MARKET WRAPS

Watch For:

Manufacturing PMI for eurozone, Germany, France, Italy, UK; EU flash estimate euro area inflation, unemployment; Italy provisional CPI, cities CPI; UK narrow money and reserve balances, nationwide house price index; trading updates from BBVA, Novartis, Galp, GSK, Novo Nordisk, Sberbank, Vodafone Group, Entain, Glencore, Imperial Brands, Ryanair

Opening Call:

Shares could open mixed in Europe on Wednesday. In Asia, stock benchmarks were mostly higher; Treasury yields were mixed; the dollar weakened; while oil advanced and gold retreated.

Equities:

European stocks are set for a mixed start on Wednesday, as investors await the release of eurozone economic data and brace for central bank interest rate decisions this week.

Investors are eager to parse the Federal Reserve's statements at Wednesday's meeting for hints at the future path of policy-the Fed is broadly expected to raise interest rates by a quarter percentage point. Tuesday's data showing that wage gains are cooling buoyed hopes that waning inflation could prompt officials to pause rate increases in the months ahead.

Money managers are tracking corporate earnings for guidance on inflationary pressures facing businesses and their expectations for how the economic backdrop will affect profits.

Meanwhile, the U.K. looks likely to be the only major world economy set to shrink in 2023, doing worse even than sanction-hit Russia, the International Monetary Fund warned in an update.

"Investor sentiment remains uncertain in Europe, with the [domestically focused] FTSE 250 particularly coming under pressure following an IMF report that forecast the UK to be the only nation they covered to contract in 2023," IG said.

Forex:

The dollar was weaker in Asia ahead of the FOMC meeting outcome due later in the day.

Market participants are nervous over a possible hawkish policy surprise from central banks including the Fed this week, said MUFG Bank.

Also, a lot of good news has already been priced into markets on expectations of China's economy reopening more fully, it added.

With a 25-basis-point rate increase well baked in, the FOMC's announcement should be more about the language, Silicon Valley Bank said.

"Stocks are questioning how hawkish FOMC language can be given that we're decelerating." The dollar isn't getting as much of a lift from rates and risk aversion lately, where last year they moved more in lockstep, Silicon Valley Bank said.

"Last year it was all about the Fed and US. This year it's about what's happening overseas and by the way, we're waiting for two big 50 bp increases from the European Central Bank and Bank of England. If that happens the interest rate differential shrinks even more."

---

ING said the pound is at risk of falling ahead of expected 50bp rate rises by the Bank of England and the European Central Bank on Thursday, especially if eurozone inflation data on Wednesday come in strong.

EUR/GBP may hold below 0.8800 until Thursday's decisions, but the upcoming inflation data "mean the balance of risk is tilted to the upside for the pair," ING said.

"The euro... may show more resilience than other G10 peers--especially high-beta currencies--given the shift in the inflation narrative in the eurozone which can surely fuel ECB hawkish speculation."

Bonds:

Treasury yields were mixed ahead of an expected reduction in the pace of interest-rate increases by the Fed.

Investors are watching for Fed Chair Powell's comments after the FOMC meeting. Many analysts expect the Fed to hike only once more, in March, and pivot to cutting later this year. A hawkish Powell may refute that notion and spark a bond selloff, pushing yields higher.

"Powell is expected to strike a hawkish tone which is in contrast to market expectations over the Fed cutting rates near the end of 2023. This means the disconnect between the Fed and markets may add more spice to the pending meeting, as investors seek fresh clues on what to expect from the central bank this year," FXTM said.

Fed officials face a "communications challenge," said High Frequency Economics.

"Policy makers keep repeating a higher-for-longer message on rates, but markets are convinced that the Fed will capitulate as inflation slows and the economy weakens," it said.

"That divide could widen as GDP slows and the markets' conviction that the Fed will ease gets stronger, but the Fed's resolve to bring inflation back to target is not likely to weaken."

Energy:

Oil prices were slightly higher in Asia, recovering from recent losses triggered in part by easing supply concerns amid strong Russian export data.

Galaxy Futures pointed out that investors' risk appetite may be decreasing ahead of the upcoming Fed meeting and guidance from oil producer group OPEC and its allies.

The brokerage expects continued volatility in the near term, as investors weigh the risk of a potential global recession and the supply impact of geopolitical factors.

Commerzbank said "headwind is being generated by generally negative market sentiment ahead of this week's numerous central bank meetings and by the persistently high Russian oil exports."

Meanwhile, "the main driver for oil lately has been the potential for a resurgence of oil demand out of China, which may continue into February considering how Chinese economic momentum picked up in the overnight PMI reports," SIA Wealth Management said.

Metals:

Gold prices nudged lower in Asia, extending a rangebound trading pattern marked in recent sessions, as the precious metal pulled back after soaring gains.

Metals market research firm Metals Focus pointed out that gold's recent rally has mainly been driven by expectations of a potential global recession, which may lead the Fed to slow interest-rate increases and raise gold's risk-reward profile.

But the Fed's hawkish stance may also persist amid recent resilient economic data from the U.S. and continued inflation risk due to geopolitical tensions, it cautioned. The upcoming Fed meeting will be "very important" for investors to monitor, it said.

"Recent dollar strength has derived from the possibility that the central bank may indicate that rates will rise further and remain elevated for longer than previously expected," said ActivTrades.

"This is a scenario that penalizes gold prices, capping any upside generated by lingering recession fears and high inflation, with the dollar assuming the role of preferred refuge asset."

---

Copper edged higher, supported by signs of China's economic rebound.

Data released Tuesday showed China's official gauges measuring services, manufacturing and construction activity all rebounded sharply in January.

