MARKET WRAPS
Stocks:
European stocks traded lower on Friday ahead of a likely lower U.S. open, as sentiment has soured following last week's jobs report, and as investors looked to the U.S. CPI data next week.
"Futures hint at a bearish open as U.S. stocks failed to keep up with the European optimism on the back of rising option bets that the Federal Reserve could hike the rates to 6%," Swissquote Bank said.
"The inversion between the U.S. 2 and 10-year yields hit the highest levels since 1980s, as the Fed members' calls for higher rates finally started kicking in."
Swissquote said option traders "are piling into bets that the U.S. rates could peak at 6%."
Stocks to Watch
Legrand's unfavorable mix is likely to mean it will underperfom relative to electrical peers, despite its high margin and strong free-cash-flow capabilities, Deutsche Bank said.
DB points to Legrand's exposure to the residential sector as the reason for the French company's unfavorable mix.
It raised its target price to EUR90 from EUR86 and has a hold rating on the stock.
Read Legrand's Russia Exist Could Weigh on 2023 Sales
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Vinci should continue to benefit from energy-transition demand and digitalization in 2023, while reopened travel ought to provide tailwinds at its airports division, Jefferies said.
"We have consistently pointed to the Energies (including Cobra) and the Airports platform as key reasons to own Vinci."
The French company's 2022 result shows underlying momentum and profitability remain strong, Jefferies said.
It forecasts 16% growth in passenger numbers at Vinci airports in 2023 and increased its topline outlook for Vinci Energies and Cobra to 7.5% and nearly 13%, respectively.
Jefferies raised its target price on Vinci shares to EUR125 from EUR115.
Eurozone Economy
The eurozone economy performed better than expected in 4Q 2022, but the region is set for a tough 2023 amid the impact of higher interest rates, Oxford Economics said.
The most severe scenarios for the economy have been averted with the easing in energy prices, but the economy is expected to contract in 1Q and the recovery in 2H could underwhelm if the hit from high interest rates is stronger, it added.
Still, the labor market is set to remain resilient, a key factor behind the upside growth forecast revisions and only modest falls in spending, Oxford Economics said, however, this strength will also likely convince the ECB to continue increasing interest rates.
U.S. Markets:
Stock futures slipped, with the S&P 500 on track for its worst week since mid-December.
"Sentiment has soured a bit and that's following that very strong jobs report on Friday last week," Invesco said.
"The market was confident that we would be looking at interest-rate cuts later this year, but the strong data has thrown a spanner in the works to that narrative."
Forex:
The scope for the euro to rise on any further hawkish comments from European Central Bank officials about the need for further interest rate rises might be limited, ING said.
Yesterday's lower-than-expected German inflation data might have made investors more cautious about another EUR rally, ING added.
"In this sense, the ability of ECB speakers to lift the euro appears diminished."
"One of the most prominent hawkish voices in the ECB, Isabel Schnabel, will participate in a live Q&A today, although her message on the need for more tightening has already been passed through to asset prices," ING said.
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Sterling rose against a weaker dollar but was little changed against the euro after data showed the U.K. economy narrowly avoided a recession last year despite a worse-than-expected contraction in December.
U.K. gross domestic product fell 0.5% month-on-month in December, more than the 0.3% fall expected by analysts in a WSJ survey. However, GDP was unchanged between the third and fourth quarters.
"The fact that the fourth quarter's weakness was heavily concentrated in December means the starting point for the first quarter is pretty low, and means we'll almost certainly get a contraction in the first quarter, " ING said.
Read Weak UK Economic Outlook Seen as Headwind for Pound
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The dollar may lack clear direction until the release of U.S. inflation data next Tuesday, ING said.
While today's University of Michigan's consumer sentiment survey could have some market impact, the inflation report is the "real risk event," ING said.
"And if the general risk environment proves resilient for another session today, the dollar should still find a floor on the back of some defensive positioning ahead of next week's inflation data, as happened in the run-up to the Fed meeting."
The DXY dollar index may remain near 103 into next week's inflation data, ING added.
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The Swedish krona looks set to recover as the Riksbank showed determination to fight inflation at yesterday's meeting, Commerzbank said.
Read more here
Bonds:
The 10-year German Bund yield continues to trade in the 2%-2.50% range that has been prevailing since October and is likely to remain there, UniCredit Research said.
