MARKET WRAPS
Watch For:
Germany GfK consumer climate survey, GDP; France Consumer confidence survey; trading updates from Holcim, International Consolidated Airlines Group, Evraz, Alliance Trust, SAS, Babcock International Group, Steinhoff International Holdings, MTN Group, BASF, International Consolidated Airlines Group, Land Securities Group
Opening Call:
Shares may open higher in Europe, tracking overnight gains on Wall Street. In Asia, stock benchmarks traded mixed; Treasury yields were also mixed; the dollar weakened slightly; while oil and gold gained.
Equities:
European stocks may advance early Friday, as investor continue to parse economic data and weigh the outlook for future rate increases by the Federal Reserve.
David Russell, vice president of market intelligence at online brokerage TradeStation, said the markets and the Fed are in a "wait and see period" until the release of a slew of February economic data, which is due out ahead of the Fed's March 21-22 meeting, provides a more in-depth glimpse to the state of the economy.
"Nobody really knows if the Fed is nearing the end or needs to get more aggressive again," said Russell.
"I believe that we will have greater clarity on that in the next three to four weeks, because we're going to have [Fed Chair] Jerome Powell in Congress on March 7. We're going to have [February] nonfarm payrolls on the 10th, CPI on the 14th, and then, on March 22, we get the dot plot."
"In the next few months, we think U.S. equities will be trapped between strong but declining demand and a loosening but still tight labor market, " Goldman Sachs Asset Management said.
Meanwhile, market attention today will turn to the U.S. personal-consumption expenditures, or PCE, price index release, the Fed's preferred measure of inflation, along with the University of Michigan's final February read on consumer sentiment.
Michael J. Kramer, founder of Mott Capital Management, said if the month-over-month value comes in as expected, it would suggest that the 3-month annualized trend for PCE rose to 3.35% (Nov., Dec., Jan.) from an annualized 0.9% (Oct., Dec., Jan.). Meanwhile, it is running at a 3.3% annualized from July to January, up from 2.1% annualized over the same 6-month period.
"You can see that while the 3-month and 6-month year-over-year changes are down sharply from where they had been, they are still well above the Fed's target of 2% and show a significant acceleration from the prior running trend," Kramer said in a note.
"While one data point won't panic the Fed, a hot reading in February could. So, if January comes as expected, it likely means that the Fed is taking a step back in achieving its goal."
Forex:
The dollar weakened slightly ahead of key inflation data, as investors try to anticipate the Fed's next move.
The dollar is overvalued and likely to weaken as inflation declines, although it will take time, Bank of America economists said.
"Inflation is likely to imply near-term stability and upside for USD, given low unemployment and inertia for the core. Still, we look for that upside to be more limited," they said.
BofA forecasts the EUR/USD cross to reach 1.05 in the 1H of this year, appreciating to 1.10 by the end of 2023 and 1.15 a year later, "still below the long-term equilibrium of 1.20-1.25."
"Geopolitics will continue to linger, and the well-telegraphed debt ceiling showdown lurks," they added.
Bonds:
U.S. Treasury yields were mixed as economic indicators continue to show resilience and ahead of PCE inflation data.
"Investors have ramped up their expectations for the near-term path of the fed-funds rate amid talk of 'higher for longer'. But long-run expectations for the policy rate have already climbed significantly. If anything, we think this move may be overdone," said Capital Economics.
Markets are pricing in a 73% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5% on March 22, according to the CME FedWatch tool.
Meanwhile, the chance of a 50-basis-point hike is 27%, up from 1.3% a month ago.
The central bank is still mostly expected to take its fed-funds rate target to at least between 5.25% and 5.5% by June, according to 30-day fed funds futures. About a month ago, the "terminal" rate was seen at around 4.9%.
Energy:
Oil futures rose in Asia, extending overnight gains.
Reports that Russia will cut oil exports from its western ports by 25% on month in March were helping support prices, though this has yet to be confirmed by the Russian energy ministry, CBA said.
"While it looks possible for Europe to find alternatives to Russian oil and diesel imports, oil markets can still tighten later this year by Russian-led supply disruptions and increasing demand from China and India," it added.
