UKX FTSE 100 Index

MARKET WRAPS

Watch For:

ECB survey of monetary analysts results, retail trade; Germany manufacturing orders, manufacturing turnover; UK construction PMI; trading updates from Sberbank, Evraz, Smith & Nephew, Norwegian Air Shuttle

Opening Call:

Shares may start lower in Europe on Monday after the U.S. monthly jobs report beat expectations, stoking fears that interest rate increases may continue longer than expected. In Asia, stock benchmarks were mixed; Treasury yields rose; the dollar gained; while oil was steady and gold advanced.

Equities:

European stocks could fall on Monday after an unexpectedly strong surge in U.S. January nonfarm payrolls reversed Wall Street's perception that the end of the Fed's rate increases is near.

Although the jobs data may have rattled stock-market investors, some argued that the overall picture points to a more favorable picture for economic growth and inflation.

"The strong jobs report tells me more and more people have burned through their excess savings and going back to work. This is also helping to keep wage increases under control with a modest 0.3% increase, " said Bryce Doty, senior portfolio manager at Sit Fixed Income Associates.

"There is a combination of improving supply and consumer demand falling as savings evaporate. This phenomenon helps explain how the pace of inflation is slowing more quickly than expected," he said, while arguing the Fed will "continue to misinterpret this process of a normalizing job market and want to punish the economy further."

Others are worried that stocks have climbed too far too fast.

"I don't really see how we have this sort of pie-in-the-sky, goldilocks" scenario for stocks in a universe of still relatively high inflation, said Patrick McDonough, a portfolio manager at PGIM Quantitative Solutions, in a phone interview Friday. "We're not going to zero again," he said of interest rates.

"So why would we continue to see these speculative growth companies that did well in a zero rate environment outperform?," said McDonough. "I find that very strange."

Meanwhile, "after the Fed and BoE both hinted at being close to the peak in their cycles," the ECB's meeting suggests it is comfortable it is also close to the end of its monetary tightening," Aviva Investors said. "We believe this peak tightening backdrop will continue to reduce volatility in government bonds over the coming months and make for an attractive income opportunity."

Forex:

The dollar gained strength in Asia after the latest U.S. nonfarm payrolls data exceeded expectations.

The labor data has traders pricing in a greater chance of rate increases at the March and May FOMC meetings and lower odds of cuts later in the year.

Despite the strong data, "leading economic indicators are still consistent with our view that the U.S. economy will be in a recession before long," Capital Economics said.

It believes deteriorating risk sentiment amid recessions in the U.S. and other advanced economies will drive the dollar higher through the middle of this year.

Bonds:

Treasury yields advanced after the much stronger-than-expected U.S. January jobs report clouded investor expectations for the Fed to end its interest rate hiking cycle in coming months.

For May, investors now see a 61.3% chance of another quarter-point rise to 5% to 5.25%, the level which the Fed has signaled is its expectation for a peak.

Traders will "need to contend with the coming week's Treasury refunding supply after the post-jobs report selloff, which may limit any near-term Treasury market rebound," Oxford Economics said.

"That has the potential to keep yields in the ranges that have been holding since early January. That would leave the 10-year yield trading around the 3.50% level, the 5-year yield around 3.55%, and the 2-year yield around 4.20%."

Energy:

Oil prices were steady after swinging between mild gains and losses, but could be weighed by Fed tightening concerns after the stronger-than-expected U.S. economic data released Friday.

A strong labor market could complicate what the Fed does on monetary policy and keep risks of more tightening on the table, said Oanda.

After last week's price decline, investors will focus on the extent of a demand recovery by China, as well as the impact of a European Union embargo on imports of Russian fuel products that took effect on Feb. 5 and an anticipated deal on price caps will play out, said Commerzbank.

"Just like with the Russian crude sanctions, the EU ban on Russian oil products is unlikely to take barrels off the market," said Kpler. It's "just going to cause a rejigging of global flows - hence it will have a muted impact."

Metals:

Gold rose in a likely technical rebound after gold futures settled at their lowest level in more than three weeks on Friday.

Gold took a hit Friday because "the positive surprise on the jobs number is a strong indication that the [Federal Reserve] has more than a single rate hike left in it," said Gold Newsletter.

The yellow metal was hit harder than equities because "it's been outperforming stocks over the last few months," it said. Profits were taken by "those who have enjoyed that ride."

Long-term holders of the precious metal, as well as emerging-market central banks, may view gold's recent decline as another buying opportunity, given geopolitical uncertainty and ongoing USD diversification, said SPI Asset Management.

---

Copper fell amid concerns over China's economic recovery.

There are doubts over the pace of the country's rebound from the recent Covid-19 measures, said ANZ Research, citing high-frequency data from Bloomberg which showed muted improvement of China's economy in January.

Also, the copper market appears to have shrugged off risks of further supply disruptions, it added.

---

Chinese iron-ore futures edged lower, extending last week's losses, but may remain supported on rising demand.

Inventory levels of iron-ore with steel mills is low after the Spring Festival and their willingness to purchase is increasing due to the price drop, Nanhua Futures said.