"With a very light data calendar today, more range trading for government bonds is to be expected."
In the U.S., the 10-year U.S. Treasury yield is close to 3.70%, "a breach of which could pave the way to a rise towards the 3.90% area," UniCredit said.
Investors should see phases of rising yields as buying opportunities as inflation is expected to moderate on the medium-term, paving the way for lower policy rates, it added.
Read Market Pricing of ECB Peak Rates to Drive Eurozone Bond Yields
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Eurozone government bond yield spreads seem immune to hawkish talk by central banks and the market seems to cope with supply pressures as well, Societe Generale said.
"We acknowledge that the risk of supply-induced pressures is fading gradually and that a massive widening of country spreads is less and less conceivable."
The strategists focus mainly on relative value opportunities and potential returns adjusted for spread volatility, SG added.
In a trade idea, Societe Generale entered long position in Spanish two-year government bonds versus German peers given the good risk-adjusted carry offered by Spanish bonds, it said.
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The government bonds of smaller eurozone countries often price in a liquidity premium, but they could benefit from increasing risk appetite, Societe Generale said.
The improvement in market-risk appetite should therefore benefit smaller eurozone government bond markets such as the Finnish and Austrian ones, it added.
"Smaller EGB [eurozone government bond] markets could outperform larger ones as the liquidity premium narrows and fundamentals improve."
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Read Real Bond Supply Tests in Eurozone Are Still Ahead
Energy:
Brent crude oil jumped by more than 2% after media reported that Russia plans to slash output by 500,000 barrels a day next month in response to Western-impose price caps on its oil exports.
Brent gained 2.5% at $86.60 a barrel after the reports carried by Reuters and Bloomberg. WTI rose 2.8% to $80.25 a barrel.
The steps were taken in response to Western measures which banned Western insurers and shipping firms from handling Russian crude exports unless it was sold below a set price, the news agencies reported.
Read more here
Oil Outlook
Goldman Sachs lowered its price forecasts for crude as it expects oil markets to be slightly less tight than previously thought.
The Wall Street bank lowered its forecast for every quarter between now and the end of 2024 by around $5 a barrel.
Goldman expects prices to rise to $90 a barrel next quarter then edge higher by around $5 a barrel each quarter until plateauing at $100 a barrel for all of 2024.
Weak Russian output, limited U.S. shale oil production growth and increasing China demand means the bank still expects oil markets to tighten into a deficit by 2024.
"We still see the China comeback as the most persistent driver of the outlook," it said.
Metals:
Base metals prices were falling, while gold edged up, after higher inflation figures from China added to worries over consumption recovery in the country.
"While most agree the overall economic growth will recover in China this year, there appears to be a lack of conviction on the magnitude of that rebound," SPI Asset Management said.
"Many local traders now think this year's household consumption recovery could be slower than expected, given the scarring effects of property deleveraging and the legacy of three years of Covid controls."
DOW JONES NEWSPLUS
EMEA HEADLINES
Russia to Cut Oil Production, Sending Prices Higher
Russia said it plans to cut its oil production by around 500,000 barrels a day, or about 5%, next month, sending crude prices higher in a move that Moscow said was in response to Western sanctions.
Russia throttled back and then halted most exports of natural gas to Europe in response to sanctions imposed on Moscow after it invaded Ukraine. It has threatened to use its vast production of all sorts of commodities, including oil, to punch back against those economic restrictions.
U.K. Ekes Out Economic Growth, Boosted by World Cup
LONDON-The U.K.'s economy returned to growth as 2022 drew to a close, partly thanks to soccer fans driving up sales at pubs during the World Cup. But many economists still expect a recession and several years of anemic expansion.
Britain's economy grew at an annualized rate of 0.1% in the three months through December, having contracted 0.7% during the previous three months, the Office for National Statistics said Friday. That allowed the country to avoid a predicted recession, which is usually defined as two consecutive quarters of contraction.
Adidas Warns of Losses Stemming From Yeezy Fallout
Adidas AG warned it could swing to a loss in 2023 should it fail to sell its inventory of Yeezy shoes, following the termination of its partnership with rapper Kanye West.
(MORE TO FOLLOW) Dow Jones Newswires
02-10-23 0620ET
