MARKET WRAPS
Stocks:
European stocks traded lower on Thursday as investors reckoned with the prospects of higher-for-longer interest rates.
Eurozone inflation eased in February for the fourth straight month, but a strong pickup in services prices makes it likely that the European Central Bank will continue to raise interest rates in coming months.
The ECB has signaled that it will raise its key interest rate to 3% from 2.5% when policy makers next meet on March 16. Recent moves in eurozone government bonds indicate that investors anticipate further increases.
Read Eurozone Inflation Eases, but Core Measure Hits Record High
U.K. Homebuilders
U.K. homebuilders are likely to see a drop in revenue and tighter margins in 2023, S&P Global Ratings said.
Fewer completions are expected in 2023, S&P said, as buyers deal with the rising cost of living. Inflation is expected to remain at close to 7% this year, which will discourage potential homebuyers and lower mortgage demand, according to S&P.
A weaker pound will "increase the cost of imported building materials, exacerbating the contraction in margins," S&P said. According to the agency, UK house prices are expected to decline by 3.5% by the end of this year.
U.S. Markets:
Stock futures weakened as fears of higher-for-longer interest rates lingered and as rising bond yields continued to weigh on equities.
Stocks to Watch
Okta jumped 13.3% after fourth-quarter adjusted earnings beat analysts' consensus and the identity-management software company issued an upbeat financial forecast.
Salesforce surged 14.6% after it posted better-than-expected fiscal fourth-quarter adjusted earnings and said fiscal 2024 adjusted profit would come in well above analysts' expectations.
Tesla was down 5.3% in premarket trading after CEO Elon Musk confirmed the electric-vehicle maker plans to build its fifth assembly plant in Monterrey, Mexico. A lack of details during the presentation appeared to be sending the shares lower.
The Labor Department is set to report weekly jobless claims, a proxy for layoffs.
Forex:
The euro stayed weaker against the dollar even after the latest eurozone inflation data exceeded expectations.
The data may have been priced in following higher-than-forecast inflation prints from Germany, Spain and France earlier this week.
---
Sterling fell as investors continued to digest cautious remarks from BOE Governor Bailey yesterday about the outlook for interest rates.
Bailey signalled that further rate rises weren't guaranteed and said he hasn't seen any data to justify the recent rise in the market's rate expectations.
"We now expect the BOE to deliver one more 25bps hike this month but doubt that rates will need to rise as far as current market pricing," MUFG said.
The BOE's relatively cautious stance remains a negative factor for sterling in the near-term, it added.
---
The dollar recovered after losses in the previous session that were triggered by reduced safe-haven flows after strong Chinese PMI data boosted optimism in the country's economic recovery, MUFG Bank said.
"While renewed China reopening optimism has weighed down on the dollar, it is still deriving support from rising U.S. yields," MUFG said.
Higher Fed interest rate rise expectations and the recent pick-up in inflation expectations helped lift the 10-year U.S. Treasury yield back above 4.00% yesterday for the first time since the first half of November, it said.
Bonds:
Government bond issuance by eurozone sovereigns is expected to reach EUR126 billion in March, roughly in line with the gross supply in February, Citi said.
The overall issuance volume this month is expected to be higher than the EUR105 billion average monthly supply that Citi forecasts for 2023.
The monthly net cash requirement should be non-supportive for eurozone government bonds at EUR64 billion, and on a country level it should be the most non-supportive for Italy, Citi added.
---
Investors continued to sell off eurozone government bonds, pushing bond yields higher, as inflation accelerated in major countries in February, keeping the pressure on the ECB to raise interest rates further, analysts said.
An acceleration of price growth in Germany, with data released on Wednesday, "comes on the back of upside surprises in the French and Spanish numbers the previous day, so it's clear that this is broader than just one country," Deutsche Bank said.
---
Read Cost of Insuring Against Euro Junk Defaults Rises as Rate Risk Increases
Energy:
Oil prices ticked 0.1% lower, balancing signs of demand weakness in the U.S. with hopes for China's reopening.
U.S. crude oil stocks rose for another week, building by 1.2 million barrels, more than analysts had forecast. The fresh stock build also came after lackluster U.S. manufacturing PMIs.
The signs of lacking demand in the U.S. are tempering investors' hopes for oil, which many expect to rally later this year as China's reopening spurs new demand.
Metals:
Base metals prices weakened as investors mulled hawkish comments from Federal Reserve officials and a stronger dollar.
