MARKET WRAPS
Watch For:
EU eurozone GDP, employment; Germany retail trade, industrial production index; Italy retail sales; UK residential market survey; trading updates from adidas, Continental, Thales, Vivendi, Deutsche Post, Bayer, Admiral Group, Legal & General, SKF, Wolters Kluwer, British American Tobacco
Opening Call:
Shares may falter in Europe on Wednesday, spooked by concerns over higher interest rates after Fed Chair Jerome Powell's hawkish tone. In Asia, stock benchmarks fell; Treasury yields rose; the dollar was steady; while oil strengthened and gold weakened.
Equities:
European stocks could extend their fall on Wednesday amid fears of a longer phase of rate increases.
U.S. Federal Reserve Chairman Jerome Powell's comments in testimony before lawmakers have prompted markets to price in the prospect of a 50 basis-point rate rise at the March 22 meeting, compared with 25bp at the February meeting, CMC Markets said.
"We of course still have to navigate the U.S. nonfarm payrolls report on Friday and inflation data next week which could reverse this."
The semiannual testimony comes days ahead of the latest monthly jobs report and the monthly inflation report next Tuesday.
Powell will also be quizzed by the House of Representatives' Financial Services Committee on Wednesday at 10 a.m. Eastern.
"In the short term, it probably means stocks have a bit lower to go," said Spartan Capital Securities.
Traders in interest-rate futures expect the federal-funds rate to reach as high as 5.6% in October and sit around 5.5% at year-end, according to FactSet. In early February, before a string of economic data sparked a change in wagers, traders forecast the benchmark rate topping out around 4.9% in July before falling near 4.5% through December.
The change in sentiment in recent weeks has led some investors to re-evaluate their strategies for the year ahead. HSBC Asset Management is wary of stocks and corporate bonds, which it said look expensive given how high interest rates are heading and a likely downturn in company profits.
Forex:
The dollar was steady in Asia amid fears of aggressive Fed tightening.
Fed Chair Powell has jolted markets by raising the possibility of quickening the pace of rate increases, given the recent slew of stronger-than-expected economic data, RBC Capital Markets said.
The dollar took heart from the upward shift in rates and ensuing equity selloff, and the currency's strength remains the key driver for USD/Asian currency pairs, it added.
Oanda added that King Dollar is back as Wall Street priced in more Fed rate increases and possibly larger ones. "Fed Chair Powell killed risk appetite with a hawkish first day on Capitol Hill."
It added that "dollar dominance won't likely remain the dominant theme throughout the rest of the year, but positioning suggests it could thrive in the short-term."
Bonds:
Treasury yields advanced after Powell left the door open for bigger rate hikes.
Markets are now pricing in a 70.5% probability that the Fed will raise its benchmark rate by 50 basis points, to a range of 5% to 5.25%, on March 22, according to the CME FedWatch tool. The central bank is also mostly expected to take its Fed funds rate target to 5.5% and 5.75%, or higher, by November, according to 30-day Fed Funds futures.
"The strength of the January data seems to have spooked the Fed Chair," said JPMorgan Chase & Co.
"Whereas the plan prior to that data round was to hike by 25bps until there was more evidence of disinflation, Chair Powell indicated today that they are prepared to throw out that playbook if the February data don't reverse some of the January strength."
Energy:
Crude oil prices edged higher as supply concerns remained in focus.
Supply could decline as the U.S. Energy Information Administration has lowered its crude oil production forecasts for 2023 and 2024, citing higher costs, ANZ said.
However, hawkish comments from Fed's Powell also raised concerns on whether demand could weaken in the U.S. and offset any optimism over stronger demand from China, ANZ added.
"Tight global supply, war, sanctions on Russia oil and the rising Chinese and global demand tilt the balance for higher oil prices in the medium run," said Swissquote Bank.
"But higher energy prices mean higher inflation, and higher inflation means tighter monetary policies which, in return, increase the global recession odds, and could weigh on oil prices," it said.
Metals:
Gold prices stumbled, as the Fed's hawkish stance raised the possibility for a more aggressive pace of interest-rate hikes, strengthening the U.S. dollar and pressuring dollar-denominated gold prices.
"Gold is in the danger zone once again and could see major bearish momentum on the break of the $1,800 level," Oanda said.
Oanda reckoned that as Fed's Powell is signaling that the central bank could increase interest rates at a faster pace than previously expected, gold prices could struggle as bond yields move higher.
