Commodities: a strong 2023 is possible, but ...

Retailers lead early charge higher

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FTSE, ISEQ among outperformers

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China COVID rules loosen, investors scour Fed minutes

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COMMODITIES: A STRONG 2023 IS POSSIBLE, BUT… (1121 GMT)

Commodity prices skyrocketed from the end of 2020, but they lost steam in June 2022 and have been range-bound since then.

Slower economic activity might weigh in 2023, as G7 economies are expected to come to a standstill.

UBS Global Wealth Management Chief Investment Office sees “another strong year for commodities in 2023” and forecasts high-teen per cent total returns on an asset-class level, while warning that investors may see 15– 20% volatility throughout 2023.

However, several conditions need to be in place.

“Our view is that a firm economic recovery in China, the start of the Federal Reserve’s rate cuts later in the year, and several unresolved supply-side issues due to years of underinvestment should drive prices higher,” UBS analysts say.

“We expect the supply side will struggle to meet the demand from a cyclical China bounce while catering to global decarbonatization efforts,” they add.

Here the key risks to such a scenario, according to UBS GWM.

A deeper recession in the U.S. or Europe that overshadows a China reopening, a more hawkish-than-expected Federal Reserve, and a sudden end to the war in Ukraine, which “would certainly dim sentiment on the energy sector and prices.”

BIG LOVE FOR BIG TECH EVEN IN BIG, BAD 2022 (1005 GMT)

Big Tech may have had a dismal 2022, but that did nothing to dim the love that UK retail investors have for the sector. The three most popular stocks among UK-based users of eToro at the end of 2022 were Tesla, Amazon and Nio – the same three as at the end of 2021, according to data from the online broker.

Tesla lost 70% of its value last year, as did the U.S.-listed shares of Chinese EV maker Nio. Even Amazon shares fell 50%.

iPhone maker Apple was the fourth-most popular, followed by Facebook parent Meta and with GameStop , the meme stock at the heart of early 2021's massive short squeeze, in sixth place.

"2022 was an exceptionally poor year for investments, and for some of our users, it will be the biggest bear market that they have experienced," eToro global market strategist Ben Laidler said.

"But when we look at these names - Apple, Microsoft, Meta, Alphabet - we are talking about giants with fortress balance sheets, structural growth outlooks and now cheaper valuations, which will have encouraged more to buy in," he said.

British retail investors kept hold of some the big pandemic stay-at-home tech stocks, such as PayPal, Google parent Alphabet and Palantir.

In fact, just three UK-listed companies made it into the top 20 of what eToro calls "UK DIY" investors' holdings - aerospace engine maker Rolls Royce, British Airways owner ICAG and budget airline easyJet.

The question is - did those bets pay off? Not a single stock in the top 20 delivered a positive return in 2022. But two out of the top five "least-badly" performing stocks were ICAG and Rolls Royce. Stay-at-home stocks: 0; reopening stocks: 1.

UK RETAILERS - SHOP 'TIL YOU DROP (0927 GMT)

UK stocks are outperforming the rest of Europe this morning, thanks to a sizzling start to the day from retailers. High-street fashion retailer Next rose by more than 9% at one point after boosting its pre-tax profit forecast for this fiscal year, despite the recession hitting cash-strapped Brits. Online rival ASOS is up nearly 3%, while food retailers Marks & Spencer and Greggs are up by 4% and 1%, respectively.

This is helping push the FTSE up 0.3%, making it one of the top performing indices today, after Dublin's ISEQ , which is up 1% thanks to a 5.4% leap in Ryanair , after the budget airline raised its profit target for its current fiscal year. Spain's IBEX is up 0.4%, while the broader STOXX 600 is down 0.1%.

EARLY SQUAWK FROM FED HAWKS (0727 GMT)

European equities are heading for a more muted start to the day today, cutting short this week's three-day rally. Last night's minutes from the Fed's most recent policy meeting contained a warning to markets that getting too optimistic about the likely path of interest rates could backfire.

STOXX 50E futures are down 0.3%, while DAX and FTSE futures are off between 0.1-0.2%.

Natural resources look like they might be mixed as China further dismantles its COVID restrictions - bullish copper, iron ore, coal etc - while an unexpected build in U.S. oil inventories might dent some of the enthusiasm in the oil and gas sector.

Later today, we've got PMIs for the euro zone, as well as individual ones for Germany, France, Italy and the UK, among others. With any luck, they'll confirm what yesterday's indicators did - that the economy is in recession, but it's not quite as bad as many had feared, especially as power and gas prices are in retreat thanks to a milder start to the winter.