MARKET WRAPS
Stocks:
European shares traded in tight ranges on Monday as investors
continued to rethink their bets on monetary loosening by central
banks.
"One thing seems certain, rate cuts are coming, with the key
question being around the timing, and it is here that the market
may be getting ahead of itself," CMC Markets UK said.
Oil and gas stocks suffered losses after Saudi Aramco said on
Sunday that it would cut February crude oil prices, with the cut
having a knock-on effect on Monday's price of Brent and WTI.
Stocks to Watch
AB Foods' retailer arm Primark and H&M are expected to see a
low impact from the sharp rise in freight costs due to the
disruption in the Red Sea and lower water levels in the Panama
Canal, RBC Capital Markets said.
Legal & General's stock is likely to benefit from an
improved macroeconomic outlook into 2024, supported by more
interest-rate certainty, Berenberg said, lifting its rating on the
stock to buy from hold.
Big pharmaceutical companies are expected to go shopping again
in 2024, and U.S. giant Merck, as well as Roche and Sanofi seem to
have the biggest capacity for deals, Berenberg said.
Publicis is expected to report a robust end to a very strong
2023 when it releases a fourth-quarter update and its balance sheet
could leave room for positive surprises on cash returns, Citi said,
adding its dividend could exceed consensus estimates of EUR3.20 a
share.
Siemens Energy is expected to see strong orders in the first
quarter, leading the company to post grid orders slightly above
their prior-year level, Citi said.
Economic Insight
The dominant theme for currency markets this year will be
positioning for a shift to a global cycle of interest-rate cuts,
NatWest Markets said.
It thinks markets have priced in too few near-term rate cuts by
the European Central Bank, and too many for the Federal Reserve and
the Bank of England.
"Markets grabbed this [theme of expected rate cuts] with too
much enthusiasm in December and there's potential for this to
continue to be unwound as the market's rallying cry becomes 'too
much too soon'."
UBS Global Research said the ECB is expected to carry out the
first interest-rate cut in April and reduce rates by a total of 100
basis points in 2024, followed by another 100 basis points in
2025.
U.S. Markets:
Stock futures crept lower while bond yields held above 4%.
Markets could get interesting this week, with inflation data due
and earnings season kicking off.
December's consumer-price index reading is expected on Thursday,
followed by producer prices on Friday. Results season will also
start in earnest on Friday, with reports due from JPMorgan Chase
and Bank of America, among others.
Forex:
The dollar was steady, failing to benefit much from the
stronger-than-expected U.S. jobs data, and looks at risk of falling
as investors "remain confident" the Fed might cut interest rates in
March, UniCredit Research said.
Markets price too many interest-rate cuts for this year, but any
adjustment is likely to be stronger for ECB and BOE expectations
than it is for the Fed, UniCredit said.
"Such a scenario is likely to help EUR/USD and GBP/USD, although
we do not see big upside potential for these two pairs much above
1.10 and 1.28, respectively."
USD/JPY's recent rebound looks more skewed toward a minor
correction, based on technical charts, Oanda said.
USD/JPY, which rebounded by around 4.9% from its Dec. 28 low to
a Jan. 5 high, formed a daily "long-legged Doji" candlestick by the
end of Friday's U.S. session, Oanda said, adding this suggests some
form of exhaustion in the upmove.
NatWest Markets said the Swiss franc is expected to be among the
major losers of the currency market this year.
"The Swiss franc is richly valued, more so after its December
rally. We think it is set to be one of the biggest losers in
2024."
Bonds:
Spanish short-end yields have cheapened too much, not warranted
by fundamentals, and this offers a trade opportunity against
Italian BTPs, Natixis Research said.
"We see this cheapening as liquidity-driven and not warranted by
fundamentals and technical factors for Spain going into 2024."
It recommends a long position in Spain's October 2025 bond
against Italy's November 2025 BTP at a -14.90 basis point spread,
with a take-profit at -35bps during a three-month horizon and a
stop loss at -4.85bps.
Gross government bond supply by the eurozone's largest 11
sovereign issuers is expected at EUR1.218 trillion in 2024, just
EUR29 billion lower than that in 2023, Citi Research said.
Energy:
Oil futures fell around 1% after Saudi Arabia slashed the price
for its flagship Arab Light crude to Asian customers, a barometer
for how the kingdom sees the demand outlook.
"The decrease was larger than the market was expecting," ING
said. "OSPs [official selling prices] for all grades into Europe,
the Med and the U.S. were also cut for February."
However, geopolitical tensions in the Middle East and Libya's
National Oil Corp. declaring force majeure at the Sharara oilfield
still provide support to the market due to heightened fears of
supply disruptions.
Coal
Jefferies said in what has been a tough start to the year for
most miners, coal has shone.
