EMEA Morning Briefing: Mixed Open Seen for Stocks as Upcoming Data Eyed

MARKET WRAPS

Watch For:

U.K. S&P Global/CIPS Manufacturing PMI; Germany unemployment, provisional CPI; no major corporate trading updates expected

Opening Call:

European stock futures signal a mixed open on Tuesday. Asian stock benchmarks were mixed; the dollar declined; while oil fell and gold gained.

Equities:

Shares in Europe may open mixed on Tuesday amid optimism surrounding China's reopening while concerns about recession risks and high inflation linger.

Traders will watch closely for Wednesday's U.S. Federal Reserve minutes, Friday's U.S. monthly jobs data and Tuesday's German inflation figures for December.

Analysts at some of the biggest U.S. banks predict the stock market will retest its 2022 lows in the first half of the new year before beginning to rebound.

Many investors say the ramifications of the Fed's higher rates are just beginning to ripple through markets.

"We are in a world where interest rates exist again," said Ben Inker, co-head of asset allocation at Boston money manager GMO.

"A number of investors were trying to justify nosebleed valuation levels, " said John Linehan, a portfolio manager at T. Rowe Price. Now, "leadership going forward is going to be more diverse."

Linehan expects the run in value stocks to continue and sees opportunities in shares of financial companies, thanks to higher interest rates.

Investors are in for a busy shortened week, with a slew of economic data due, including S&P Global manufacturing PMI and construction spending expected Tuesday, the job openings and labor turnover survey on Wednesday and the December jobs report due Friday. On Wednesday, the Fed will also release minutes from its latest meeting.

Forex:

The dollar was little changed in Asia.

Economic optimism and diminishing geopolitical tensions were encouraging dollar selling, but investors should stay cautious as risks remain, Societe Generale said.

Falls in the safe-haven dollar reflect "optimism that the world is healing, that Covid is over, that the war in Ukraine won't get more hideous and might be resolved, that U.S./Chinese tensions won't get in the way of a soft landing for the U.S. and that inflation can be brought under control without deep recessions," it said.

But markets may be overly complacent and investors should "be wary of hangovers and euro softness in January," it added.

Bonds:

Eurozone government bonds started the new year with yields easing, awaiting a heavy flow of economic data this week, as well as resuming government bond supply.

With 10-year Bund yields above 2.50%, relaxed year-end trading and the probable drop in the eurozone harmonized index of consumer prices "are raising hopes for an upbeat start into the year," Commerzbank said.

Bond auctions are scheduled from Germany and France this week, while Commerzbank points to Italy and Slovenia as likely candidates for bond syndications.

Danske Bank said the gross issuance of government bonds in the eurozone is expected to increase to EUR1.237 trillion this year from EUR1.103 trillion in 2022 on rising budget deficits and extra spending on energy packages.

Net issuance should rise to EUR416 billion in 2023 from EUR369 billion in 2022, it said.

The U.S. Treasury market was closed on Monday.

Energy:

Oil futures fell early Tuesday on concerns over China's economic growth after data released over the weekend showed the country's December manufacturing PMI was weaker than expected.

Given the data, this would suggest a more sluggish reopening for China and could trim some of the pre-New Year gains from the current oil rally, SPI Asset Management said.

Metals:

Gold gained in Asia amid positive technical factors.

Prices continue to trade upward within a rising wedge chart pattern, DailyFX.com said in a technical analysis.

Although this pattern is usually bearish, gold prices are still trading within the wedge, suggesting the near-term path for gold prices could remain tilted slightly upward, it added.

-

Copper prices inched higher, extending recent gains as investors continue to welcome China's reopening.

However, downward pressure on the metal may be mounting, as copper inventories in China have begun to rise since last week, a sign of slower demand, Galaxy Futures said.

Many Chinese factories in copper-consuming sectors have halted production by now due to an early Lunar New Year and high Omicron infections among staff, the brokerage noted.

The risk of a new variant and seasonally lower copper consumption will further weigh on prices.

-

Chinese iron-ore futures fell, easing from a bullish rally for the most part of December amid the reopening optimism.

However, Galaxy Futures warned of "relatively high" profit-taking pressure from the current elevated price levels.

Buyers and traders are divided on how strongly and quickly steel and iron-ore demand can rebound in the real-estate sector in 2023, which may result in lower buying interest, especially given the high iron-ore prices right now, Galaxy said.

TODAY'S TOP HEADLINES

China December Caixin Manufacturing PMI Slips Further Into Contraction

A private gauge of activity in China's manufacturing sector was in contractionary territory for a fifth straight month in December, as waves of infections following Beijing's abrupt reversal of its zero-Covid strategy last month disrupted businesses and dented demand.

The China Caixin manufacturing purchasing managers index dropped to 49.0 in December from 49.4 in November, according to data released Tuesday by Caixin Media Co. and S&P Global. The 50 mark separates expansion from contraction.

Investors Brace for More Market Tumult as Interest Rates Keep Rising

The stock market just finished a bruising year. Many market players don't expect things to get better any time soon.

Analysts at some of the biggest U.S. banks predict the stock market will retest its 2022 lows in the first half of the new year before beginning to rebound. Many investors say the ramifications of the Federal Reserve's higher rates are just beginning to ripple through markets.

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.

Elon Musk's Tesla Comes Up Short of 2022 Delivery Target as Growth Slows

Tesla Inc. delivered fewer vehicles in 2022 than it initially targeted, capping a year during which the stock suffered its worst annual performance as demand appeared to soften and Covid-related production disruptions persisted.

Elon Musk's electric-vehicle maker said Monday that it delivered about 1.31 million vehicles last year, up roughly 40% from 2021. The company would have needed to hand over more than 1.4 million vehicles to meet its initial goal of increasing deliveries by 50% or more.

Write to [e-mail]

Expected Major Events for Tuesday

01:01/IRL: Dec Ireland Manufacturing PMI

06:30/GER: Dec North Rhine Westphalia CPI

07:00/TUR: Dec PPI

07:00/TUR: Dec CPI

08:00/SPN: Dec Unemployment

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

08:55/GER: Dec Labour market statistics (incl unemployment)

09:00/GER: Dec Hesse CPI

09:00/GER: Dec Brandenburg CPI

09:00/GER: Dec Baden-Wuerttemberg CPI

09:00/GER: Dec Bavaria CPI

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

10:00/GER: Dec Saxony CPI

13:00/GER: Dec Provisional CPI

15:00/DEN: Dec Foreign Exchange & Liquidity

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

Write to us at [e-mail]

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

01-03-23 0026ET