MARKET WRAPS

Stocks:

European stocks traded higher on Monday as investors continued to digest last week's strong economic data which have rekindled fears about restrictive Federal Reserve policy.

"On Friday all notion of a possible pause appears to have gone the way of the dodo,[...], with markets now pricing in another three 25bps rate increases at the March, May, and June Fed meetings," CMC Markets said.

SPI Asset Management said that firmer data has led some to speculate that the U.S. may achieve disinflation and avoid a recession simultaneously, "but this is very unlikely if the Fed follows through with higher interest rates."

Stocks to Watch

Inditex's 2023 may prove more challenging after a strong calendar 2022, Credit Suisse said.

The Spanish fashion giant, owner of Zara among other high-street chains, should have ended its fiscal year--which runs to Jan. 31--on a high note, with growth of 14% on year thanks to a strong Christmas season, according to CS's estimates.

But the year ahead will be marked by tougher comparison bases after last year's postpandemic sales surge, while operating earnings will be pressured by higher salary costs, especially in light of a fresh wage deal in Spain, CS said.

Inditex's margins are high but may be maxed out, it added.

CS raised its target price on Inditex to EUR25, keeping an underperform rating.

---

UniCredit's CEO says the Italian bank is committed to recurrent, high shareholder returns, with M&A only considered if it adds to sustainable distribution capabilities, Jefferies said.

In meetings with Jefferies, Andrea Orcel says M&A can be risky to its asset quality, and while management see a duty to examine potential opportunities, they have all been turned down so far, it added.

Excess capital could instead be used to further underpin returns after 2024, they add. Management reiterated its distribution target for 2023 broadly aligned with 2022 and while the 2024 topline could face pressures if the ECB cuts rates, management feel confident about other levers, including driving fee growth, cost control and lower provisions, Jefferies said.

U.S. Markets:

Stock futures were gaining ahead of durable goods data and figures on pending home sales. Fed Governor Phillip Jefferson is due to speak.

Pfizer is in early-stage talks to acquire Seagen , seeking to add a promising class of cancer therapies to its drug porfolio. Pfizer shares were 1.6% lower, while Seagen's stock jumped 12% in premarket action.

Tesla's plant near Berlin is now producing 4,000 cars a week, three weeks ahead of schedule, according to a Reuters report. The EV maker's stock traded 2.1% higher.

Forex:

The prospect of a deal between the U.K. and EU for post-Brexit trading arrangements for Northern Ireland is unlikely to provide much support to sterling, ING said.

Expectations are building for a deal to soften trade barriers on the Irish Sea as European Commission President von der Leyen meets U.K. Prime Minister Rishi Sunak later today, ING added.

"An improvement in U.K.-EU relations probably does little for sterling in that it will not improve the broader trading environment between the U.K. and the EU."

Read RBC Advises Selling Euro Vs Pound on Prospect of Post-Brexit Deal

Read BOE Seen With Chance of 50-Point Hike in March

---

The euro looks set to rise as data on Thursday are likely to show eurozone core inflation accelerated in February, Monex Europe said.

An uptick in core inflation would confirm that the ECB will need to raise its 2023 core inflation projections, which would provide it with "little room to guide markets to a deceleration in their [interest rate] hiking cycle at the next meeting," it said.

Higher core inflation should keep the debate over another 50 basis points rate rise at the ECB's May meeting "very much alive," Monex added.

---

The dollar's strength could persist in the near-term as recently firm U.S. economic data support the case for the Federal Reserve to raise interest rates further, ING said.

Investors now price in three more 25 basis points rate rises by the Fed in March, May, and June, ING said, adding that the Fed could also revise its rate expectations higher at the next meeting in March.

"This prospect could well dissuade investors from re-entering dollar short positions over the next few weeks."

Bonds:

The 10-year German Bund yield moved back to the 2.50%-2.55% area, which has been rejected twice since late October, but the structural arguments in favor of a 10-year Bund rally to the 1.50%-1.60% area by the end of the summer have not changed, Morgan Stanley said.

"In addition to the upcoming falling path on headline inflation and the short positioning on long-dated futures, which would warrant lower long-term rates and a more inverted curve, core bonds are back to very cheap levels versus equities."

Morgan Stanley expects a return of the 10-year Bund yield to the lower side of the recent 2.00%-2.50% trading range over the coming weeks.