"The coal equities came flying out of the gates in what was just
a continuation of the very strong performance of 2H23," Jefferies
said, adding that coal's clear outperformance might not last.
"We believe the macro backdrop should be supportive of prices of
other commodities as well in the near-term, especially if the U.S.
economy avoids rolling over into a recession."
Metals:
Base metals mostly dipped along with gold as worries around risk
assets like commodities continued to build.
BMI said it expects copper to average $8,800 a ton this year,
"on the back of a decline in U.S. dollar strength and supply
constraints."
However, it added that much of this depends on Chinese demand,
with a limited growth outlook globally expected to cap demand. BMI
also expected the Fed to start cutting interest rates from July,
but said there could be a cut as soon as March-April.
Capital Economics said greater-than-expected industrial metals
supply growth continues to push up stockpiles, especially for
aluminum.
Still, it reckons metals supply growth will be more modest this
year, while growth in demand will rebound as the energy transition
gathers pace.
"Accordingly, we expect base metals prices to fare better this
year," with copper prices likely to rise the most.
EMEA HEADLINES
Shell Flags Earnings Hit of Up to $4.5 Billion From
Impairments
Shell said its fourth-quarter earnings took a hit of between
$2.5 billion and $4.5 billion in impairments that were offset by
significantly higher gas trading, while its overall production
volumes are on track to meet targets.
The London-based energy giant said Monday the impairments were
primarily driven by macro developments as well as portfolio
choices, including its Singapore chemicals and products assets,
which it has been trying to sell.
Germany Manufacturing Orders Rose Slightly in November
German manufacturing orders recovered a little in November, some
bright news for the country's industrial sector at the end of a
difficult year.
Orders were 0.3% higher than the previous month, German
statistics office Destatis said Monday, though this was less than
the 1.0% rise forecast by economists polled by The Wall Street
Journal. It reverses some of the losses in orders booked the
previous month, when they fell by 3.8%, according to revised
figures.
Pandora Beats Guidance on Robust Christmas Sales Growth
Pandora said that full-year performance was ahead of guidance
after a solid profitability in the fourth quarter following a
robust performance across the key period of Black Friday and
Christmas.
The Danish jeweler on Sunday said that organic growth for 2023
reached 8%, ahead of its guidance range of 5% to 6%. Earnings
before interest and taxes margin for 2023 landed at 25%, in line
with the company's guidance of around 25%, it added.
Saudis cut crude prices to all regions amid oil-price
weakness
Saudi Aramco on Sunday said it would cut crude prices to all
regions, including its largest market in Asia - a move that comes
amid weaker global oil prices and increased production by producers
outside the Organization of the Petroleum Exporting Countries.
In a notice, state producer Aramco SA:2222 said February prices
for various grades of Saudi crude, including its flagship Arab
light, in Asia would fall $2 a barrel versus the Oman/Dubai
regional benchmark from their January levels.
GLOBAL NEWS
Wall Street Doubles Down on Bonds
There are no sure things in markets, but many investors believe
high-quality U.S. bonds are currently pretty close.
Consensus on Wall Street is that interest rates have peaked for
this economic cycle, and the pain bondholders experienced in 2022
and 2023 has likely ended. That should make further investments in
Treasurys and highly rated corporate bonds a good bet, analysts and
portfolio managers said, even if this year brings significant
volatility across markets.
Congressional Negotiators Reach Agreement on $1.6 Trillion
Government Spending Level for 2024
WASHINGTON-Congressional leaders reached a bipartisan deal on
Sunday setting a roughly $1.6 trillion federal spending level for
the year, but the pact drew quick criticism from some conservatives
and it remained unclear whether lawmakers would be able to quickly
pass legislation averting a government shutdown.
The House and Senate now have less than two weeks to craft
underlying bills funding the government, with several federal
agencies set to run out of money later this month and the rest to
follow in February, a tall order in a Congress that has struggled
to pass major legislation on time.
Lawmakers Push to Defuse China's Dominance of Older-Generation
Chips
The Biden administration needs to take stronger action to stem
China's growing dominance in making older-generation microchips
that are essential across several U.S. industries, according to the
bipartisan leaders of a House of Representatives panel.
The lawmakers' call for new efforts, including potential
tariffs, is intended to counteract an overreliance on China for
less-advanced chips, according to a letter seen by The Wall Street
Journal. Republican Mike Gallagher of Wisconsin, chairman of the
House Select Committee on the Chinese Communist Party, and Raja
Krishnamoorthi of Illinois, the committee's ranking Democratic
member, wrote to President Biden's top business and trade officials
on Friday.
Write to paul.larkins@dowjones.com
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(END) Dow Jones Newswires
January 08, 2024 05:25 ET (10:25 GMT)
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