MARKET WRAPS

Stocks:

European stocks fell sharply on Friday led by technology, which echoed a late-session selloff on Wall Street. Profit warnings in the renewables sector sent the shares of two Siemens subsidiaries tumbling.

Wind-power company Siemens Gamesa Renewable Energy fell nearly 15% after it posted an operating loss and lowered its guidance, citing supply-chain constraints.

The warning from its Spanish subsidiary prompted Siemens Energy to lower its targets for fiscal 2022, and shares tumbled 10%. Those of rival Vestas Wind Systems dropped 6%.

While tech led the losses in Europe, few sectors showed any green. Among chip names in Europe, heavily weighted ASML dropped 3%, and ams shares fell 3%, while business software group SAP was down 1.2%.

The FTSE 100 fell, with mining shares among the worst performers as commodity prices slipped. Energy names were under pressure as a risk-off mood hit oil prices and BP and Royal Dutch Shell shares fell 1% each.

Meanwhile, tensions between Russia and NATO are also weighing on market sentiment, investors said.

"Geopolitical risk plays a role, repricing of [central bank] policy plays a role and the inflation mix in the sense of cost pressures. You put all those together and there is actually quite a change," said Georgina Taylor, a multiasset fund manager at Invesco. "Risk premium for equities needs to go up."

Shares on the move: Siemens Gamesa's profit warning is down to internal and external factors, Citi's Vivek Midha said after the Spanish renewable-energy company cut fiscal 2022 guidance on preliminary 1Q results. Issues with the ramp-up of the company's 5.X turbine platform affected 1Q results, but so did the wider supply-chain issue, Midha noted.

The underlying loss in 1Q was better than consensus had expected, but the company's guidance cut goes further than the 1Q miss because of global assumptions on supply-chain problems ahead--namely, that they won't ease as quickly as thought, Midha says.

Citi has a neutral rating and a EUR20.50 target on Gamesa stock.

Data in focus: Societe Generale expects Greek government bonds to become investment grade within two years, in the first half of 2023 at the earliest, it said. It bases its view on improved fundamentals but added that it sees "near-term pain and relative underperformance versus other peripherals as investors worry about rising yields and spreads."

The French bank's rates strategists add that Greece's recently launched new 10-year government bond attracted lower demand "than we have become accustomed to, similar to other January syndications in peripheral bonds."

Greece sold EUR3 billion in June 2032-dated bonds on Wednesday, with books for the transaction closing in excess of EUR15 billion.

The latest U.K. retail sales figures for December don't make for pleasant viewing, ING's developed markets economist James Smith said. Retail-sales volumes dropped 3.7% from a month earlier.

"Some of this fall is undoubtedly linked to Omicron, given footfall appeared to have been a little lower in the run-up to Christmas," Smith said.

But a lot of this also looks like a pullback after an unusually strong November and Black Friday, he added.

Strong October sales also hinted that consumers did more of their Christmas shopping early relative to past years, Smith said. ING said these figures are unlikely to move the needle much for the Bank of England, which looks poised to hike rates again in February.

In the eurozone, a combination of labour shortages, high inflation, and increased minimum wages, means 2022 is set for a decent recovery in nominal wage growth, ING said.

The past few months have seen surprisingly rapid declines in unemployment and the economy has recovered quicker than expected, which has resulted in labor shortages, ING's economists said.

The relationship between unemployment and inflation--the Phillips curve--has flattened in the last decade, they said. "It takes longer for wage growth to emerge from low unemployment and it leads to less wage growth as well," ING says.

But this relationship remains alive. ING expects wage growth to significantly accelerate in 2022 and 2023 to around 3.5%, as most important wage growth drivers point to a sharp increase.

U.S. Markets:

Stock futures were mixed Friday, but the Nasdaq was poised to push deeper into correction territory as technology stocks remain under pressure on multiple fronts.

Wall Street looks to end the week after a tumultuous few days of trading. Wednesday and Thursday both saw the Nasdaq rise more than 1% and then end down more than 1%, which is the first time a back-to-back rise and fall like that has happened in almost a year. The index entered correction territory earlier in the week -- down more than 10% from its high in mid-November -- and was heading deeper into the red Friday.