DOW JONES NEWSPLUS
EMEA HEADLINES
Eurozone Inflation Eases, but Core Measure Hits Record High
Eurozone inflation eased in February for the fourth straight month, but a strong pickup in services prices makes it likely that the European Central Bank will continue to raise interest rates in coming months.
Despite the overall easing in price rises, inflation accelerated in many of the eurozone's largest members-including Germany, France and Spain-underlines how difficult a task central bankers face in bringing it back under control. The data comes as strikes and labor unrest across the region are pushing wages higher, something that makes inflation stickier.
Hapag-Lloyd Expects Sharp Earnings Drop in 2023 After Fall in Freight Rates
Hapag-Lloyd AG said Thursday that it expects a significant fall in earnings in 2023 as the economy has cooled and freight rates have declined, and that it will keep an eye on costs.
The German shipping company said it anticipates earnings will gradually normalize, and forecast earnings before interest, taxes, depreciation and amortization for 2023 to come in at between $4.3 billion and $6.5 billion. Earnings before interest and taxes are expected to be in a range of between $2.1 billion and $4.3 billion, Hapag-Lloyd said.
Merck KGaA Sees Challenging 2023 After Rises in 2022 Earnings, Sales
Germany's Merck KGaA said Thursday that it expects a challenging 2023, with adjusted earnings forecast to be stable or decline slightly and a hit from foreign-exchange rates, as it reported a rise in after-tax profit and net sales for last year.
The life-sciences and electronics company said after-tax profit for 2022 was 3.34 billion euros ($3.56 billion) compared with EUR3.07 billion in 2021. Net sales rose 13% to EUR22.23 billion, with life-science sales up 15% and sales up 11% in both healthcare and electronics.
Beer Drinkers Cut Back as Bud Brewer AB InBev Raises Prices
Budweiser brewer Anheuser-Busch InBev SA reported a fall in sales volumes for the fourth quarter as drinkers in North America bought less of the company's beer amid rising prices.
The drop comes as companies across the consumer-products industry grapple with how much they can raise prices to offset rising costs without deterring shoppers. For much of the past year, AB InBev said drinkers weren't giving up their brews despite inflation's bite, though that trend appeared to end in the last quarter.
Taylor Wimpey 2022 Pretax Profit Rose But 2023 Sales Seen Falling
Taylor Wimpey PLC said Thursday that pretax profit grew in 2022 on higher selling prices, though it expects sales to fall in 2023.
The house builder said pretax profit for 2022 was 827.9 million pounds ($995.6 million) compared with GBP679.6 million the year before, as average selling prices rose 4% to GBP313,000 and house price inflation offset build cost inflation.
Impala Platinum 1H Profit Rose on Pricing, Destocking; Backs Production Views
Impala Platinum Holdings Ltd. on Thursday reported a rise in profit for the first half of the fiscal year on the back of robust pricing and destocking inventory, and backed production guidance.
The South African platinum miner made a net profit of 13.97 billion rand ($770.6 million ) for the six months ended Dec. 31, up from ZAR13.84 billion a year earlier. The company said the rise in net profit was due to strong platinum group metal pricing and destocking which offset lower refined volumes, though it was hampered by inflation and rand depreciation.
Carbon Emissions Climbed Less Than Feared in 2022 Despite Coal Resurgence
Global carbon emissions inched higher last year, according to the International Energy Agency, but the increase was less than what had been feared as booming demand for renewable energy kept the impact from resurgent coal plants in check.
An analysis by the energy forecaster, whose members comprise many of the world's largest energy consumers, said emissions of carbon dioxide, a greenhouse gas that drives climate change, climbed less than 1% or 321 million metric tons in 2022.
How U.S. Weapons Play a Growing Role in the Ukraine War
Since Russia launched its full-scale invasion of Ukraine over a year ago, the U.S. has committed more than $30 billion in security assistance that has included artillery, missiles, small arms, armored vehicles, radar systems, drones, body armor, millions of rounds of ammunition and more.
In his first remarks after the Feb. 24, 2022, invasion, President Biden said nothing that indicated how that would unfold. He pledged, "Our forces are not and will not be engaged in the conflict with Russia in Ukraine."
GLOBAL NEWS
Fed Might Be Winning Inflation Fight, Depending on Index Used
(MORE TO FOLLOW) Dow Jones Newswires
03-02-23 0617ET
