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DJ Credit Investors to Focus on Earnings, US Labor Data -- Market Talk

· 02/05/2021 03:39

0839 GMT - Company earning results and U.S. labor data due later Friday will be at the centre of attention for credit investors, with both events signaling European credit market may end the week in positive territory, says UniCredit. "With investors focusing on the results of the earnings season and the U.S. employment report due out today, credit markets could remain on track for weekly gains, particularly in riskier parts of the credit spectrum," the Italian bank says. Credit spreads have narrowed this week across all credit scores, with riskier, lower-rated corporate bonds outperforming, it says. Economists polled by WSJ expect 50,000 jobs to have added in January in the U.S. (lorena.ruibal@wsj.com)

0831 GMT - Upbeat momentum in risk assets fueled by optimism about a U.S. economic-stimulus package and a vaccination-driven economic recovery is set to expand Friday from equities to credit markets. "Amid risk-on sentiment in broader markets, equity futures are trending higher once more this morning. We think that a positive tone will likely prevail in European credit markets today," says UniCredit.The pan-continental Stoxx Europe 600 opens 0.2% higher. Futures tied to the S&P 500 advance 0.2%, pointing to gains after the opening bell, while those of technology-heavy Nasdaq add 0.4%.(lorena.ruibal@wsj.com)

0820 GMT - A robust U.S. non-farm payroll report for January may weaken the dollar slightly but the currency is still likely to stay stronger against the euro, Commerzbank says. Positive labor market data could dampen expectations for large-scale U.S. fiscal stimulus to support the country's recovery, Commerzbank's Esther Reichelt says. However, the EU's recovery fund could turn out to be a damp squib in coming months, she says. The EU's difficulties are unlikely to end any time soon and U.S. lawmakers should approve further stimulus so the dollar should maintain the upper hand for now, she says. EUR/USD rises 0.1% to 1.1981, having earlier reached a two-month low of 1.1953, according to FactSet. The payrolls report is due at 1330 GMT. (renae.dyer@wsj.com)

0811 GMT - China's foreign-exchange reserves likely fell slightly to $3.215 trillion at the end of January from $3.217 trillion at end-2020, according to a median forecast of economists polled by The Wall Street Journal. The decline was mainly due to the valuations of forex assets, as the U.S. dollar strengthened last month, Standard Chartered economists say. Factors including rising bond yields and falling equity markets might have eroded mark-to-market reserve asset values, they add. The People's Bank of China is expected to release the data on Sunday. (singaporeeditors@dowjones.com)

0803 GMT - German manufacturing orders fell in December for the first time since April, but this doesn't change the fact that the manufacturing sector is still clearly on the road to recovery, Ralph Solveen, senior economist at Commerzbank. The 1.9% on the month decline is largely due to a significant drop in orders from the "other vehicle" sector, which is very volatile, Solveen says. Moreover, orders were still clearly above their pre-crisis level, he adds. "The upbeat sentiment among manufacturers until recently, as reflected in the Ifo business climate and the purchasing managers' index, signals that the trend in manufacturing continues to point clearly upwards," Solveen says. The manufacturing sector is likely to support the economy in the first quarter, he says. (maria.martinez@wsj.com)

0752 GMT - Germany's industrial orders fell in December, suggesting that the stricter lockdown, together with continuing lockdowns in other eurozone countries, has finally had a negative impact in the industrial sector, Carsten Brzeski, global head of macro at ING, says. Industrial orders are still 2.5% above their pre-crisis level and despite the pandemic, the year 2020 will be the first year since 2017 in which industrial orders recorded a positive year in terms of average monthly growth, Brzeski says. But the data show that the stricter lockdown measures have finally hit German industry and although this looks like a temporary breather, with the Chinese New Year break and lockdowns in many trading-partner countries, setbacks for industry seem hard to avoid. (maria.martinez@wsj.com)

0746 GMT - USD/SGD nudges higher in the afternoon Asian session ahead of tonight's U.S. jobs data. A stronger jobs report could underpin USD as it may reduce pressure on the Fed to ease monetary policy further, DailyFX.com says. The technical charts also show the DXY USD Index crossed above its 50-day moving average, and the index seems to have entered a bullish trend with the formation of a golden cross, DailyFX.com adds. USD/SGD is up 0.1% at 1.3380. (ronnie.harui@wsj.com)

0745 GMT - The FTSE 100 is expected to start the session trading flat as investors continue to weigh Thursday's Bank of England policy announcement and look ahead to U.S. jobs data later. IG estimates the index will open 2 points lower. Sterling extends Thursday's gains after the BOE left its key interest rate unchanged at 0.1% and poured cold water on the prospect of negative rates in the near-term. The U.S. nonfarm payrolls report, due at 1330 GMT Friday, is expected to show a return to jobs growth in January. "A strong figure seems unlikely to discourage risk lovers, but too strong data could weigh on investor sentiment and lead to some profit taking in risk positions," Swissquote Bank analyst Ipek Ozkardeskaya says. (renae.dyer@wsj.com)

0720 GMT - German 10-year Bund yields are trading essentially unchanged, showing no reaction to a sharp reduction in German manufacturing orders in December. German manufacturing orders fell by 1.9% on the month in December, underperforming economists' forecast of a 0.8% fall in The Wall Street Journal's poll. The 10-year Bund yield is trading 0.2 basis point lower at -0.458%, according to Tradeweb. (emese.bartha@wsj.com)

0714 GMT - Italian government bond, or BTP, yield spreads over Bunds are testing the 100 basis point level as investors remain confident that former European Central Bank President Mario Draghi will succeed in forming a new government. "While the direction of travel [of BTP-Bund spreads] seemed clear, the speed of the adjustment is still remarkable, considering the remaining question marks of how Draghi is going to establish a stable majority," says Christoph Rieger, head of rates and credit strategy at Commerzbank. The German bank looks at foreign investors as driver of the next leg of spread tightening. The 10-year BTP-Bund spread is trading just a nod above 100 basis points, down 0.5 basis points, according to Tradeweb. (emese.bartha@wsj.com)

0706 GMT - BNP Paribas posted strong investment-bank results for 2020, with fixed-income revenue booming on the back of strong client activity, but it warned that a fixed-income slowdown is to be expected this year. Fixed-income revenue rose almost 59% last year, a performance unlikely to be repeated this year. Fixed-income "is unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity," the bank said. (pietro.lombardi@dowjones.com; @pietrolombard10)

0703 GMT - Investors tolerate risks related to Italian government bonds, or BTPs, increasingly better, say Societe Generale's rates strategists. The 10-year BTP-Bund spread narrowed to 100 basis points this week, as investors cheer former European Central Bank President Mario Draghi's decision to accept the mandate to try and form a government in Italy. "Investors' risk tolerance on BTPs has increased, while that on Bunds is deteriorating," they say, maintaining their target for the 10-year BTP-Bund spread of 90 basis points. Still, the strategists consider the BTP-Bund spread volatility too high, and say that if the spread volatility doesn't decline soon, valuations will start looking overstretched. (emese.bartha@wsj.com)

(END) Dow Jones Newswires

February 05, 2021 03:39 ET (08:39 GMT)

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