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European Midday Briefing: Stocks Hit by Geopolitics, Further U.S. Jobs Fallout



European stocks traded lower on Monday as the U.S. jobs report rekindled fears of a hawkish Federal Reserve, and as geopolitical tensions between China and the U.S. flared up.

"The surprising strength of Friday's payrolls report has certainly provided food for thought, and in so doing has outlined the risk that rates could well remain high for quite some time, especially if inflation continues to stay high," CMC Markets said.

"One thing Friday's strong jobs number didn't change was the fact that stock markets are still in their wider uptrend from the October lows, and they would have to fall a lot further for that to change."

Stocks to Watch

Zur Rose's sale of its Swiss business will give the company headroom to start reinvesting in its focus market of Germany and address near-term refinancing concerns, Citi said.

However, management still faces the challenge of returning the German business to growth, Citi added.

Zur Rose has been in the process of simplifying the brand portfolio following a period of relative underinvestment, it said.

Management has also positioned the asset sale as a positive from the perspective of e-prescriptions as it showcases the company's conviction in the German e-prescription opportunity, but Citi continues to prefer competitor Shop Apotheke.

Citi upgraded Zur Rose to neutral from sell.


U.K. banks have benefited from higher interest rates, but face risks from potential deposit outflows, Barclays said, tweaking some recommendations.

Banks are set to achieve record net interest margins and decade-high returns on tangible equity thanks to rate rises, it added.

Still, quantitative tightening and escalating deposit competition raise the prospect of deposit outflows, Barclays said.

"Here we see Lloyds Banking Group as relatively better-placed given its greater reliance on retail savings."

"NatWest may be more exposed given its weighting towards flightier commercial current accounts."

Barclays upgraded Lloyds to overweight from equal-weight and increased its price target to 75 pence from 55p. It downgraded NatWest and Virgin Money to equal-weight from overweight.

Bank of England

The BOE's next move is more likely to be to raise rates further than to cut or hold them as there are still "material upside risks to our inflation outlook," Monetary Policy Committee member Catherine L. Mann said in a speech in Budapest.

"We need to stay the course, and in my view the next step in Bank Rate is still more likely to be another hike than a cut or hold," she said.

Before switching course, Mann would like to see "a significant and sustained deceleration in higher frequency price increases and in the underlying inflation measures and expectations towards inflation rates that are consistent with achieving the 2% target."

U.S. Markets:

Stocks were poised for a lower open on Monday, ahead of the week when Joe Biden delivers his State of the Union address, and the University of Michigan releases its preliminary CPI reading for February.

Dell will join the ranks of tech companies slashing jobs as the computer maker will cut 6,650 positions, according to a Bloomberg report on Monday.

Up ahead, companies including Tyson Foods are due to report before the bell. Gaming companies Activision Blizzard and Take-Two Interactive Software are due to report after the close, as is Pinterest.


The dollar continued to gain after Friday's much stronger-than-expected U.S. jobs data, reaching its highest in nearly four weeks against a basket of currencies as the U.S. economy looks more resilient and more rate rises look likely, MUFG said.

"Market participants have moved to price in a higher probability of the Fed delivering at least two more 25bps hikes before pausing their hiking cycle."

U.S. rate markets have scaled back expectations for rate cuts beginning later this year, and thus the dollar has reversed most of its losses sustained since the start of the year, MUFG said.

MUFG said it doesn't expect the dollar's rebound "to be the start of a more sustained upward trend."

"The underlying trend for job growth is still slowing but not fast enough to make the Fed comfortable over upside risks to inflation from the tight labour market."


Bond markets are off to a strong start in 2023, running with the downward inflation trend in the US, J.P.Morgan Asset Management said.

"As a result, bond demand has picked up and government bond yields have rallied."

This has benefited JPM AM's preference for adding U.S. duration at the beginning of the year, it said, adding that, in the near term, inflation, wage and economic growth data may keep government bond yields range bound.

"Ultimately, we prefer to remain structurally long U.S. duration as we continue to see a 60% chance of the market pricing in a recession later this year."


A desire to increase fixed-income allocations has seen robust demand for this asset class at the start of the year and this has created a supportive technical dynamic, RBC BlueBay Asset Management said.