---

Eurozone inflation releases for February are the highlights for bond markets this week, UniCredit Research said.

"While we expect the annual rate of change to see a sharp drop from 8.6% to 8.0%, market participants might pay more attention to the expected 0.4% increase on a monthly basis when the data are released on Thursday."

This was the message for UniCredit from the latest U.S. inflation release, where the monthly spike was much more relevant than the disinflationary trend in the on-year change, it said.

In a WSJ poll, economists expect the harmonized index and consumer prices, or HICP, to rise 0.6% on month and 8.2% on year.

---

Positive economic data has weighed heavily on U.K. gilts, causing yields to rise, as the the expectations for the Bank of England's terminal rate increase, TD Securities said.

Among major developed sovereign bonds, gilts are the most reactive to positive data, TD added.

"Terminal rate expectations are sitting around 4.73%."

Since the Bank of England meeting on February 2, 10-year gilt yields have risen by more than 75 basis points from a level around 3.00%.

---

Read Eurozone Sovereigns Set to Complete 22% of Annual Bond Funding by End-Feb

Energy:

Oil prices wavered between small gains and losses as concerns the Fed will keep on raising interest rates were countered as Russia stopped pumping oil through a pipeline to Poland.

A Polish oil company said on Saturday that flows through the Druzhba pipeline from Russia stopped unexpectedly. The halt came a day after Poland delivered its first Leopard tanks to Ukraine.

OPEC

Rising Chinese oil demand will push OPEC to increase its oil output in June, Goldman Sachs said.

The bank believes the additional demand, coupled with few sources of additional oil from non-OPEC producers, will push the cartel to reverse its decision late last year to cut output by 2 million barrels a day.

The bank forecasts that an increase of 1 million barrels a day from OPEC would still see prices rise to $100 a barrel by December, where they would stay in 2024.

OPEC has stressed that it isn't planning on changing its oil output this year. If the cartel did so, prices would rise to $107 a barrel and continue moving higher in 2024.

Metals:

Copper prices inched higher following three days of sharp falls.

"Equity markets are dragging down sentiment and metals prices will continue to come under short-term pressure and may yet be exposed to further falls...while demand is still very weak," Kingdom Futures said.

Metals and Miners

Metals and mining companies reducing the energy required per metric ton of ore mined and processed could see lower operating costs and higher margins, Jefferies said.

The U.S. bank said the industry is aggressively making changes such as shifting to renewable power, using automated trucks and trains and adopting new technologies to reduce their environmental footprint in general.

The industry can reduce its energy consumption by as much as 20% by using energy management plans, Jefferies said.

"New technologies have the potential to significantly affect the energy intensity of the industry, and companies that take the lead on these technologies are positioned to win."

DOW JONES NEWSPLUS


EMEA HEADLINES

Airbus Expects Pacific-based Airlines to Buy 920 Jets Over Next 20 Years

Airbus SE said it expects airlines based in Australia, New Zealand and neighboring nations to take delivery of 920 new aircraft over the next 20 years.

This is based on the assumption that passenger traffic in the Pacific region will rise by an average of 3.2% annually over the next two decades, according to the latest Airbus global market forecast.


AB Foods Upgrades FY 2023 Views as Inflation Pressure Eases - Update

Associated British Foods PLC said Monday that its fiscal 2023 expectations have improved as inflationary pressures are starting to ease.

The British conglomerate now expects significant growth in sales, and adjusted operating profit-which strips out exceptional and other one-off items-and adjusted earnings per share to be in line with previous financial year.


U.K. and EU Look To End Feud Over Northern Ireland

LONDON-U.K. Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen will meet Monday to attempt to seal a compromise agreement on the trading status of Northern Ireland, potentially ending a yearslong feud that has poisoned relations between the two sides and sparked concern in the Biden administration.

The deal, which officials say is likely to be announced Monday, is a gamble by Mr. Sunak that he can sell the modified version of the so-called Northern Ireland protocol to his restive Conservative Party and bring to an end the current political paralysis in Northern Ireland.


War in Ukraine Drives New Surge of U.S. Oil Exports to Europe

A year of war in Ukraine is revitalizing U.S. oil exports as a source of financial influence and geopolitical power.

(MORE TO FOLLOW) Dow Jones Newswires

02-27-23 0628ET