MARKET WRAPS
Stocks:
European stocks traded mostly in positive territory on Monday as investors digested China's new growth target and looked ahead to this week's economic updates from the U.S.
CMC Markets said the main focus this week, apart from the ADP and payrolls report, will be Jerome Powell's testimonies to lawmakers, where he is "likely to be quizzed on how he sees the economy in light of recent strong data, and what measures the Fed might feel inclined to take if the data continues to come in strong."
London's FTSE 100 traded lower as miners dragged down the index after the downbeat economic news from China.
Stocks to Watch
Credit Suisse is at a crossroads, with a poor fourth-quarter profit and loss but more reassuring balance sheet, Jefferies said.
Underlying revenue was worrying, 8% below consensus, though liquidity and a solvency ratio of 14.1% encouraged, it said.
The quarter likely marked the trough in revenue but ahead lies a recovery slower than consensus expects, with net outflows continuing in 1H 2023 and risks tilted to the downside, Jefferies said.
Costs remain sticky, and Jefferies forecasted an underlying loss in 2024 too. But provided the bank can keep staff and clients, its attractive wealth-management and Swiss bank franchises can put a floor on valuation, it said.
Jefferies cut its target price on the stock to CHF2.60 from CHF3.80, with a hold recommendation.
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Telefonica Deutschland is likely to deliver mobile service revenue growth in 2023 that should offset inflationary cost pressures, but its strong share performance mostly reflects that, Citi said.
Citi cut its recommendation on the German telecommunications company to neutral from buy, citing a balance between risks and rewards after a strong run in its shares recently.
Telefonica Deutschland's fourth-quarter results evidenced impressive top-line trends amid customer growth, and that trajectory should continue in light of a 10% frontbook price increase and customer gains above the market, Citi added.
This should offset pressures from cost inflation at the adjusted Ebitda level, for which Citi expects a 3.4% rise in 2023, the bank said.
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The low use of recycled plastic makes plastic packaging companies more vulnerable to long-term climate-related changes compared to their peers in metals, glass and fiber, Fitch Ratings said.
Only about 9% of plastic is recycled, according to the OECD.
Plastics represent the largest waste by-product of any industry globally, which leads to higher climate vulnerability scores, Fitch said, adding that metals, glass and fiber are easier to recycle and more attractive for secondary packaging.
Most paper and cardboard companies use a very high proportion of recycled materials, Fitch said, noting that Smurfit Kappa uses 100% recycled feedstock to produce cardboard and Stora Enso uses less than 1% of its forest assets for paper production each year.
Eurozone Economy
The eurozone economy expanded by a marginal 0.1% in 4Q, according to preliminary estimates, but these could be revised downwardly as Irish GDP growth was sharply lowered to 0.3% rather than a 3.5% increase, Pantheon Macroeconomics said.
Coupled with the downward revision to German GDP, to a 0.4% contraction from a 0.2% decline initially estimated, this suggests that eurozone GDP growth for 4Q will be revised to a 0.1% contraction, it added.
Household spending was the main drag on growth in 4Q, while net trade boosted growth, Pantheon said.
U.S. Markets:
Stock futures wavered, offering few clues on the market's likely direction.
"It's the calm before the storm," Kleinwort Hambros said. "The nonfarm payrolls number had an enormous dramatic impact last time, it has a massive impact on how the Fed is going to proceed."
Stocks to Watch
Apple gained 0.8% after Goldman Sachs initiated coverage on shares of the iPhone maker with a Buy rating and price target of $199, the Fly reported.
KKR is in a $20 billion bidding war for the landline operations of Telecom Italia. An Italian state lender said it is teaming up with Macquarie for a bid. KKR shares slipped premarket.
Forex:
The euro could end this month slightly higher against the dollar, supported by the ECB's signals for further interest rate rises, ING said.
ECB officials continue to point to a 50 basis-point rate rise at the March 16 meeting as a done deal and the market prices in a further 150bp of increases by year-end, although this looks a "little aggressive," ING added.
"The tough ECB talk has kept the EUR-USD interest rate differential supported at the short end of the market and firmed up the 1.05 support zone for EUR/USD this month."
EUR/USD could end March in the 1.07-1.08 area, ING said.
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Sterling may trade steady this week as it's hard to find a catalyst for the currency to break out of recent ranges, ING said.
