MARKET WRAPS

Watch For:

EU harmonised CPI; U.K. Bank of England MPC Member Catherine Mann speech at the Resolution Foundation; France OECD ready for the next crisis? Investing in health system resilience report; trading updates from Gold Fields, Howden Joinery Group, Anglo American, BAE Systems, Hikma Pharmaceuticals, Rolls-Royce, WPP, Mondi, Swedbank AB, Telefonica, Munich Re, HeidelbergCement, Bouygues, AXA, Saint-Gobain, Solvay, EssilorLuxottica, Deutsche Telekom, Siemens Energy, Bollore, Eni

Opening Call:

Shares look set for a cautious opening in Europe. In Asia, stock benchmarks rose; Treasury yields were mixed; the dollar weakened; oil gained while gold declined.

Equities:

European stocks may be slightly moved on cautious sentiment before a slew of corporate earnings, and as investors digest Fed officials signaling that a resilient U.S. economy could lead them to raise interest rates higher than anticipated.

Minutes from the latest Fed meeting, released Wednesday, showed that most thought a slower pace provided the best way to manage the risks of raising rates too much or too little.

But some officials were concerned about stopping or slowing their inflation-fighting campaign too soon.

"The Fed has the luxury of a strong labor market, and overall resilient economic landscape, to keep raising rates until the Federal Open Market Committee feels comfortable that inflationary pressures are closer to its price stability mandate," LPL Financial said.

"Should inflation continue to climb, based on the minutes, there could be enough voting members to push for a 50 basis point move," it said.

"Overall, the minutes suggest a 'wait and see approach' as they remain data dependent."

"What's really occupying the market's mind now is this resilient growth, which is likely to mean more resilient inflation," said JPMorgan Private Bank.

Some investors who jumped back into the market to start the year have taken a more cautious stance lately-hedging their stock bets or re-evaluating portfolios, said Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald.

"There's finally getting to be some fear in the marketplace," he said.

Also, rising treasury yields are an increasing headwind for stocks not only because of the attractive returns offered by safer fixed-income instruments, but also because of the negative impact that higher borrowing costs have on consumption and, thus, on corporate earnings, said Ally Invest.

"It is going to be tough in this environment for companies to meet their numbers."

Although 4Q results weren't too bad, "as we see things start to wane it is going to be really hard going into the 2H of the year," it said.

"Hence [it's] the reason why the market is just kind of hanging around, trying to figure out where it wants to go."

Forex:

The U.S. dollar weakened amid mild risk-on sentiment spurred by gains in U.S. stock futures.

The dollar could keep its strength against major currencies after unsurprising FOMC minutes supported markets predominant view that interest rates in the U.S. will remain higher than in other developed economies for the time being.

The FOMC minutes released overnight inclined toward hawkishness, said MUFG Bank.

The hawkish Fed stance and positive U.S. data may still favor positioning toward the USD and place downside pressure on regional currencies, it said.

Bonds:

U.S. Treasury yields were mixed early Thursday after the FOMC minutes sprung no surprises.

Yields have been racing toward 4% lately, stoking volatility across markets and leading some investors to ponder how high they will go.

"That is the million-dollar question," said Anand Omprakash, head of derivatives and quantitative strategy at Elevation Securities, of the path of bond yields.

"The key message to me here is that even before the recent batch of hot inflation and labor market data the Fed officials were ready to continue to fight inflation and they did not see sufficient progress," Yelena Shulyatyeva senior US economist at BNP Paribas said.

Markets are priced in for the near term, but as the Fed gives no indication it is ready to pause, investors "will have to accept that the Fed is really serious at fighting inflation," she added.

"I think in the coming weeks we'll hear a lot of hawkish talk," from Fed officials, "but at the same time, I think the bar for increasing the pace of rate hikes remains really high."

She expects FOMC members to increase projections of a terminal rate.

Fed funds futures traders are now pricing a 73% probability that the Fed will raise interest rates by another quarter-of-a-percentage-point to a range of 4.75% to 5% on March 22, followed by another 25-basis-point move in May.

That would bring the terminal rate to a range of 5.25% to 5.5% in July, and remain above 5%-level for the rest of this year, according to CME FedWatch Tool.

Energy:

Oil futures rose in Asia, recovering from overnight declines against a backdrop of concerns for aggressive interest-rate increases.

