MARKET WRAPS
Stocks:
European shares advanced on Friday with investors focused on the
key U.S. jobs report looking for signals about how fast the labor
market is cooling, which will feed into expectations for Federal
Reserve policy and inflation.
"There is no question that jobs growth in the U.S. is slowing,
however anyone thinking that the jobs slowdown is anything other
than a natural evolution to a tightening labour market, and not a
precursor to a hard landing isn't getting any encouragement for
that latter view," CMC Markets UK said.
Stocks to Watch
AT&T's decision to choose Ericsson for its major Open RAN
deployment is expected to turn the vendor's networks business to
growth while margins should expand from 2024, Jefferies said.
For Nokia, however, the loss of AT&T revenue pushes out the
improvement in growth and profitability at its mobile networks
unit, it said.
"The announcement is clearly a blow for Nokia...However, we do
not think AT&T's decision to exclude Nokia is necessarily a
function of its lagging technology."
Jefferies upgraded Ericsson to buy from hold and raised its
price target to SEK70 from SEK58. It downgraded Nokia to hold from
buy and lowered its price target to EUR3 from EUR4.10.
Economic Insight
SEB Research has revised its call on the European Central Bank,
expecting the first interest-rate cut in March, rather than in
June, which was its previous forecast, "due to favourable progress
in the disinflationary process."
Money market forwards price in a 20 basis point rate cut for
March, according to Refinitiv.
SEB Research expects a total of 100 basis points of interest
rate cuts in 2024 versus its previous forecast of 75 basis points
and sees the deposit rate--currently 4%--to be lowered to 2% in
2025, below its previous forecast of 2.5%.
PGIM Fixed Income said the ECB is unlikely to start cutting
interest rates until the second half of 2024 , even as weakening
activity and fast-declining inflation have prompted markets to
anticipate early and substantial rate cuts.
A breakdown of the drivers behind the bigger-than-expected drop
in eurozone inflation in November isn't available yet, "but we
doubt this is sufficient evidence for the ECB to pivot towards
cutting rates so soon."
U.S. Markets:
Stock-index futures edged down along with Treasury prices ahead
of the pivotal jobs report.
Also on the economic docket is a preliminary consumer-sentiment
gauge.
Forex:
U.S. monthly jobs data at 1330 GMT will be watched to gauge
whether markets are justified in pricing in a first interest-rate
cut as early as March, and a figure in line with consensus could
lift the dollar, MUFG said.
"A consensus print or better could see some of the March 2024
easing come out of the market."
That could give a boost to U.S. bond yields and the dollar into
the close of this week and ahead of next Wednesday's Federal
Reserve decision, it added.
November non-farm payrolls are expected to rise by 190,000,
according to a WSJ poll.
USD/JPY is likely to extend its downtrend , based on technical
charts, UOB Global Economics & Markets Research said, noting
the currency pair's plunge on Thursday.
Bonds:
The bond rally will likely fade as central banks might start
cutting rates later than some market pricing suggests, Societe
Generale Research said.
"With inflation still high, global central banks are likely to
keep policy restrictive for as long as they can. In this context,
we believe the rally in bonds will likely run out of steam," SocGen
said, adding that any meaningful reversal, however, would be an
opportunity to reinitiate longs.
Energy:
Oil futures were close to 2% higher ahead of the U.S. jobs
report. Despite the lift, prices remained on course to close the
week 4% lower, with the market reacting poorly to OPEC's supply cut
last week.
"Weaker demand data from China has further weighed on the
sentiment in the short term," according to ING.
Metals:
Copper prices edged up while gold held steady ahead of the U.S.
jobs report.
Commonwealth Bank of Australia expects the labor market to cool,
forecasting 150,000 jobs to be added to the economy and
unemployment rate of 4%, compared to the consensus of 183,000 and
3.9% respectively.
A softer than expected report would likely cement expectations
for the Fed to cut rates in the first half of 2024, CBA said.
"The dollar can lift if markets grow more concerned about a U.S.
recession and risk sentiment deteriorates," it added.
Citi predicts the shock to growth from rate increases in
developed economies is not yet over, and that this should support
precious metals prices, weigh on crude oil and cause head winds for
base metals and iron ore.
Citi said it was bullish on gold and silver, "viewing them as
safe havens amid an expected developed markets recession and their
positive correlation with China's easing."
Although, there might be reasons for optimism in industrial
commodities until Lunar New Year in February, due to anticipated
support from China easing measures, it said.
EMEA HEADLINES
Anglo American Sees Lower Production; Targets to Cut Cost by $1
Bln Next Year
Anglo American said it expects lower production next year amid
near-term constraints and volatile market conditions, and that it
plans to lower costs by $1 billion.
The multinational diversified miner said Friday its output for
2023 increased by around 3% on year, driven by a ramp-up of
operations at its Peruvian copper project Quellaveco and solid iron
ore production, which offset lower platinum metals and diamonds
production.
Europe Swears Off Russian Gas. The Unexpected Price.
Last year at this time, Europeans worried about freezing without
natural gas imports from Russia. That didn't happen, and won't this
year.
The European Union enters the winter of 2023-2024 with gas
storage tanks nearly 95% full. Germany and its neighbors have
activated half a dozen terminals for importing liquefied natural
gas (LNG). France laid plans for six new nuclear power reactors.
Thermostats are down and solar power capacity up by a quarter.
GLOBAL NEWS
Hiring Is Cooling From Earlier This Year. What to Watch in
Friday's Jobs Report.
The November employment report will add to recent signs that the
labor market and economy are slowing heading into 2024, analysts
estimate.
Double Trouble: Investors Fight the Fed on Two Fronts
Investors are betting against the Fed-twice over. The first bet
is the sudden turn from expecting the Federal Reserve to keep rates
higher for longer to instead expecting rapid and deep cuts next
year.
The second bet is almost the exact opposite, that the Fed will
have to keep rates much higher in the long run than it says it
will. Treasury yields have come down, but at around 4.1% the
10-year yield remains more than 1.5 percentage points above the
Fed's forecast of long-run interest rates.
Emerging Markets Appear Solid Bet to Attract Money Leaving
China
SYDNEY-The big winners from rising skittishness over the
investment environment in China appear to be emerging markets such
as India, the chief market strategist at financial advisory and
asset-management firm Lazard said.
Foreign direct investment in China shrank for the first time in
25 years during the latest quarter as Beijing and Washington
sparred over technology deemed sensitive to national security and
critical minerals used in electric vehicles. Tensions have
intensified further since then, illustrated by U.S. officials
tightening rules around the sale of artificial
intelligence-enabling chips to China.
Xi Jinping and EU Officials Seek to Ease Economic Tensions at
Beijing Summit
Chinese leader Xi Jinping and Europe's top officials sought to
ease tensions over trade and economic disputes at their first
in-person summit in Beijing on Thursday.
The EU's relations with China have grown tenser in recent months
over the bloc's trade deficit with China, which doubled to $400
billion in the last two years.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
December 08, 2023 05:28 ET (10:28 GMT)
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