MARKET WRAPS
Stocks:
European stocks struggled for momentum on Monday at the start of
a busy week of central bank announcements.
The Federal Reserve's rate decision Wednesday will be followed
by the ECB, Norges Bank, Bank of England and SNB on Thursday.
"[They] are expected to signal that while inflation risks
persist, there have been significant and positive strides made in
addressing them," SEB said.
Economic Insight
The ECB is unlikely to proceed with interest-rate cuts as
quickly as the market prices it, Julius Baer Research said.
"Interest-rate cut expectations for the ECB are excessive," it
said, referring to 125 basis points of cuts priced in.
With lower inflation rates and economic stagnation in the
eurozone, the debate about ECB rate cuts is gathering momentum, it
said, adding the ECB's monetary policy is restrictive and
interest-rate cuts to a more neutral level seem justified.
"[However] after initially paying too little attention to the
inflation in 2021 and only reacted late, it is now very keen to
regain its lost credibility in the fight against inflation."
U.S. Markets:
Stock futures pointed to a slightly weaker start for Wall Street
following six straight weeks of gains for the S&P 500.
Stocks to Watch
Macy's rose 19% premarket after an investor group made a $5.8
billion offer to buy the company , in a bid to take the famed
department-store chain private after stiff competition from online
rivals took a big bite out of its value.
Forex:
Danske Bank Research is looking to buy EUR/USD on any dips in
the near term due to the impact of any weaker U.S. economic
data.
"The recent significant easing of financial conditions, the most
substantial monthly decrease since the April 2020 Covid shock,
suggests a favorable environment for EUR/USD in December," Danske
Bank Research said.
"We aim to counter the recent downward move, and hence we still
see upside potential for EUR/USD in the short term."
The U.S. economy is expected to slip into a recession next year,
prompting the Fed to start cutting interest rates before the ECB
and causing the dollar to weaken versus the euro, LBBW Research
said.
A recession should help U.S. inflation approach the 2% mark in
2H, and "against this backdrop, the Fed is likely to initiate a
phase of interest rate cuts as early as summer 2024," it said.
LBBW expects the ECB to start cutting rates next autumn. It
expects EUR/USD to remain stable at 1.08 in 1Q and 2Q before rising
to 1.10 by the end of next year.
Bonds:
UBS Research remains bullish on Greek government bonds--seeing
room for yields to fall--despite the strong performance this
year.
"While Greek bonds appear now as more fairly priced relative to
the country's new credit rating, we remain bullish for Greek
government bonds," it said.
The inclusion of Greek debt in investment-grade-only bond
indices is expected to boost demand from investors tracking these
indices, UBS added.
Ten-year Greek bonds have rallied by more than 100 basis points
since mid-October--currently 118 basis points, according to
Tradeweb--, following the credit rating upgrades to investment
grade from S&P Global Ratings and Fitch Ratings, it said.
Energy:
Oil prices rose as U.S. demand outweighed worries over weak
global growth.
Prices gained some support after the U.S. energy department said
Friday that it will refill its strategic petroleum reserve through
to May, hoping to buy 3 million barrels of crude in March.
Still, worries remain over demand, with Brent down 17% this
quarter, amid slower global growth and market skepticism over OPEC+
cuts.
"The 1.7 million barrel a day reduction in output should provide
some support to physical balances but the market will have to be
convinced before any (of) these cuts are priced in," ANZ said.
Metals:
Base metals and gold prices were sliding, with investors
awaiting key central bank meetings due later this week.
"The macro environment is a tug-of-war between the dovish Fed
and risk-on trading and lower growth/demand expectations," Peak
Trading Research said.
Investors will be looking to see how Tuesday's U.S. consumer
inflation data as well as ECB and the Fed meetings, due later in
the week, shape the macroeconomic environment, Peak said.
Weak inflation and dovish comments from the Fed should weaken
the dollar, it added.
EMEA HEADLINES
UK House Prices Fell Sharply in December
The average house price in the U.K. fell 1.9% in the month to
Dec. 2, the largest fall for this period for more than 20 years,
according to new data from Rightmove.
The average price of property coming to the market fell on month
to 355,177 pounds ($447,345), a bigger fall than the usual seasonal
slip of 1.5%, the online property portal said Monday.
Sweeping Regulation of AI Advances in European Union Deal
BRUSSELS-European lawmakers reached a political deal on
regulating artificial intelligence, marking a step toward
establishing a comprehensive AI law in Western countries.
The European Union's Artificial Intelligence Act would be the
latest in a series of regulations the bloc has pushed forward that
is expected to reverberate through the global tech industry and
affect some of its biggest players. Earlier legislation from the EU
set out new competition and online content rules that affect large
U.S. tech companies including Meta Platforms, Apple and Google's
parent, Alphabet.
Alarm Grows Over Weakened Militaries and Empty Arsenals in
Europe
The British military-the leading U.S. military ally and Europe's
biggest defense spender-has only around 150 deployable tanks and
perhaps a dozen serviceable long-range artillery pieces. So bare
was the cupboard that last year the British military considered
sourcing multiple rocket launchers from museums to upgrade and
donate to Ukraine, an idea that was dropped.
France, the next biggest spender, has fewer than 90 heavy
artillery pieces, equivalent to what Russia loses roughly every
month on the Ukraine battlefield. Denmark has no heavy artillery,
submarines or air-defense systems. Germany's army has enough
ammunition for two days of battle.
GLOBAL NEWS
Jerome Powell's Inflation Fight Is Succeeding, Raising Questions
About Rate Cuts
When Federal Reserve Chair Jerome Powell met on an October
afternoon with small-business owners in Pennsylvania, Julie Keene
lamented how her family farm and food market had been blindsided by
high inflation over the past two years.
"Predictability is just gone," said Keene, co-owner of
Flinchbaugh's Orchard & Farm Market in Hellam, Pa. "It is very
hard to operate a business in a world where there is not
predictability."
When Bond Yields Dropped, the Everything Rally Kicked Off
Investors spent most of 2023 fretting about inflation and
interest rates. Now they are snapping up everything from stocks and
bonds to crypto and even gold.
The simultaneous surge across assets has sparked debate about
whether the "everything rally" marks the arrival of a lasting bull
market-or just a fleeting sugar high at the end of the Federal
Reserve's tightening cycle.
Israel Detains Hundreds of Palestinian Men in Search for
Hamas
The Israeli military is searching and detaining hundreds of
Palestinian men in and around Gaza City, triggering concerns from
human rights groups that prisoners are being mistreated.
The Israeli military says many of the men are militants who are
surrendering, a sign that Hamas is losing control of the Gaza
Strip, where intense fighting between both sides continued Sunday.
But images circulating of what appear to be scores of men, stripped
down to their underwear, come as international pressure mounts on
Israel to abide by the rules of war and help alleviate the growing
humanitarian crisis in Gaza.
Hong Kong Sees Record-Low Turnout for 'Patriots'-Only
Election
HONG KONG-Four years ago, millions of voters streamed to the
polls in Hong Kong, riding a wave of political anger after months
of failed antigovernment protests to give a landslide victory for
pro-democracy candidates in district elections.
On Sunday, with elections now engineered to allow only
pro-Beijing candidates, the torrent became more of a trickle. The
city saw its worst turnout on record as a little more than a
quarter of the city's registered voters went to cast a vote. More
than 70% voted at the last district poll in 2019.
Write to ina.kreutz@wsj.com
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(END) Dow Jones Newswires
December 11, 2023 06:21 ET (11:21 GMT)
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