Sentiment toward base metals such as copper have been boosted by these data, said ANZ Research.

---

Chinese iron-ore futures rose, as demand was buoyed by optimism over China's economic recovery.

Iron ore reclaimed some of Tuesday's declines, as steelmakers' profits have improved recently and the average daily iron melt output rebounded over the Lunar New Year break, China Shenhua Futures said.

It expects ferrous metals to remain bullish in the short term.

   
 
 

TODAY'S TOP HEADLINES

China Caixin Manufacturing PMI Improves, But Stays in Contraction

A private gauge of China's manufacturing activity improved in January but remained in contractionary territory for the sixth straight month.

The purchasing managers index rose to 49.2 in January from 49.0 in December, according to data released Wednesday by Caixin Media Co. and S&P Global. The 50-mark separates expansion from contraction.

   
 
 

U.S. Says Russia Has Violated Nuclear-Arms Treaty by Blocking Inspections

Russia has violated the New START treaty cutting long-range nuclear arms by refusing to allow on-site inspections and rebuffing Washington's requests to meet to discuss its compliance concerns, the U.S. State Department said in a report sent to Congress on Tuesday.

The State Department's finding that Moscow is in "noncompliance" with the accord marks the first time that the U.S. has accused Russia of violating the treaty, which entered into force in 2011.

   
 
 

Elon Musk Warned About Incoming EU Social-Media Law

BRUSSELS-A top European Union official told Elon Musk on Tuesday that Twitter Inc. will have to do more over the coming months to prepare for the bloc's new social-media regulations.

Thierry Breton, the EU's commissioner for the internal market, told Mr. Musk during a video call that there were only a few months left before major online platforms like Twitter will have to be fully compliant with the Digital Services Act. Mr. Musk has previously said that he intends to comply with the EU's new rules.

   
 
 

Snap Warns of Sales Drop After Revenue Growth Stalls

Snap Inc. warned sales in the current quarter are likely to drop after revenue growth stalled in the final three months of last year, illustrating the difficult market conditions social-media companies are having to navigate.

The Snapchat parent said it generated $1.3 billion in sales in the fourth quarter, roughly flat from the year-earlier period and broadly in line with Wall Street's expectations. The growth figure was the lowest for Snap since going public almost six years ago.

   
 
 

AMD's Profit Plunges Amid Weaker PC Sales

Advanced Micro Devices Inc. reported Tuesday a 98% decline in net income for the fourth quarter as operating expenses more than doubled and sales linked to its PC clients were cut in half.

The Santa Clara, Calif.-based chip maker, whose central processing units are used to build videogame consoles and gaming PCs, said net income for the period fell to $21 million, or 1 cent a share, from $974 million, or 80 cents a share, for the same period a year earlier. The company said the decline was mostly linked to its acquisition of semiconductor company Xilinx Inc.

   
 
 

PayPal to lay off 7% of employees as part of cost-cutting push

PayPal Holdings Inc. plans to lay off about 7% of its staff as it continues with broader efforts to reduce costs.

Chief Executive Dan Schulman announced the layoffs, which will affect about 2,000 PayPal PYPL employees, in an email to the staff Tuesday afternoon.

   
 
 

Write to singaporeeditors@dowjones.com

   
 
 

FROM FINANCIAL NEWS

Twenty Most Influential in Crypto 2023

The inaugural Financial News list of the Twenty Most Influential in Crypto comes at an inflection point for the industry

Prices crashed in last year's 'crypto winter', leading to some high-profile collapses and lay-offs. Combined with allegations of fraud at crypto exchange FTX, that has given fuel to critics of the sector. But the senior executives on our list are confident the industry can turn things around, as institutional adoption of crypto grows and regulations are put into place. The list is a broad overview of the sector, including senior leaders at asset managers, banks, exchanges, custodians, regulators, blockchain firms and more. >> Read More

A subscription may be required. This content was created by Financial News, which is operated by Dow Jones & Co. Financial News is run independently from Dow Jones Newswires and The Wall Street Journal.

Expected Major Events for Wednesday

00:01/UK: Jan Shop Price Index

01:01/IRL: Jan Ireland Manufacturing PMI

06:00/NED: Jan Netherlands Manufacturing PMI

07:00/TUR: Jan Turkey Manufacturing PMI

07:00/UK: Jan Nationwide House Price Index

08:00/POL: Jan Poland Manufacturing PMI

08:15/SPN: Jan Spain Manufacturing PMI

08:30/CZE: Jan Czech Republic Manufacturing PMI

08:30/SWI: Jan procure.ch Purchasing Managers' Index

08:45/ITA: Jan Italy Manufacturing PMI

08:50/FRA: Jan France Manufacturing PMI

08:55/GER: Jan Germany Manufacturing PMI

09:00/GRE: Jan Greece Manufacturing PMI

09:00/EU: Jan Eurozone Manufacturing PMI

09:30/UK: Jan S&P Global / CIPS UK Manufacturing PMI

09:30/UK: Jan Narrow money (Notes & Coin) and reserve balances

10:00/CYP: Nov Retail trade

10:00/EU: Dec Unemployment

10:00/DEN: Jan Danish PMI

10:00/EU: Jan Flash Estimate euro area inflation

10:00/ITA: Jan Cities CPI

10:00/ITA: Jan Provisional CPI

10:00/GRE: Dec Labour Force Survey

11:00/IRL: Jan Monthly Unemployment

16:59/AUT: Jan Unemployment figures

All times in GMT. Powered by Kantar Media and Dow Jones.

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

 

(END) Dow Jones Newswires

February 01, 2023 00:16 ET (05:16 GMT)

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