The next focus is likely to be on the coming U.S. jobs report, it added.
Powell's testimony "proves that the Fed's kryptonite can still sap gold's power," said BullionVault.
"With the shock of inflation and war in Europe now long faded as a reason to buy gold, the precious metal currently lacks an urgent driver to flip investor sentiment positive in the face of further Fed hikes to come," it said.
---
Aluminum rose, buoyed by signs of recovering demand in Japan.
According to sources involved in negotiations, aluminium producers have raised their premiums for the second quarter in Japan by as much as 71% compared with the first quarter, Commerzbank said.
This would mark the first such increase in 1.5 years and indicate a demand revival, it said, adding that Japan is the No. 1 importer of aluminum within Asia.
---
Chinese iron-ore futures gained, as strong demand supported prices of the steelmaking material, thanks in part to robust production at steel mills.
However, analysts warned that increasing supply and regulatory risks are likely to weigh on iron-ore's price growth.
"The iron-ore supply is rebounding, while the high price might trigger policy regulation, limiting the price increase," Baocheng Futures said.
TODAY'S TOP HEADLINES
U.S., China Plunge Further Into a Spiral of Hostility
Harsh new verbal attacks on the U.S. by Beijing's top leadership demonstrate just how unsteady relations have become between the world's two major powers.
Just a few weeks ago, China and the U.S. were tiptoeing toward something akin to a diplomatic cease-fire. President Biden's envoy was due in Beijing to craft a possible framework for high-level government-to-government dialogues and stabilize ties after years of bitterness.
Israeli Troops Kill Six Palestinians in West Bank Raid
Six Palestinian men were killed Tuesday in the West Bank city of Jenin during an Israeli military raid pursuing a Hamas operative suspected of fatally shooting two Israeli brothers last week, Israeli and Palestinian authorities said.
The Israeli military said troops encircled a house in Jenin's refugee camp where Abdelfattah Kharoushe, a member of the U.S.-designated terrorist group Hamas, had barricaded himself. Soldiers fired shoulder-mounted missiles at Mr. Kharoushe's hideout in an attempt to force him out and killed him in an ensuing gunbattle along with five other Palestinian men.
Drug to Prevent Preterm Births to Be Pulled From Market
Covis Pharma Group said it would stop selling its drug to prevent preterm births, after a study couldn't confirm the medicine worked and U.S. health regulators were taking steps that could have it pulled.
Makena was the only drug approved by the Food and Drug Administration to reduce the risk of preterm birth in women with a history of early deliveries.
FTC Twitter Investigation Sought Elon Musk's Internal Communications, Journalist Names
WASHINGTON-The Federal Trade Commission has demanded Twitter Inc. turn over internal communications related to owner Elon Musk, as well as detailed information about layoffs-citing concerns that staff reductions could compromise the company's ability to protect users, documents viewed by the Wall Street Journal show.
In 12 letters sent to Twitter and its lawyers since Mr. Musk's Oct. 27 takeover, the FTC also asked the company to "identify all journalists" granted access to company records and to provide information about the launch of the revamped Twitter Blue subscription service, the documents show.
TikTok Faces More Scrutiny in New Senate Bill
WASHINGTON-A bipartisan group of senators is introducing a bill on Tuesday to address threats posed by technology based in adversary countries, including the popular TikTok video-sharing app.
The bill would set up new government processes for reviewing and mitigating risks from foreign technology, according to a fact sheet. It would require the Commerce Department to establish procedures to "identify, deter, disrupt, prevent, prohibit and mitigate" risks from foreign technology, according to the fact sheet.
Write to singaporeeditors@dowjones.com
FROM FINANCIAL NEWS
INVESTMENT BANKING
Junior bankers in the firing line: Job cuts, missed promotions and smaller bonuses
When Barclays cut dealmakers in December, the UK lender aimed its lay-offs at juniors. Analysts - who over the past two years had been offered hefty pay rises, more time off and promises of restrictions on working hours - were left shocked, according to conversations with those at the bank.
"It has put a lot of us on alert," said one analyst, speaking on the condition of anonymity because of employer rules. "It has added to the stress of the role as you aren't just working crazy hours, you are now almost constantly on edge as you know it could be you next."
A presentation by a group of Goldman Sachs analysts outlining brutal hours and declining mental and physical health leaked in March 2021... > READ MORE
(MORE TO FOLLOW) Dow Jones Newswires
03-08-23 0016ET