"However, once this demand is sated, elevated deficits across the Continent and a ECB selling bonds to shrink its balance sheet, are both risks that could pressure yields higher."

RBC BlueBay AM looks for yields to rise, expecting bond supply to be a prevalent source of pressure on bonds in 2023.


The price action in German Bunds on the day of the ECB's meeting last Thursday highlighted the importance of the positioning factor, Morgan Stanley said.

It is "something we considered a key factor with the valuation versus macro data or the seasonality," MS said.

With the setback in yields after U.S. nonfarm payrolls data on Friday, the Bund yield has stabilized around Morgan Stanley's model fair value, it added.

A more benign supply backdrop and the seasonality factor will finally turn supportive for Bunds this coming week, MS said, expecting a gradual decline in 10-year Bund yields below 2.00%.

Read Drop in German Bund Yield on Day of ECB Meeting Is Historically Large


Oil prices ticked 0.6% higher after fresh Western sanctions on Russian refined products came into effect.

An EU ban on Russian refined products and a G-7 price cap on those products came into force Sunday.

The caps prevent shipping and insurance firms from trading Russian refined products unless they are below a cap of $100 a barrel for gasoline, diesel and jet fuel and $45 a barrel for naphtha and fuel oil.

The measures have been well-flagged and Europe has built up strong stockpiles in recent weeks, limiting the measures' hit on prices.

"EU buyers have had time to prepare for the ban," ING said.


Metals prices were mixed, while gold was higher, with the dollar still rising after Friday's strong U.S. jobs report.

Friday's robust nonfarm payroll figure boosted the dollar--with the ICE index up 0.2% to 103.15 today--and hit risk commodities, meaning the Fed might stay hawkish with regards to monetary policy, ANZ Research said.

"Any macro disappointment could lead to a short-term price correction before seeing a sustained rise in prices," it said with regards to industrial metal prices, adding that gold is likely to face headwinds for similar reasons.

Copper Outlook

Strong demand from China and supply strains from South-American mined production is likely to keep copper prices elevated according to Fitch Solutions.

Fitch said it expects prices to average $8,500 a metric ton in 2023, but added that it sees significant upside risks to this, driven by China's reopening.

"Despite a slight cooling of prices directly after the Lunar New Year holidays, we remain optimistic about a recovery of copper demand from Mainland China in the coming months."

The research firm added social unrest in Latin America also remains a near-term threat to supply.




Nissan Plans to Take Up to 15% Stake in Renault's New EV Company

Nissan Motor Co. plans to invest for an up to 15% stake in Renault SA's new electric-vehicle company, Ampere, the auto makers said Monday as they formally announced the alliance's reorganization.

The French-Japanese auto alliance said member Mitsubishi Motors Corp. will also consider investing in Ampere.


German Factory Orders Rose in December

New orders at German factories recovered in December, an indication of improving demand in the country's key manufacturing sector despite signs of an upcoming economic slowdown.

Factory orders rose 3.2% on month in December, swinging from a 4.4% fall in November, according to price-adjusted data from the German statistics office Destatis released Monday. However, it meant new orders rose in just four of the months of 2022.


Norwegian Air Shuttle Passenger Numbers Fell Slightly on Month in January

Norwegian Air Shuttle ASA said Monday that passenger numbers fell slightly in January compared with the prior month, but noted positive current booking trends.

The airline said it carried 1.13 million passengers in January, down from 1.32 million passengers in December. However, passenger levels increased 78% compared with the 637,376 it carried in January 2022.


Rovio Starts Strategic Review and Preliminary Talks Over Potential Takeover

Rovio Entertainment Oyj said Monday it has started a strategic review and preliminary non-binding talks with certain parties in relation to a potential tender offer for its shares.

The Finnish company behind the Angry Birds mobile-gaming franchise said it has received expressions of interest and indicative non-binding takeover proposals, and as part of the strategic review it has decided to enter into preliminary non-binding talks with certain parties, including Playtika Holding Corp.


Europe Hopes Its Latest Russian Energy Purge Is Another Nonevent

(MORE TO FOLLOW) Dow Jones Newswires

February 06, 2023 06:23 ET (11:23 GMT)

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