It is not "cost-effective" to continue to short the commodity given its spot price is strong, while the futures price falls sharply, it said, adding that it remains optimistic about the price growth.

TODAY'S TOP HEADLINES

Upbeat Economic Data Keep Investors on Edge About Fed

The U.S. labor market remains incredibly strong. Investors can't decide if that is a good or bad thing.

At first glance, Friday's jobs report seemed to have very little for money managers to dislike. The U.S. economy added a whopping 517,000 jobs in January, while the unemployment rate fell to its lowest level since 1969, according to Labor Department data.

Russia Sanctions Challenge Tight U.S. Diesel Market

U.S. fuel markets held steady in December after Western sanctions on Russian crude reshuffled global oil shipments. New restrictions that take effect Sunday could prove more complicated.

The measures, which target most of Russia's refined petroleum products, threaten to take supplies off the market as the country looks for new trading partners. Any confusion could buoy prices for diesel and other fuels that have remained stubbornly high since the Kremlin launched its invasion of Ukraine last year.

Russia Builds Pressure on Ukraine Along Front Line

MYKOLAIV, Ukraine-Russian forces are putting pressure on Ukraine along a growing portion of the front line, with attacks coming in the Luhansk and Zaporizhzhia regions in recent weeks, in addition to the fierce fighting around Bakhmut in the Donetsk region.

Bakhmut, in eastern Ukraine, is increasingly being cut off from other Ukrainian-held territory, according to the British ministry of defense, as Moscow continues to make progress in its efforts to encircle the city.

Powerful Earthquake Strikes Turkey With Fears of High Casualties

ISTANBUL-A strong earthquake shook southern Turkey on Monday, killing at least five people and destroying dozens of buildings, Turkish authorities said, in the country's worst seismic event in years.

The 7.8-magnitude quake was felt across a large region with multiple aftershocks, rocking an area that houses millions of Turkish citizens, displaced Syrians and refugees. The U.S. Geological Survey warned "significant casualties are likely."

Moscow, Tehran Advance Plans for Iranian-Designed Drone Facility in Russia

Moscow and Tehran are moving ahead with plans to build a new factory in Russia that could make at least 6,000 Iranian-designed drones for the war in Ukraine, the latest sign of deepening cooperation between the two nations, said officials from a country aligned with the U.S.

As part of their emerging military alliance, the officials said, a high-level Iranian delegation flew to Russia in early January to visit the planned site for the factory and hammer out details to get the project up-and-running. The two countries are aiming to build a faster drone that could pose new challenges for Ukrainian air defenses, the officials said.

Ukraine War Makes Unexpected Winner of Turkey's Erdogan

ANKARA, Turkey-Russia's invasion of Ukraine one year ago unleashed global economic turmoil. In Turkey, it has proved an unexpected windfall for President Recep Tayyip Erdogan.

The Turkish leader has managed to make himself indispensable to all sides of the conflict, a position that is reaping economic rewards that have helped ease the Turkish state's financial troubles. The turnaround has bolstered his position ahead of a national election that could cement his position as Turkey's most powerful ruler in nearly a century.

Russia Sanctions Challenge Tight U.S. Diesel Market

U.S. fuel markets held steady in December after Western sanctions on Russian crude reshuffled global oil shipments. New restrictions that take effect Sunday could prove more complicated.

The measures, which target most of Russia's refined petroleum products, threaten to take supplies off the market as the country looks for new trading partners. Any confusion could buoy prices for diesel and other fuels that have remained stubbornly high since the Kremlin launched its invasion of Ukraine last year.

Pope Francis Reaffirms Calls for Acceptance of Gay People

ROME-Pope Francis reaffirmed his recent statement against the criminalization of homosexuality and recalled his past calls for greater acceptance of gay people, underscoring a prominent theme of his pontificate.

"People with homosexual tendencies are children of God. God loves them. God is walking with them," the pope told reporters accompanying him on his flight to Rome from South Sudan on Sunday. "To condemn someone like this is a sin. To criminalize someone for homosexual tendencies is an injustice."

Twitter Hasn't Paid Bill, M&A Advisory Firm Says

An advisory firm says Twitter Inc. hasn't paid its bill after the firm worked for the company on Elon Musk's acquisition last year, the latest contention that the company is shirking debts.

Innisfree M&A Inc. sued Twitter on Friday in New York State Supreme Court, seeking about $1.9 million.

Write to singaporeeditors@dowjones.com

Expected Major Events for Monday

07:00/ROM: Dec Retail trade

07:00/DEN: 4Q Consumer credit

07:00/GER: Dec Manufacturing orders

07:00/GER: Dec Manufacturing turnover

07:30/HUN: Dec Retail Sales

08:00/SVK: Dec Internal trade, incl Wholesale & Retail

08:00/CZE: Dec External trade

08:00/CZE: Dec Industry, Construction

09:00/UK: Jan UK monthly car registrations figures

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

10:00/EU: Dec Retail Trade

All times in GMT. Powered by Onclusive and Dow Jones.

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

February 06, 2023 00:15 ET (05:15 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.