MARKET WRAPS
Stocks:
European stocks struggled for momentum on Friday, as investors looked to the Federal Reserve's preferred inflation measure, the monthly PCE price index.
Mizuho Securities USA expects a core PCE print of 0.5%, and will also be watching the core services ex-housing number, which it expects to be 0.4%.
"The biggest problem for U.S. investors is markets are getting too much of a good thing in the form of consistently strong U.S. economic data," SPI Asset management said.
Today's release therefore remains crucial in helping to indicate how the U.S. economy is faring and what the Fed might do at its next meetings, SPI added.
Eurozone Inflation
Eurozone annual core inflation--the rate which excludes the categories of food and energy--could increase to 6% in March from January's 5.3%, Pantheon Macroeconomics said.
In this context, the ECB will likely lower its headline inflation forecasts in March, but also lift its outlook about core inflation, it said.
This means that the ECB will continue increasing interest rates until it sees clear evidence of stabilization in core inflation, which is unlikely to happen until summer at the earliest, Pantheon added.
"We think the ECB will lift interest rates by 50 basis points in March, and deliver two 25-basis-points hikes in 2Q," it said, noting that risks are tilted toward larger or more interest-rate increases.
France
Proposed reforms to France's pension system could lift output by 1.1% in the country by 2035 and increase the labor force by 1.4%, according to Oxford Economics.
Public finances would also be improved, with the pension-system deficit narrowing gradually and achieving balance by 2027, with public debt 4.5 percentage points of GDP lower by 2035 than without the reform, Oxford Economics said.
The plans, set out by President Macron, have sparked opposition, with strikes in the short term a major risk to the country's outlook, it added.
And even if the reforms pass, a lot remains to be done, as the participation rate of 60-69 year olds in the workforce would still fall below 55% OECD average, Oxford Economics said.
U.S. Markets:
Stock futures edged lower, suggesting a lackluster run for U.S. indexes could continue.
In addition to the PCE reading, there's also data to come on new-home sales, and the final reading of the University of Michigan's consumer-sentiment index.
That's alongside a long list of Fed speakers: Fed Governors Philip Jefferson and Christopher Waller, and regional presidents Loretta Mester, James Bullard and Susan Collins.
Forex:
Sterling rose as the U.K. economic outlook received a boost from data that showed a jump in consumer confidence in February, ING said.
GfK's consumer confidence index rose by seven points to -38 in February, the highest level since April 2022.
"At the margin, this will make the Bank of England's life harder as it seeks to cool aggregate demand to soften inflation," ING said.
Markets are now comfortable in pricing the BOE's rate at 4.50% at year-end, expecting 25 basis points rate rises in March and May, it added.
Read GBP/USD Could Stabilize as Implied Volatility Falls
---
The euro fell against the dollar, mainly driven by higher U.S. interest rate expectations but also following worse-than-expected German economic growth data, MUFG Bank said.
The German economy contracted 0.4% quarter-on-quarter in the fourth quarter of 2022, according to final data.
"It will heighten concern that the cost of living squeeze is starting to have a bigger negative impact on households," MUFG said.
"While the German and other eurozone economies have held up better than feared over the winter period, the outlook for growth remains weak for the year ahead."
---
EUR/USD seems to have entered a consolidation phase, based on technical charts, UOB's Global Economics & Research said.
On Wednesday, the currency pair fell below the key support level of 1.0615, invalidating UOB's view that EUR/USD is likely to break above 1.1120.
As such, the currency pair appears to have begun consolidation, and is expected to trade between 1.0300 and 1.0800 for the next couple of months, UOB added.
Read Dollar May Struggle to Rise Further Vs Euro
---
The dollar strengthened and could be poised to rise further due to geopolitics "creeping into investment decisions" amid reports that China may increase its support for Russia, ING said.
"The fear of an escalation in U.S. sanctions may be prompting investors to re-appraise some of their investment holdings along geopolitical lines."
This comes at a time of seasonal strength for the dollar, which typically gains in February and March, ING said.
The DXY dollar index could continue to rise to 105.00 and possibly up to 105.60/106.00 if USD/CNH rises back up to 7.00 on geopolitics, ING added.
Bonds:
German Bunds are showing resilience to global moves and data even as market pricing of the ECB's peak deposit rate has moved up to 3.75%, Citi said.
Citi stays neutral at higher yields and sees bearish risks--whereby yields would rise higher--as somewhat capped.
