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CHINA’S REOPENING MIGHT NOT BE SO FRIENDLY (1111 GMT)
While analysts are upgrading forecasts for China's economy, which they expect will also support the eurozone growth, some sound more cautious.
“The big Chinese economic recoveries of recent years have been characterised by two features: they’ve been stimulus-driven and investment-led,” Citi analysts say in a research note.
They mention the recovery that followed the Global Financial Crisis (GFC) and the one that followed China’s slump in 2015, arguing that “the pattern of Chinese growth in the decade following the GFC gave it a huge role in shaping global investment spending.”
“We’re not expecting substantial fiscal expansion this time round, not least because one of the motivations for this economic reopening is an anxiety about the build-up of debt in recent years,” they add.
A consumer-led Chinese recovery “won’t be as friendly as an investment-led recovery, considering that the ‘marginal propensity to import’ from consumer and services spending is likely to be rather low.”
China's Vice-Premier Liu He said he welcomed foreign investment and declared his country open to the world on Tuesday after three years of pandemic isolation.
U.S. EQUITIES: EARNINGS DISCONNECT WITH GUIDANCE (1015 GMT)
Investors will likely grapple with a widening disconnect this earnings season with better-than-expected U.S. quarterly earnings against a weaker corporate guidance for 2023, says J.P.Morgan.
In 2023, JPM sees a challenging outlook for U.S. equities with negative revisions to estimates, even though corporate fundamentals were resilient throughout 2022, despite macro and geopolitical headwinds.
"Disconnect between bottom-up consensus estimates and our equity macro models continues to widen," JPM adds.
Lately, while U.S. equities have been shrugging off bad economic news and rising on weaker jobs market data and lower bond yields, however, brokerage does not see it persisting and expects weaker guidance to put downward pressure on equities.
Nearly 165 million people were either in jobs or looking for them last month, a record high that showed a long-hoped-for improvement in labour supply suggesting the U.S. job market is starting to move the way the U.S. central bank has hoped it will, in its battle against inflation.
"Recent steady bid for equities from non-fundamental/ systematic strategies on the back of declining volatility could start to lose steam, while cross-asset flows are likely to become an increasing headwind for equities in the coming months," JPM says.
Brokerage expects a 4-5% positive earnings surprise in the fourth quarter on the back of resilient demand last quarter and better-than-expected margins, however, sees FY2023 outlook to be less optimistic relative to current estimates as consumers and corporates turn more cautious and postpone discretionary and growth-related spending.
Separately, Citigroup in a note says, U.S. equity funds enjoyed continued inflows in 2022, which is unusual during a equity sell-off and as a result, could leave the equity market vulnerable to future outflows.
EUROPEAN SHARES CLIMB ON CHINA OPTIMISM (0925 GMT)
European shares opened higher amid optimism about China's reopening with Chinese officials playing down the country's COVID outbreak as the Lunar New Year rush runs at full tilt.
More than 2 billion trips are expected to take place across China between Jan. 7 and Feb. 15, the Chinese government estimated.
The pan-European STOXX 600 is up 0.2%, with oil and gas and real estate sectors leading the pack, up around 0.7%.
Energy stocks tracked crude prices higher on hopes of a recovery in demand in the world's second-biggest economy.
A fresh batch of earnings results tempered the enthusiasm. Shares of Sweden's Ericsson fell 8% as the networking and telecommunications firm's core earnings missed expectations for the third quarter in a row.
Shares of British lender Close Brothers are down 13% after trading update.
FRET ABOUT DEBT? (0800 GMT)
With the Year of the Rabbit upon us, the Asian markets shrugged off some of the skittishness seen overnight on Wall Street, attempting a bit of a risk-on rally. Thin liquidity will keep gains capped, though, and fears of an economic slowdown along with worries over the Federal Reserve keeping interest rates higher for longer are unlikely to fade away.
A new worry has been added to investors' inbox of angst: the U.S. debt ceiling, with the U.S. government hitting its $31.4 trillion borrowing limit on Thursday. But with the U.S. Treasury using extraordinary cash management measures, staving off default until June 5, markets may not be immediately concerned.
So what's next? A standoff between the Republican-controlled House and President Joe Biden's Democrats on lifting the ceiling, which investors hope will be resolved and not result in a repeat of the 2011 crisis.
Meanwhile, Japan's consumer inflation touched a fresh 41 year high, keeping speculation swirling that the Bank of Japan will eventually walk away from its ultra-easy monetary policy.
Just two days back, the BOJ defied market expectations and stood by its yield curve control policy, but the market is willing to bet that the central bank will soon change its tune.
Speaking of central banks, the European Central Bank has pushed back strongly against market bets that it would deliver smaller rate hikes as a result of easing inflation.
The hawkish rhetoric is likely to continue, with ECB President Christine Lagarde due to speak again at Davos after stressing on Thursday that the central bank will stay the course of rate hikes to tame inflation.
Investor focus will be on UK retail sales for December, which are expected to rise 0.5%, to gauge how consumer spending held up during Christmas in the face of a cost-of-living crisis.
Meanwhile, another one bites the dust on planet crypto after a lending unit of crypto firm Genesis filed for bankruptcy protection.
Key developments that could influence markets on Friday:
Economic events: UK December retail sales, Germany December producer prices
Speakers: IMF's Kristalina Georgieva and ECB's Christine Lagarde to speak in Davos
EUROPEAN STOCKS SEEN SET FOR FRIDAY GAINS (0750 GMT)
Future are pointing European equity markets are set to open in positive territory getting a boost from optimism about China's reopening following the lifting of stringent COVID curbs, as markets prepared for the Lunar New Year holidays.
Sentiment improved when investor worries about more Federal Reserve tightening were heightened by robust U.S. employment data and fresh hawkish rhetoric from central bank officials this week.
STOXX are seeing recovering some grounds after recording its biggest daily decline since Mid December on Thursday. STOXX 50 futures are up 0.6%.
Retailers could be under pressure in the UK, as data showed British retail sales volumes fell by 1% in monthly terms in December. A Reuters poll of economists had pointed to a 0.5% rise in sales in the key Christmas month for retailers from November.