The Russia-Ukraine war was a great market driver in 2022, and will be in 2023 as well, but there are "additional drivers the market is focusing on for 2023: China's reopening and dynamics of OPEC+ relations between Saudi Arabia and Russia," said Jim Burkhard, vice president and head of crude oil market and energy and mobility research at S&P Global Commodity Insights.
"Government intervention in the oil market, particularly by the U.S., could again have an impact as it did in 2022."
Metals:
Gold gained early Friday, after their lowest year-to-date finish overnight.
"Looking ahead, there is reason to believe that the U.S. dollar could maintain leadership in the FX space, at least for some time, creating headwinds for both the euro and precious metals," said DailyFX.
Strength in the USD is likely to be supported by continued rise in the U.S. Treasury yields in response to the Fed's assertive actions in its fight to restore price stability, it added.
The minutes "confirmed what last week's strong inflation data already told us: we're stuck with higher interest rates and a strong dollar -- a structural headwind for our commodity markets," analysts at Peak Trading Research said.
"It will probably take confirmation that the economy is slowing down faster before prices can muster up a meaningful rally," Oanda added.
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Copper prices gained in a likely technical rebound after sliding overnight on the back of a strong USD.
There could be further upside to copper prices in 2H, said BofA.
Housing in China should add to demand by the year-end, while the country's power grid is looking to quicken the installation of renewables, so fundamentals and prices are poised to strengthen through 2H, it added.
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Chinese iron-ore futures rose on expectations of stronger demand.
Steel mills in China are preparing for a busier construction period, with stimulus measures boosting activity, ANZ Research analysts said.
Steel output has also risen around 6% since early February, the analysts added, citing Mysteel, a commodity service provider in China.
TODAY'S TOP HEADLINES
Bank of Japan Governor Nominee Predicts Inflation Rate Will Fall Soon
TOKYO-Japan's core inflation rate hit a four-decade high of 4.2% in January, but the nominee to lead the Bank of Japan said he expected it to fall and didn't think an interest-rate increase was needed.
Core consumer prices-which Japan defines as all prices excluding fresh food-rose at the fastest pace since September 1981 but came in slightly below the consensus forecast. It was the 10th consecutive month that inflation exceeded the Bank of Japan's 2% target.
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.
Research firm GfK said its consumer-confidence barometer rose to minus 38 in February from minus 45 in January, the highest reading since April and more than reversing a dip last month.
Biden to Nominate Former Mastercard Executive Ajay Banga to Lead World Bank
President Biden intends to nominate Ajay Banga, the former chief executive officer of Mastercard Inc., to serve as president of the World Bank, moving swiftly to fill a vacancy atop an institution the U.S. is pushing to overhaul.
As the largest shareholder in the World Bank, the U.S. typically selects the leader of the institution, a post that doesn't require Senate confirmation, though the bank's board will need to officially appoint Mr. Banga. The board of the World Bank said on Wednesday it would begin accepting nominees before interviewing a shortlist of candidates, with the aim of selecting a new leader by early May. It couldn't be determined if any other country will submit a nominee.
U.N. Nations Call for Russia to Exit Ukraine as War Nears One-Year Mark
United Nations members called on Russia to withdraw from Ukraine, approving the latest U.S.-backed effort to pressure Moscow a year after the invasion-but also showing the limits of global support for Kyiv.
Thursday's resolution drew the support of 141 member countries, with seven countries voting against the measure and 32 abstaining, a similar outcome to previous resolutions related to the war.
China Urges End to Ukraine War, Calls for Peace Talks
China restated its calls for peace talks to end the war in Ukraine, seeking to cast itself as a neutral mediator in a one-year-old conflict in which Beijing has struggled to balance maintaining its close partnership with Moscow and further inflaming tensions with the West.
In a 12-point document issued Friday morning in Beijing, China's Foreign Ministry outlined what it called "China's Position on the Political Settlement of the Ukraine Crisis," using its preferred label for the war that Russia launched with its invasion a year ago.
Russia Plans to Deploy New Nuclear Missiles
MOSCOW-Russian President Vladimir Putin said he plans to deploy Sarmat intercontinental ballistic missiles this year, as Moscow touts its nuclear might against a backdrop of setbacks with its conventional forces in Ukraine.
(MORE TO FOLLOW) Dow Jones Newswires
02-24-23 0015ET
