MARKET WRAPS
Stocks:
European stocks were sharply higher on Tuesday, buoyed by what’s likely to be a positive open on Wall Street, with this week’s U.S. jobs data and the latest Fed report the main focus of attention.
With a lack of major macroeconomic news diue today, it’s “hard to say if the current price action is being driven by real directional motivations from portfolio managers or if it is just a liquidity bull trap, covering some of last year’s short positions,” ActivTrades said,
Some analysts remained cautious on the year ahead.
“There is the potential for surprises this year to be of a more positive nature, of course, but as it stands, the outlook is understandably gloomy and will remain so unless something significant changes, either on the war in Ukraine or inflation,” said OANDA.
Stocks to Watch
For Fresenius Medical Care, reaching 2023 consensus profit estimates looks improbable and the recent resignation of CEO Kriwet underlines how much of a challenge an operational turnaround will be, Jefferies said.
The company is expected to report an adjusted 2022 net income at around EUR865 million, but stripping out various unusual items–which takes into account the underlying 2022 performance–that might be only EUR640 million.
From there, getting to consensus 2023 at EUR796 million seems unlikely, Jefferies said. Key headwinds in 2023 include no pandemic-related provider relief funding, higher labor costs and inflation.
Jefferies has cut the stock to underperform from hold with a EUR22 target price, from EUR29 previously.
Read Fresenius Has Options for Value Creation Amid Restructuring
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Supply constraints are likely to keep a lid on Thales’s top-line impetus in 2023, Jefferies said, cutting the rating on the stock to hold from buy and trimming the target price to EUR135.
Revenue growth should slow slightly on year for the group, as supply challenges cap civil and defense production, Jefferies said. Profitability should similarly be constrained by inflation, which could hit demand in some businesses.
Growth in defense budgets won’t yet boost momentum for Thales, Jefferies added.
U.S. Markets:
Stock-market futures were more than 1% higher to start the new year after investors closed out 2022 with punishing losses.
Investors are in for a busy shortened week, with a slew of economic data due, including manufacturing PMI and construction spending expected Tuesday, the job openings and labor turnover survey on Wednesday and the December jobs report due on Friday.
On Wednesday, the Fed will also release minutes from its latest meeting.
Stocks to Watch
Semiconductor stocks, including Advanced Micro Devices, Nvidia and Intel gained premarket, with AMD and Nvidia each adding more than 2%. Intel rose 1.7%.
Tesla delivered fewer vehicles in 2022 than it initially targeted. Shares fell more than 3% premarket.
Li Auto reported record-high monthly delivery figures for December last Friday, rounding out 2022 with a 47% increase in deliveries for the year. Li Auto’s ADRs rose more than 7% premarket. Stock in rivals NIO and XPeng also gained ahead of the opening bell.
Forex:
The euro could rise against the dollar if the U.S. nonfarm payrolls report on Friday shows signs of a slowdown in the labor market on the back of the Federal Reserve’s interest rate rises, Commerzbank said.
In this case, the market might consider the European Central Bank’s more cautious approach to be more appropriate, Commerzbank added.
“If first signs of a slowdown were to appear, with the labor market disappointing EUR/USD might move up further as early as this week, aiming for the 1.08 mark.”
Read Euro Could Head Back Towards Parity Vs Dollar
Riksbank/Swedish Krona
The Riksbank’s next interest rate decision in February will be key for the Swedish krona as it may show the views of new members Governor Thedeen and Deputy Governor Bunge, Commerzbank said.
At this stage it’s impossible to say whether the two new members fall into the “hawkish” camp that favors policy tightening or the “dovish” camp that favors more cautious policy, Commerzbank added.
“That is likely to be the big surprise in February unless Thedeen and his colleague Bunge comment beforehand. Until then SEK might struggle to appreciate significantly against the euro.”
Read Japanese Yen Could Recover Further After BOJ Policy Tweak
Bonds:
Investors should consider keeping shorts in German Bunds, Societe Generale said, pointing to further interest-rate rises by central banks and expecting yields to rise. “The jumbo rate hikes are over, but we are far from a monetary policy pivot.”