One of the latest catalysts for a move lower among tech stocks, which have a weighting with more influence in the S&P 500 and Nasdaq than the Dow, was downbeat news about Peloton. Underwhelming financial results from Netflix after the bell Thursday haven't helped the picture.

"The bears took control of the ball," said Jim Reid, a strategist at Deutsche Bank. "The S&P 500 is on track for a third consecutive weekly decline for the first time since September 2020."

Forex:

The dollar has been under pressure for most of January with favorable interest rate differentials failing to prop up the currency, RBC Capital Markets said.

The rally in commodity prices and U.S. equity weakness have been a more important driver for the dollar in the last month, RBC's George Davis said.

"With U.S. equities recently posting a series of bearish long-term trend reversals, further declines could undermine the USD via shifts in asset allocation." U.S. equity declines may trigger outflows from U.S. assets, thereby hurting the dollar, he said.

The Turkish lira is likely to weaken this year following a temporary stabilisation as Turkey's central bank looks set to resume its interest rate cutting cycle after leaving rates unchanged Thursday, Capital Economics said.

"We think that falling inflation towards the end of the year will provide the motivation for the CBRT to press ahead with further rate cuts amounting to 100 basis points placing renewed downward pressure on the lira," Capital Economics economist Joseph Marlow said.

Meanwhile, very low foreign exchange reserves mean policymakers won't be in a position to intervene in the currency market to bolster the lira, he says. Capital Economics expects USD/TRY to rise to 16.00 by year-end from 13.3994 currently.

Cryptocurrencies, already pressured by market sentiment away from risk assets, tumbled. Bitcoin was 7.5% lower over the past 24 hours to below $39,000, according to data from CoinDesk. Smaller peer Ether dropped around 8.5% over the same period to below $2,900.

The fall can mostly be blamed on Russia, where cryptocurrencies are popular among citizens and the country is a hub for mining -- the process that generates new digital currency tokens. The Russian central bank has proposed banning crypto mining as part of a wider prohibition that includes preventing people from trading or transacting with the likes of Bitcoin.

"The pessimism continues to grow among investors and traders when it comes to riskier assets and this is chiefly influencing the price of equities and bitcoin," said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients.

"The thing with bitcoin is that when it begins to fall, the price action drops like there is no tomorrow," said Aslam, who added that January also tends to be a volatile month for the cryptocurrency on a historical basis.

Sterling fell after data showed retail sales unexpectedly declined in December. Retail sales dropped 0.9% year-on-year, compared to the 3.4% increase expected by economists in a WSJ survey.

Many consumers did Christmas shopping earlier than usual in November and stayed at home in December as the Omicron coronavirus variant spread.

"Even as Plan B restrictions lift, the number of shoppers is unlikely to snap back to pre-pandemic times in high streets and city centre locations given that hybrid working is fast becoming the norm and household budgets are tightening," Hargreaves Lansdown analyst Susannah Streeter said.

Bonds:

The rise in government bond yields won't be a linear process, DZ Bank analyst Christoph Kutt said. "The trajectory of inflation rates may involve downside as well as upside surprises, which the central banks will have to address as part of their exit strategies," he said.

The Fed's approach toward policy normalization will be "far more forceful" than that of the European Central Bank, Kutt said.

The ECB has to be vigilant against inflation risks and the threat of eurozone fragmentation, he said.

Soaring inflation and the prospect of central banks raising interest faster than anticipated is fueling yield volatility in credit markets. "Yield volatility is likely to remain elevated, a further gradual repricing of European credit is in the cards," UniCredit said.

The stock of negative-yielding euro corporate bonds in the iBoxx senior investment-grade nonfinancial index has plunged to 11% at present from 55% in November 2020, they sid.

Credit curves are likely to retain their steepening bias and UniCredit reiterates its preference for corporate bonds maturing in between three and five years.

Commodities:

Oil's rally should continue as OPEC struggles to meet its production targets and winter weather keeps demand strong, said TD Securities. Demand expectations have risen this week, the firm noted, pointing to upward revisions to forecasts from the IEA.

At the same time, signs that OPEC is struggling to meet supply targets are building. Add to that the possibility of cold winter weather in the Northern Hemisphere and oil's outlook is bullish, said Bart Melek, the firm's head of commodity strategy.

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01-21-22 0651ET