MARKET WRAPS

Stocks:

European stocks suffered on Thursday, with futures pointing to a weak opening on Wall Street as sentiment is hit by further recession fears.

"Beyond U.S. recession worries, inflation concerns on the back of the China reopening are brewing once again thanks to Fed Bullard; hence more persistent inflation could still require another round of tighter monetary policy," SPI Asset Management said.

St. Louis Fed President James Bullard argued Wednesday for the central bank to take a different approach by continuing to rapidly raise the fed-funds rate until it is above 5% to prevent a resurgence of inflationary pressures.

Bullard said in an interview it would be appropriate to raise rates by another percentage point this year, including by a half-point at the Fed's next meeting.

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Stocks to Watch

Stellantis shouldn't be much affected by the departure of director Andrea Agnelli, Equita Sim said.

Agnelli is to step down from the boards of the auto giant and the Agnelli family holding company Exor.

Agnelli's departure should have little effect on management and strategy at Stellantis or Exor, Equita Sim said.

Economic Insight

The eurozone economy is likely to avoid a recession this winter on the back of lower natural gas prices, JPMorgan said.

"[The fall in gas prices] is a big deal for an energy importing region like the euro area, reversing a significant part of the income shock and sharply reducing the risk of forced gas rationing."

JPM expects the eurozone's GDP to grow at an annualized rate of 1% in 1Q 2023, swinging from the 0.5% contraction previously expected, and sees slightly stronger growth also in late 2023 and 2024.

Inflation is also expected to fall quicker than previously anticipated, JPM said.

Davos Commentary

The ECB will still need to increase interest rates by 50 basis points on more than one occasion in order to tame price growth, Dutch central bank's governor Klaas Knot said in a CNBC interview at the World Economic Forum in Davos.

"Most of the ground we have to cover, we will cover at a constant base of multiple 50 basis-point hikes... It will not stop after a single 50 basis-point hike, that's for sure," he said.

Core inflation is still elevated and recent inflation developments aren't compatible with a timely return to the ECB's 2% target, Knot said.

U.S. Markets:

Stock futures were pointing to further weakness for equity markets, while safer assets such as bonds and gold were rising, as concerns built about the health of the economy.

The yield on the 10-year U.S. government bond fell to 3.356%, after ending Wednesday at 3.374%, its lowest since mid-September.

Economic updates set for release include weekly initial jobless claims, building permits and housing starts for December, and the Philadelphia Fed manufacturing index.

Earnings are due from companies such as Procter & Gamble, Netflix, and PPG Industries.

Forex:

The euro could benefit from the ECB nearing the end of its interest-rate rise cycle if inflation eases enough, Commerzbank said.

"For the time being the euro is well served with the ECB ending its rate hikes by the summer, above all as we expect rate cuts from the Federal Reserve due to the cooling of the economy."

If inflation doesn't fall to the ECB's target, however, lower eurozone rates are likely to seem "much more inappropriate" to the foreign exchange market, putting the euro under pressure, Commerzbank added.

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A report that U.K. opposition leader Keir Starmer will say he wants to improve U.K.-EU relations in a speech at Davos today could have positive long-term implications for sterling, ING said.

Starmer told the Financial Times that the post-Brexit deal is damaging the U.K. economy and his Labour Party would address this through closer trade with the EU.

"The Labour Party is leading by a rather large margin in the latest opinion polls ahead of next year's general elections and evidence of a softer stance on Brexit should benefit the pound in the long run," ING said.

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Concerns about a weaker U.S. economic outlook leaves the dollar vulnerable to data as markets continue scaling back Federal Reserve interest rate expectations, ING said.

The fact that the ongoing repricing of rate expectations lower is not only a consequence of slowing inflation but also of a worsening economic outlook has "exacerbated the negative implications for the dollar, especially as a positive re-rating of growth expectations is happening in Europe and China," ING added.

"We see more downside risks for USD in the near term."

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The Norwegian krone briefly extended losses after Norges Bank left its key interest rate unchanged at 2.75%, as some analysts had expected it to raise the rate by 25 basis points.

Norges Bank said rates will need to be raised "somewhat further" to tame inflation and expects to lift rates in March.

However, there are prospects that energy prices could be lower than expected earlier, global inflationary pressures appear to be easing and the rate-rise cycle has started to have a tightening effect on the economy, it said.