Given stronger-than-expected government bond supply, while central banks are firmly hawkish, Societe Generale remains bearish. It expects 10-year Bund yields to approach 3%–the upside scenario in their outlook for 2023–in the first quarter of the year.
Read Abundant Government Bond Issuance in Eurozone Expected in January
Greece Rating
Greece, which will hold a parliamentary election this spring, could regain its investment grade rating in October 2023, which should trigger a rally in the Greek government bond market, Societe Generale said.
Credit rating agencies have become more cautious with European sovereigns due to the energy crisis and the impact of rising prices on European governments’ public finances, but Ireland, Portugal, Greece and Cyprus proved resilient and continued to be upgraded in 2022, Societe Generale said.
In aiming to hedge against the risks of a divergence of rating actions on Italy and Greece, Societe Generale has recommended buying 10-year Greek bonds versus 10-year Italian BTPs.
Energy:
Oil regained some momentum in Europe, rebounding from losses in Asia to post modest gains, as investor confidence in demand rising in the near term, grows.
“With the expectation of the Covid curve in China bending favorably, although at dangerously high caseload levels, green shoots on the mobility front, and a pro-growth People’s Bank of China, it seems for today anyway, oil traders are looking through the weaker PMI data,” SPI Asset Management said.
China’s Caixin manufacturing PMI for December came in at 49.0, down from 49.4 in November.
Metals:
Gold prices hit their highest level in six months, before retreating slightly, as prospects of a recession and a tapering in interest rate hikes boosted investor confidence in the precious metal.
“We are looking for a price friendly 2023 supported by recession and stock market valuation risks, an eventual peak in central bank rates combined with the prospect of a weaker dollar and inflation not returning to the expected sub-3% level by year end all adding support,” SaxoBank said.
Central-bank buying of gold also provides a soft floor for prices, it added.
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Industrial metals were mixed, despite most macro-led markets opening on a more bullish tone.
“Traders are optimistic that China’s reopening will benefit global risk assets and commodity demand, even as the country continues to struggle with Covid,” Peak Trading Research said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Tourism and Manufacturing Fight for the Future of Power in Europe
SAN CIPRIAN, Spain-Europe’s plans to install wind and solar power are accelerating in the wake of the invasion of Ukraine, which drove up natural-gas prices sharply. They’re running into opposition from residents and officials who say a wave of new projects will harm the region’s landscapes, cultural sites and valuable tourism industry.
In the Galician countryside of northwest Spain, Maria Martin and her husband opened an inn six years ago offering vacationers a tranquil refuge. The ocean is a few miles away, and the Basilica de San Martiño de Mondoñedo, Spain’s oldest cathedral and an attraction for pilgrims walking the famed Camino de Santiago, lies in the same valley.
Ukraine Strikes Russian Forces in Donbas in Deadliest Attack in Months
KYIV, Ukraine-A Ukrainian strike killed dozens of newly mobilized soldiers in Russian-held eastern territory, marking the deadliest known assault in months and pressuring Moscow’s military leadership, while Kyiv said it shot down at least 39 drones during another wave of attacks on the capital.
Russia’s Defense Ministry said Monday that Ukrainian forces used a U.S.-supplied Himars rocket system to destroy a facility used as a base for mobilized troops in the city of Makiivka, in the Donbas area of eastern Ukraine. In a statement carried by Russian state news agencies, the ministry said 63 troops had died in the blast after four Himars rockets carrying high-explosive warheads struck the facility.
Brenntag Shares Jump After It Walks Away From Univar Takeover Talks
Brenntag shares rose on Tuesday as investors reacted positively to news that it ended talks to take over U.S. rival Univar Solutions Inc.
The German chemicals distributor said it decided to no longer proceed with early-stage discussions on a potential acquisition of the Illinois-based company.
Shares at 0815 GMT were up 4.7% to EUR63.54.
Cineworld Isn’t in Talks With AMC Entertainment Holdings
Cineworld Group PLC said Tuesday that neither the company nor its advisors are in talks with AMC Entertainment Holdings Inc. regarding the sale of its cinema assets.
The London-based cinema company–which owns Regal Cinemas–added that it has been in talks with its key stakeholders since September to develop a Chapter 11 reorganization plan to maximize value for moviegoers and other stakeholders.
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