Fed meeting, Exxon record, Eurozone skirts recession - what's moving markets

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By Geoffrey Smith

Investing.com -- The Federal Reserve starts a two-day policy meeting against a backdrop of weakening economic data - although the International Monetary Fund has raised its forecasts for the year a tad. The Eurozone appears to have avoided recession in the second half of last year but it, too, is suffering from a loss of momentum at the year-end. ExxonMobil posts a record profit and there are earnings aplenty from the likes of McDonald's, Caterpillar, and Advanced Micro Devices. And Gautam Adani looks to have attracted enough bids to cover an important share offering for India's capital markets. Here's what you need to know in financial markets on Tuesday, 31st January.

1. Fed meeting starts as IMF raises growth outlook

The Federal Reserve begins a two-day meeting that is expected to end with the target range for fed funds being raised by 25 basis points to 4.50-4.75%. That would represent the second time in successive meetings that the central bank has slowed the pace of its policy tightening in response to economic data that has taken a turn for the worse in recent months.

That picture is likely to be fleshed out later by new figures for house prices and consumer confidence, but Fed officials will also look out for the fourth quarter employment cost index, which may illustrate why they think they still need to raise rates further to squeeze inflation pressure out of the system.

Overnight, the International Monetary Fund said it expects U.S. growth to slow to 1.4% this year and 1.0% under the impact of the Fed's higher rates. However, it raised its forecast for global growth this year by 0.2% to 2.9%, reflecting stronger dynamics in China and India.

2. Eurozone avoids recession, but momentum stalls

The Eurozone economy looks to have avoided recession in the second half of last year after all. Growth in the fourth quarter was 0.1%, reversing the decline of the previous three months when wholesale energy prices were at their peak.

However, there was evidence that economic momentum is stalling. German retail sales and French consumer spending both came in well below expectations in December, while the European Central Bank's Bank Lending Survey for the last quarter showed a sharp drop in demand for credit, especially from households. In the U.K., too, lending slowed sharply in December.

As in the U.S., the main supporting factor in Europe remains the labor market, which remains resilient. German seasonally adjusted jobless fell by 15,000 – more than expected – in January.

The numbers come two days before the European Central Bank and Bank of England take their latest monetary policy decisions. Markets still expect a half-point hike from both institutions, but analysts said the latest numbers have at least left the door open for more cautious guidance about the future rate path.

3. Stocks brace for massive earnings day; Exxon profit, Huawei ban report in focus

U.S. stocks are set to open under pressure again Tuesday, as an earnings season punctuated by job cut announcements and disappointing guidance erodes confidence in the year ahead.

By 06:10 ET (11:10 GMT), Dow Jones futures were down 128 points or 0.4%, while S&P 500 futures were down 0.5% and Nasdaq 100 futures were down 0.7%.

Earnings season revs up again on Tuesday, with Pfizer (NYSE:PFE), United Parcel Service (NYSE:UPS), McDonald's (NYSE:MCD), Caterpillar (NYSE:CAT), General Motors (NYSE:GM), and ExxonMobil (NYSE:XOM) all set to report early, while the spotlight after the bell will be on Advanced Micro Devices (NASDAQ:AMD) in the context of Intel's (NASDAQ:INTC) alarmingly weak report last week. Amgen (NASDAQ:AMGN), Stryker (NYSE:SYK), Chubb (NYSE:CB), Mondelez (NASDAQ:MDLZ), and Electronic Arts (NASDAQ:EA) all report late too.

Other stocks likely to be in focus include Johnson & Johnson (NYSE:JNJ) after the latest news on its ongoing battle with class action suits over its talcum powder. Reports of a possible total ban on U.S. companies dealing with Huawei may put a chill on the tech sector.

4. Adani (just about) attracts enough bids for share placement

Gautam Adani lives to fight another day. The Indian magnate's $2.4 billion share sale just attracted enough bids to be fully subscribed by the end of trading in Mumbai on Tuesday.

Adani Enterprises (NS:ADEL) stock rose for a second straight day on Tuesday, recovering 2.8%. However, it's still down some 20% from where it was before short-sellers Hindenburg Research accused it of extensive market manipulation to pump up the share prices of it and its affiliates.

The UAE's International Holding Company (ADX:IHC) said on Monday it will take around 16% of the offering, while Jupiter Asset Management, BNP Paribas (EPA:BNPP), Société Générale (EPA:SOGN) and Goldman Sachs (NYSE:GS) are also reported by the Financial Times to be anchor investors.

The deal was seen as a test of international confidence not just in Adani, but in an Indian growth model, where the close relations between oligarchic groups and Prime Minister Narendra Modi's government have often caused controversy. Hindenburg had flagged, among other things, the disproportionate amount of credit taken by Adani from state-owned banks.

5. Exxon posts record profit; no change seen in OPEC+ policy

ExxonMobil smashed its own records with a $59B profit in 2022, riding the surge in oil and gas prices that followed Russia's invasion of Ukraine. The company said earnings per share in the fourth quarter topped forecasts at $3.40, while output rose to 3.822M barrels of oil equivalent a day.

More broadly, oil prices steadied overnight after end-of-month profit-taking shook out some of the weaker speculative long positions that have accumulated this month. OPEC and its allies are still not expected to add production when their ministers meet to determine output policy on Wednesday.

Elsewhere, the American Petroleum Institute reports inventory data at 16:30 ET as usual.