"Energy traders anticipate a hawkish Fed will contemplate larger rate hikes that will likely send the US economy into a recession," Oanda said.

"Markets continue to come to terms with expectations of a more hawkish Fed, following a raft of economic data suggesting the Fed still has quite a bit of work to do," ING said.

"These headwinds, combined with a fairly comfortable oil balance, mean that the oil market will likely remain rangebound. However, we see the market breaking out of this range later in the year as the oil market significantly tightens," it said.

Meanwhile, CBA said that the risk of oil supply disruptions remain on the table in 2023, with Russia set to reduce production next month and potentially more later in the year.

Metals:

Gold prices fell slightly in Asia, as investors continued to digest minutes from the Fed's latest policy meeting.

The precious metal "may trade defensively" in the near term, weighed by rising U.S. Treasury yields and a strengthening USD, said DailyFX.

"The increasingly hawkish monetary policy outlook, in concert with the higher-for-longer interest rate scenario, will act as a bullish driver for real yields, reinforcing the U.S. dollar's recovery in financial markets," it added.

The U.S. dollar has found good support and that's a "major factor weighing on buck-denominated gold," said Fawad Razaqzada, a market analyst at City Index and FOREX.com.

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Copper edged higher in the morning Asian session, aided by supply-side issues.

Although the macro environment has weighed broadly on the industrial metal outlook, copper has been relatively insulated from selling by commodity trading advisors as supply risks support it, TD Securities commodity strategists said.

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Chinese iron-ore futures edged higher, extending recent gains as reopening optimism and Beijing's property support measures supported steel and iron-ore demand outlook.

However, Galaxy Futures analysts reckoned that steel demand in the physical market was unlikely to meaningfully turn around before 1H, and prices may consolidate at current levels in the absence of fundamental drivers.

Given sharp gains in recent months and elevated prices, the analysts cautioned that profit-taking risk may be on the rise.


TODAY'S TOP HEADLINES

Fed Minutes Show Most Officials Favored Quarter-Point Rate Rise

WASHINGTON-Federal Reserve officials are signaling that a resilient U.S. economy could lead them to raise interest rates somewhat higher than they had anticipated to conquer high inflation.

Officials at their meeting earlier this month agreed to slow rate increases by lifting their benchmark federal-funds rate by a quarter-percentage point, following larger moves of a half point in December and 0.75 point in November.


No 'soft landing' is in the cards from Fed rate hikes. Look for recession and a buying opportunity once stock prices decline.

Is the bear market of 2022 over? Are we already in the early innings of the next great bull market?

The S&P 500 SPX finished 2022 with a 19% decline (its biggest pullback since 2008). Meanwhile, the Dow Jones Industrial Average DJIA lost 8.8% and the Nasdaq COMP tumbled 33%.


U.S. Considers Release of Intelligence on China's Potential Arms Transfer to Russia

The Biden administration is considering releasing intelligence it believes shows that China is weighing whether to supply weapons to support Russia's war in Ukraine, U.S. officials said.

The discussions on public disclosure come ahead of Friday's United Nations Security Council meeting marking one year since Russia invaded Ukraine. It follows a number of closed-door appeals to China-coordinated among North Atlantic Treaty Organization allies-that culminated in a formal warning delivered over the weekend in Munich to Wang Yi, China's senior foreign-policy official, by a number of western officials, including Secretary of State Antony Blinken and British Foreign Secretary James Cleverly.


Gucci Launches Sustainability Drive as European Fashion Regulation Looms

Italian luxury brand Gucci is set to launch a hub in Tuscany promoting more durable and less wasteful fashion, as it joins efforts by the sector to meet coming European regulations requiring companies to limit their impact on the environment.

The so-called circular hub will be a research-and-development center to study ways to improve circularity, including through better durability and recyclability of products, as well as minimizing waste and pollution from production to end of life. It will boost transformation in the Italian fashion industry's production models, said Gucci in a joint release with French parent Kering.


Moldova, Under Pressure From Russia's War on Ukraine, Fears It Could Be Next

CHISINAU, Moldova-This jittery country, caught between Russia and the West, fears Moscow is trying to smuggle mercenaries in from elsewhere in Eastern Europe. So far they have banned even soccer fans and a boxing team from entering.

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02-23-23 0015ET