Additionally, the European Union’s ban on imports of Russian petroleum products will begin on February 5.
“Aggressive sentiment for potential future rate hikes will give weakness to crude and refined products across the board,” said Kansas City energy team analysts at StoneX.
However, Yongan Futures remained positive on the near-term price outlook for oil, pointing to lower-than-usual inventory levels in Europe and the US, which could hint at more buying activity ahead.
China’s solid travel traffic during last week’s holiday period further brightens the oil demand outlook, as the country is likely to stage a strong economic recovery after the post-reopening infection surge, he added.
Metals:
Gold prices fell in Asia as the precious metal extended its recent trading pattern on the sly.
The safe-haven commodity has sustained a strong bull run in recent weeks on the back of global recession fears and continued geopolitical uncertainties.
But Galaxy Futures said recession fears could ease, as recent economic data out of the US and Europe proved more resilient than feared. This could increase investors’ appetite for risk and weigh on demand for assets such as gold.
Traders are waiting to see if the Fed’s Powell will try to draw investors down, signaling that the Fed is by no means done with its battle against inflation.
“Gold is seeing a modest corrective pullback and some mild profit taking by futures traders ahead of this week’s highly anticipated Federal Reserve monetary policy meeting,” Kitco.com said.
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Copper moved higher, supported by supply concerns.
Industrial metal prices could be supported by supply concerns from Peru and Chile, ICICI Direct Research said.
Furthermore, prices could rise on improved prospects for demand from China, the main consumer of the metals, he added.
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Chinese iron ore futures were lower, but analysts were bullish on long-term price increases on expectations of strong Chinese demand after it reopens.
Given the Chinese government’s efforts to rescue the country’s real estate sector and economic recovery after the pandemic, the iron market is likely to be bullish in the long run, Huatai Futures said.
TODAY’S TOP HEADLINES
Chinese services and manufacturing activity rebounded sharply in January
China’s official indicators measuring services, manufacturing and construction activity all rebounded sharply in January as the nation recovered quickly from a surge in Covid infections in the wake of a sudden reopening late last year. year.
China’s non-manufacturing PMI, which covers services and construction activity, rose to 54.4 in January, up sharply from 41.6 in December, the National Bureau of Statistics said on Tuesday.
The Biden administration considers cutting Huawei from US suppliers
WASHINGTON-The Biden administration is considering completely barring Chinese telecom giant Huawei Technologies Co. from U.S. suppliers over national security concerns by tightening export controls against the company, according to people familiar with the matter.
The move, if the administration goes ahead, would mark the latest salvo in a high-stakes confrontation between the world’s two largest economies as US policymakers seek to thwart China’s industrial policy that they say threatens Western interests.
An Israeli drone strike hit an Iranian weapons facility
An Israeli drone strike inside Iran has struck an advanced weapons manufacturing facility in an attack that Israel says achieved its objectives, according to people familiar with discussions of the operation.
The early Sunday morning operation was carried out by Israel’s intelligence agency, the Mossad, and targeted a Defense Ministry site in Isfahan, central Iran, hitting a building in four different areas with precision shots the people said. Satellite photos showed what appeared to be minor damage to the site’s roof, but people called the mission successful, without elaborating.
Flight Center acquires British luxury travel brand Scott Dunn
SYDNEY-Australian travel agency Flight Center Ltd. has agreed to acquire UK-based luxury travel brand Scott Dunn for an enterprise value of £121 million ($150 million).
Flight Center said on Tuesday that it will fund the deal with an A$181 million ($128.7 million) fully subscribed institutional placement and an A$40 million unsubscribed share purchase plan. It will also use A$40 million of existing cash.
The United States is lobbying Gulf states and the EU to increase aid to drought-stricken Somalia
MOGADISHU, Somalia-The United States is lobbying wealthy Persian Gulf states, as well as Europe, to ramp up humanitarian assistance to Somalia before a food crisis escalates into famine.
In a speech in the Somali capital, Linda Thomas-Greenfield, US ambassador to the United Nations, accused rich countries, American allies and adversaries, of failing in their moral obligation to feed the hungry.
Samsung Electronics operating profit drops 69% on lower technology demand
SEOUL-Samsung Electronics Co.’s fourth-quarter operating earnings plunged as the company’s core memory chip and smartphone businesses faced sharp declines in demand and high inventories.
The South Korean tech giant reported a 69% decline in operating profit in the fourth quarter from a year earlier on Tuesday due to a decline in demand for technology products including PCs and smartphones, and the semiconductors that make them up.
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Big events expected on Tuesday
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January 31, 2023 00:15 AM ET (05:15 GMT)
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