Any further progress on the U.K.-EU deal to overhaul post-Brexit Northern Ireland trading arrangements probably isn't worth much more to sterling, it said, adding that speeches from Bank of England officials this week are unlikely to move market pricing after hearing from BOE's Andrew Bailey and Huw Pill.
"In all, EUR/GBP should trade well within a 0.8800-0.8900 range, while GBP/USD will be bounced around on this week's big inputs from the U.S. events calendar."
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The dollar is likely to be stuck in a relatively tight range this week as investors stay cautious ahead of Friday's February U.S. monthly jobs data for an indication of whether January's bumper data was an aberration or not, ING said.
"We suspect it is another range-bound week for the dollar, where DXY [dollar index] continues to trade in a 104.00-105.50 range and local stories can win out."
In the run-up to Friday's data, Wednesday's JOLTS and ADP jobs data will be watched as well as testimony on Tuesday and Wednesday by Jerome Powell to the Senate, ING said.
Read Powell Testimony, US Jobs Data Seen as Key For Dollar
Bonds:
The yield on the 2-year German bund fell 2 basis points to 3.2%. after Philip Lane, the chief economist of the European Central Bank, said interest-rate rises will have to continue beyond the March meeting, when a 50 basis point rate hike is seen as almost 100% certain.
Read more here
LBBW raised its forecast for the ECB's peak deposit rate by 50 basis points to 3.75%, but continued to expect a slower pace of interest-rate rises after the March meeting.
At the March meeting, LBBW expects another 50 basis point interest-rate rise.
"Contrary to our prior forecast, the interest rate hikes are likely to continue with a total of three more increases of 25 bp each through late summer."
LBBW doesn't expect the ECB to start to cut interest rates until the second half of 2024.
Read Scope for Downside in Eurozone Rates Expectations Seen Limited
Read ECB's Strong Focus on Core Inflation Isn't Desirable
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Societe Generale's upside scenario of 3.00% for the 10-year German Bund yield is materializing, it said, making this yield level the baseline view for the spring.
"The Bund 10y yield reached a new peak of 2.75% and 3% is now in view," it said. "But it is hard to expect much potential above this target."
SG expects the spike in euro rates volatility not to last long, but sees the risks tilted to the upside going into the ECB's March meeting.
Energy:
Oil prices fell around 0.4% after China set its lowest growth target in more than a quarter-century and investors awaited comments from Jerome Powell later this week.
Metals:
Base metals were mixed, while gold prices were higher, as investors awaited macro data signals to help gauge Fed policy.
"Investors are spooked by the hawkish Fed's 'higher for longer' interest rate projections," Peak Trading Research said.
Bond markets are pricing in a 33% chance of a 50-basis-point hike from the Fed at its next meeting, Peak said. "That's good for the dollar, bad for commodities."
DOW JONES NEWSPLUS
EMEA HEADLINES
U.K. stocks at record 40% discount to Wall Street will force London exodus, says Citi
The U.K. stock market trades at a record 40% discount to the U.S., a cheap rating that is hastening flight from the City of London, according to Citi.
Based on forward price earnings multiples the materials, food and beverage, and energy sectors trade at the biggest discount to their U.S. peers, said the banks' European equity strategy team, led by Beata M Manthey.
European Central Bank chief economist Lane says rate rises will continue after March
Philip Lane, the chief economist of the European Central Bank, said interest-rate rises will have to continue beyond the March meeting, when a 50 basis point rate hike is seen as almost 100% certain. The yield on the 2-year German bund fell 2 basis points to 3.20%. "The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting, while the exact calibration beyond March should reflect the information contained in the upcoming macroeconomic projections, together with the incoming data on inflation and the operation of the monetary transmission mechanism," said Lane. He outlined the data the ECB will focus on: the inflation data for March and April, first-quarter GDP, a range of sentiment indices and the ECB's own surveys, updated information on employment and wages, data on credit creation and bank lending and stability program updates from member states.
Telecom Italia Gets Alternative Bid for Network Assets From CDP, Macquarie
Telecom Italia SpA said it has received a nonbinding offer for full ownership of its network assets from a consortium formed by Italian state lender Cassa Depositi e Prestiti SpA and Macquarie Group Ltd., an alternative to an earlier bid by KKR & Co.
(MORE TO FOLLOW) Dow Jones Newswires
03-06-23 0643ET