"This may suggest a more gradual approach to policy rate setting."

Read Norway Central Bank Keeps Rate on Hold at 2.75%; Sees Next Hike in March

Bonds:

Citi expects Fitch Ratings to raise the outlook to positive from stable on Ireland's 'AA-' rating on Friday, as downside risks to eurozone growth have somewhat receded since the last rating update in July.

Fitch's rating of Ireland is at par with that of S&P Global Ratings and one notch higher than that of Moody's Investors Service, both of which are on a positive outlook, Citi said.

"Fitch recently lauded Ireland for its per capita GDP being above AA-median, favourable government indicators, 'extraordinary' revenue performance and expectation of fiscal metrics to continually improve."

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The tightening of the 10-year Italian BTP-German Bund yield spread below the key resistance level of 180 basis points reflects a favorable environment for carry and yield accumulation, RBC Capital Markets said.

Inflation is declining, interest-rate rises by central banks look to be coming to an end, and "political risk has so far proved contained with the Italian government refraining from any major confrontations with the EU," it added.

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France and Spain are expected to embark on government bond syndications still in January, following their eurozone peers, Societe Generale said.

Several countries have already kick-started the syndication season, "but we expect other issuers to come to the market, especially France and Spain in January with 30y and 10y benchmarks, respectively," SG said.

Front-loading of issuance in the first quarter of the year and a wave of syndications is usual and Societe Generale expects this to be the case this year, too.

"Issuers will likely try to front-load issuance in 1Q to secure funding amid seasonal patterns, and will use syndicated transactions to achieve size."

Energy:

Oil prices fell for a second day as concerns over the health of the U.S. economy and bearish crude stocks data raise worries about demand.

Data from the API showed U.S. crude stocks climbed by 7.6 million barrels last week, a second week in which crude oil inventories have risen sharply, further adding to worries about oil demand.

Metals:

Base-metal prices fall in early trade in London, with worries over inflation and possible further rate hikes from the Fed. Gold prices were higher.

Fed Bullard's comments is helping to fuel pessimism, according to Marex.

DOW JONES NEWSPLUS


EMEA HEADLINES

Norway Central Bank Keeps Rate on Hold at 2.75%; Sees Next Hike in March

Norway's central bank kept its key policy rate unchanged at 2.75% on Thursday and said it will most likely raise the rate further in March.

A slim majority of economists polled by The Wall Street Journal had expected rates to remain on hold, but several had expected a hike to 3.00% after the central bank said in December that it would most likely raise the rate in the first quarter of 2023.


Lufthansa Bids to Buy Stake in Alitalia's Successor, Betting on Air Travel Recovery

Germany's Deutsche Lufthansa AG said it had submitted a bid to buy a stake in ITA Airways, the Italian carrier formerly known as Alitalia, in a bet on the continued recovery in air travel.

Lufthansa said Wednesday it was seeking exclusive talks with the Italian government to initially acquire a minority stake in ITA Airways, with an option to buy the remaining shares at a later date. The move comes after a consortium including Air France-KLM Group and Delta Air Lines Inc. failed to reach a deal to buy a stake in ITA after entering talks last year.


Deliveroo 4Q Gross Transaction Value Grew 6%; 2H Adjusted Ebitda Was Breakeven


Poland Suggests It Would Send German-Made Tanks to Ukraine Without Berlin's Consent

Poland would supply Ukraine with German-made Leopard battle tanks if Germany doesn't grant approval for the transfer soon, Polish Prime Minister Mateusz Morawiecki said, increasing pressure on Berlin to back down from its stance that the U.S. must send American-made tanks to Kyiv before allies donate the most-widely used tank in Europe.

The statement is the latest sign of exasperation shared by the U.S. and its European allies that Germany's hesitation over sending tanks will deprive Ukraine of resources needed in a critical phase of its war with Russia or at least delay their arrival onto the battlefield.


Berlin Won't Allow Exports of German Tanks to Ukraine Unless U.S. Sends Its Own

BERLIN-Germany won't allow allies to ship German-made tanks to Ukraine to help its defense against Russia nor send its own systems unless the U.S. agrees to send American-made battle tanks, senior German officials said on Wednesday.

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01-19-23 0613ET