"Bunds may be stuck at a crossroads for now awaiting clear directions from core HICP, but bearish risks looks somewhat capped," Citi said, referring to the Harmonised Index of Consumer Prices.
Citi sees the 10-year Bund yield averaging at 2.55% in the second quarter, expecting consolidation until core inflation provides a decisive steer.
"The risk to that forecast is probably skewed more to lower yields than higher yields, in our view."
---
The case for higher terminal rates-where central banks stop raising interest rates-is clearer for the ECB than for the Fed, allowing Treasurys to outperform Bunds, Societe Generale said.
"The case for higher terminal rates is clearer for the ECB than elsewhere: we expect a further 125bp of hikes, and upside risks to wages could materialize," SG said.
Energy:
Oil prices rose ahead of a key gauge of inflation.
Despite the day's gains, oil remained lower for the month as a sharp build in U.S. stocks has weighed on prices.
"The market needs to chew through a lot of inventory before getting the green light to move back over $85.00 per barrel convincingly," SPI Asset Management said.
Metals:
Base metals traded mixed in early London trading, while gold edged higher, as investors awaited the U.S. PCE release.
DOW JONES NEWSPLUS
EMEA HEADLINES
IAG Swung to 2022 Net Profit as Covid-19 Restrictions Eased; Sees Further Recovery in 2023 - Update
IAG Drops as Investors Eye Concerns Despite Upbeat FY
0953 GMT - International Consolidated Airlines shares top the FTSE 100 fallers, down 4% amid investor caution despite the airline group's swing to net profit in 2022. The stock has had a strong run and while the latest results were encouraging, there are areas of concern for investors, AJ Bell says. "As a legacy of Covid, debt is highly elevated, " Bell's investment director Russ Mould writes. "This could make the market uncomfortable, particularly if there is any indication it's preventing IAG from making necessary investments in its business. The pledge to return to pre-Covid levels of profit in the next few years gives investors something to look forward to, but also demands some patience." (philip.waller@wsj.com)
BASF to Further Cut Costs in Germany After 4Q Earnings Declined - Update
BASF SE said Friday that it is implementing further cost-saving measures and would cut jobs at its Ludwigshafen facility as the German chemical company seeks to reduce costs after a year which saw earnings fall.
The company said it was carrying out structural measures at Ludwigshafen designed to lower costs by more than 200 million euros ($211.9 million) a year by the end of 2026.
Saint-Gobain Shares Rise After Record 2022 Results, Dividend Hike
Shares in Compagnie de Saint-Gobain SA rose Friday after the French building-materials company said its key financial-performance indicators reached record highs in 2022 and said it plans to increase its dividend for the year.
Saint-Gobain said late Thursday that it plans to return more than 1.4 billion euros ($1.48 billion) to shareholders this year, including a 23% hike to its dividend for 2022 to EUR2.00 a share and at least EUR400 million in share buybacks.
Cineworld Shares Dive After Takeover Proposal Failure
Shares of Cineworld Group PLC fell as much as 33% on Friday after the company said that it has received a number of proposals from potential parties to buy some or all of its business but none involve an all-cash bid for the entire company, leaving shareholders empty handed.
Shares at 0833 GMT were down 1.31 pence at 2.65 pence.
SAS 1Q Net Loss Widened, Backs FY 2023 Guidance Amid Healthy Demand
STOCKHOLM-SAS AB on Friday reported a widened net loss in its fiscal first-quarter as jet-fuel prices and other operating costs weighed, but reiterated its full-year guidance with underlying demand for travel remaining healthy and continuing its strong trend.
The Scandinavian airline net loss widened in the quarter that runs to Jan. 31, to 2.71 billion Swedish kronor ($259.7 million) from a loss of SEK2.44 billion as revenue rose 42% to SEK7.9 billion.
German Consumer Sentiment Set to Improve Further in March as Recession Fears Ease
Consumer confidence in Germany is expected to improve again in March, posting its fifth gain in as many months, as energy prices moderate and concerns over a deep recession fade.
Germany's forward-looking consumer-sentiment index forecasts confidence to increase to minus 30.5 in March from minus 33.8 in February, the highest level since July, according to data from market-research group GfK published Friday.
U.K. Consumer Confidence Improved by More Than Expected in February
U.K. consumer confidence improved more than expected in February, a sign of strength even as households continue to feel the pinch from high inflation and climbing interest rates.
(MORE TO FOLLOW) Dow Jones Newswires
02-24-23 0618ET
