Copper shines bright

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STOXX 600 up 0.4%

BOJ keeps ultra low rate, bond yield cap

UK inflation falls slightly to 10.5%

U.S. stock futures inch higher

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Copper has had a bright start to 2023 supported by a bullish demand outlook from China as the country exits some of the world's strictest COVID lockdowns.

COMEX copper futures HGc1 are at their highest since June, having risen around 2% today. A close in the green would mark the ninth straight day of gains, which Goldman Sachs strategist Kerem Cirpan notes has only happened five times since 1988.

Yet, Cirpan has doubts about whether the upturn can extend.

"Short term consolidation looks likely given the extent of the move, which can weigh against the currencies of copper exporters like Chile," GS's Cirpan says.

"Additionally, taking into account the pause in the iron ore price increases, we may expect AUD underperformance on the crosses."

(Samuel Indyk)



Europe's banking industry is already picking the fruits of rising interest rates but if the economy manages to avoid a recession, as it seems to be, it could get a further boost.

So, with the Q4 season just around the corner for British banks, UBS reckons that "the moment of truth" on prospects for growth in net interest income is approaching.

And the Swiss bank sounds upbeat.

"We think the market remains too cautious on the level of net interest income to be achieved in this rate cycle and is assigning too harsh a valuation set to a top line that we think will prove more defensive to peak rates than is priced," say UBS analysts led by Jason Napier.

"We expect upgrades to UK NII estimates at FY22 results to underpin a re-rating," they add.

UBS also sees "no noticeable credit defaults" emerging from Q4, although it thinks the market will dismiss that on the basis that "it's too early" for credit risk to emerge.

Finally the 2023 rally could increase the risks into results, it adds, but "attractive" valuations should help.

According to Refintiv Datastream, UK banks .FTNMX301010 are trading at a near 36% valuation discount to their 10-year average price-to-earnings ratio.

(Danilo Masoni)



Inflows into U.S. equities have begun to slow this year and may present an opportunity for more pick-up in Japan, China and other emerging markets as investors look for regional diversification, analysts at Goldman Sachs said.

The investment bank said lower commodity prices and faster than expected re-opening of China combined with cooling inflation have contributed to optimism and reduced volatility in emerging markets.

"We think there is a case for a more meaningful acceleration in non-US equity flows in 2023 as regional diversification has historically proven more valuable past the dollar peak, said GS strategists led by Cecilia Mariott.

"Additionally, there might be room for some regional cycle divergences, with areas such as North Asia and Europe being more exposed to China."

They note that European equities registered positive flows for the first time since Russian invasion over the first two weeks of 2023, with Germany in the lead.

Inflows into credit have increased even in riskier fixed income pockets, net equity futures positioning of asset managers has picked up in emerging markets and positioning in safe assets such as gold and the yen has also increased, the note added.

Foreign investors purchased net 91.2 billion yuan($13.45 billion) of Chinese stocks so far in 2023, which is more than last year's total of 90 billion yuan.

(Priyadarshini Basu)



European shares had a muted start to the day, with the STOXX 600 .STOXXbenchmark up just 0.1% after the first hour-and-half of trading albeit having squeezed its way to a new nine-month high early on.

Tech stocks .SX8P and basic resources .SXPPwere among the stronger sectoral performers, up 1.2% and 1% respectively.

The big news of the day was on the macro front, most notably the Bank of Japan maintained ultra-low interest rates, including a bond yield cap it was struggling to defend. That helped boost risk sentiment slightly across global asset classes, but the ripples were fairly small by the time they had reached European stocks.

Closer to home, British inflation eased following the trend in the eurozone and the U.S. but remained at a hot 10.5%.

The FTSE 100 .FTSE was in line with broader moves up 0.16%.

(Alun John)



Futures are pointed to a cautious open for European shares on Wednesday though Britain's FTSE 100, hovering just shy of its all time high, is set to underperform equity benchmarks elsewhere in the region.

Eurostoxx 50 STXEc1 futures are flat with Dax futures FDXc1 also little changed while FTSE 100 futures FFIc1 are down 0.11%.

There is also plenty of European company news for traders to read this morning, in fact a reasonable amount from BASF alone.

The German chemicals giant BASFn.DE unveiled a 7.3 billion euro ($7.9 billion) non-cash impairment on Wintershall Dea WINT.UL, after the oil and gas exploration joint venture decided to exit Russia following its invasion of Ukraine, and separately, Indonesian officials said BASF and French miner Eramet ERMT.PA are finalising a $2.6 billion partnership deal to invest in a facility in Indonesia to process nickel for use in batteries for electric vehicles.

Elswhere, Richemont CFR.S reported higher quarterly sales on Wednesday as tourists returned to Europe and Japan, but the luxury group missed market estimates after sales in China plunged by almost a quarter.

And British retailers continued to hold up fairly well. British retailer WH Smith SMWH.L said on Wednesday that revenue had risen over the last 20 weeks due to a rebound in travel from COVID-19 lows, and while electricals retailer Currys CURY.L reported a further deterioration in its international business, it kept its financial guidance for the full year.

(Alun John)



So after all the frenetic speculation and massive market pressure, the Bank of Japan (BOJ) has held the line on its super-easy stimulus policy.

The economic outlook was revised a little, with GDP forecasts nudged down and CPI inflation up a touch to 1.8%, but that was short of the 2% target that some had predicted.

This saw the yen down across the board and the dollar up 2.6% to 131.42 yen. Global bond markets breathed a sigh of relief and U.S. 10-year yields eased 8 basis points to 3.48%.

The BOJ will continue to buy bonds in whatever amount necessary to maintain its target for 10-year JGB yields at zero. The trading band remains at -0.5% to +0.5%, notwithstanding the fact yields have now nudged above the ceiling for four sessions in a row.

One subtle change was to rules for providing fixed-rate funds to markets, with the BOJ saying the rate charged on loans out to 10 years would be set "to encourage the formation of a yield curve that is consistent with the guideline for market operations." It then offered to lend one trillion yen ($7.62 billion) at a fixed rate for five years.

It was unclear how meaningful this change would be, but the BOJ's defiant stance did see 10-year JGB yields backtrack to 0.36% from an early high of 0.51%.

Analysts still suspect the BOJ will again have to buy a record amount of JGBs this month to maintain the ceiling. The bank already holds more than half of all JGBs, and 80% or 90% of some bond lines, a major reason the yield curve looks out of whack and dealers complain endlessly of a dearth of liquidity.

In a sense, the BOJ is the single source of liquidity as it really is the buyer of last resort right now. Perhaps the idea is to provide an escape route for investors to exit their long JGB positions at current prices, and avoid the deeper losses that would surely come when YCC is finally wound down.

That could be an awful lot of buying given the next policy meeting isn't until March 10, but at least global yields seem to be trending downwards which could help ease the pressure.

An added twist for the March meeting is that the government is reportedly set to announce a new BOJ governor in February, ahead of Kuroda's retirement in April, and some analysts assume it will be left to the new guy to reverse course.

Or, just maybe, the BOJ will go on buying until it owns all of the government's debt, and them simply forgive it. It's just an accounting entry after all.

(Wayne Cole)



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