MARKET WRAPS
Stocks:
European stocks were lower on Wednesday after U.K. inflation
picked up speed and as central bankers kept pushing back against
expectations of big interest-rate cuts this year.
The market pricing of the first interest-rate cut by the
European Central Bank in April looks premature, potentially
overlooking risks of commodity-driven inflation, Natixis Research
said.
It expects the ECB to mark a pause until June before embarking
on its rate-cutting cycle.
London's FTSE 100 fell sharply, dropping 1.4% to hit a
seven-week low and underperforming European indexes.
Data showing an unexpected rise in U.K. inflation dampened
prospects of an early interest-rate cut by the Bank of England.
"The slight rise in the headline rate to 4% is the last move
companies and households wanted to see, as it pushes the prospect
of interest rate cuts further down the line," Hargreaves Lansdown
said.
Stocks to Watch
Stock prices in Europe's banking sector could decline further,
especially Commerzbank, according to a trader.
"The takeover speculation was probably completely exaggerated
and only related to purely theoretical scenarios," he says,
referring to a Bloomberg report, saying that Deutsche Bank analyzed
takeover scenarios of European banks including Commerzbank.
Commerzbank shares were 10% higher since the start of the year.
"For the time being, there is probably only M&A fantasy in the
savings bank and Volksbank sector," the trader said.
U.S. Markets:
Stock futures fell as global central bank officials worked to
cool expectations about interest-rate cuts in 2024.
Stocks to Watch
U.S.-listed shares of Alibaba were down 3.2%, JD.com slumped
5.2%, and PDD Holdings fell 4.4% after gross domestic product in
China expanded 5.2% in the fourth quarter and for 2023.
Spirit Airlines fell 47% on Tuesday and was down a further 4.4%
in premarket trading after a federal judge blocked the budget
carrier's acquisition by JetBlue Airways, saying the deal would do
harm to the airline's cost-conscious fliers. JetBlue rose 1%.
Forex:
The euro fell to its lowest level against the dollar so far in
2024 as bond markets reassessed interest-rate cut pricing, driving
Treasury yields higher, Danske Bank Research said.
"EUR/USD faced renewed pressure as markets reassessed the
aggressive pricing of rate cuts."
Danske Bank Research maintained its strategic case for a lower
EUR/USD, and in the near term, prefering to sell on any
rallies.
The euro repeatedly failed to sustain a break above $1.10
throughout 2023 and is shy of this level so far in 2024, but BNP
Paribas Markets 360 believes it has the potential to rise in the
longer term.
"Going forward, we think it's more likely than not that this
barrier [1.10] is broken through and we forecast EUR/USD to close
the year at 1.15."
Sterling rebounded after data showed U.K. CPI inflation rose ,
dulling chances of an early interest-rate cut.
The data prompted some to slash bets on the currency falling
below $1.26 against the dollar, Swissquote Bank said.
Bonds:
Eurozone government bond yields traded higher after U.K.
consumer prices accelerated.
Ten-year eurozone government bond yields traded by up to 7 basis
points higher, driven by peripheral bond yields, while the 10-year
German Bund yield rose 4.5 basis points.
Natixis Research said eurozone sovereign spreads are expected to
widen in the first quarter of 2024 .
It expects the 10-year Italian BTP-German Bund yield to peak by
March at 190 basis points, before tightening to 175 bps come
December, supported by the bull market and rate cuts.
Commerzbank Research said markets seem to be shifting focus to
the upcoming central bank meetings, given the notable drop in
intra-day volatility in eurozone rates and eurozone government bond
[EGB] spreads over the latest sessions.
Front-end yields continue to oscillate, while markets remain
sensitive to the newsflow, Commerzbank said.
"That being said, intra-day ranges are much more confined of
late even as long-end Bund yields test the highs for the year while
EGB-spreads as captured by [Italian government bonds] BTPs are also
cooling down."
Energy:
Oil prices traded lower on a stronger dollar as investors scaled
back expectations of imminent interest-rate cuts following comments
from a Fed official.
"Oil markets continue to trade in a fairly rangebound manner
despite developments in the Middle East," ING said.
"Comments from a Fed official and a surge in the USD yesterday
held large parts of the commodity complex back."
Meanwhile, tensions in the Middle East were escalating amid
fresh Houthi attacks on ships transiting the Red Sea and
retaliation strikes from the U.S. and its all
Metals:
Metals prices were falling as the latest figures from top
consumer China weighed on market sentiment, revealing the country's
economy grew at one of its slowest rates in decades last year.
Meanwhile, the impact of shipping disruptions in the Red Sea
seems to be having only a marginal impact on commodities, but
further escalation of the conflict could be supportive for
prices.
"While the conflict at the Red Sea is not directly translating
into higher base metals prices, the indirect impacts are mounting,
possibly delaying shipments and increasing freight costs," Sucden
Financial said.
Copper
Copper prices are likely to trough around $8,000 a metric ton in
3Q , Macquarie said, who raised its expected copper-price nadir
from a previous forecast of $7,600/ton.
"We have taken a more constructive view" following supply
disruptions that suggest a smaller-than-anticipated surplus of the
metal in 2024, it said.
EMEA HEADLINES
Maersk, Hapag-Lloyd Form Shipping Alliance
Danish shipping giant A.P. Moeller-Maersk and Germany's
Hapag-Lloyd are teaming up to form a new vessel-sharing agreement
from next year, shaking up the global lineup of shipping
alliances.
Following the end to the pandemic-fueled cargo boom, when
freight demand outstripped the supply of ships, the industry has
been left with a surplus of vessels and sharply lower freight
rates, while the recent escalation of hostilities in the Middle
East has forced shippers to divert their vessels by thousands of
miles.
Lagarde, with a caveat, says ECB will likely cut interest rates
this summer
It was toward the end of an interview European Central Bank
President Christine Lagarde gave in Davos, a clear sign she wasn't
setting out to deliver this message. And she said it in a
roundabout way.
But, Lagarde appeared to cement expectations that the ECB will
cut interest rates this summer, in an interview with Bloomberg News
on Wednesday. She was responding to a comment that a majority of
governing council members have been saying there will be a rate cut
by the summer if not in the summer.
BP Veteran Named as CEO, Signaling Commitment to Green Shift
BP appointed Murray Auchincloss as chief executive, turning to a
company veteran to continue the oil giant's shift toward renewable
energy.
Auchincloss has run the London-based company on an interim basis
since September following the abrupt resignation of Bernard Looney
over his failure to disclose details about past relationships with
colleagues.
GLOBAL NEWS
Markets Expect Rate Cuts Soon. Central Banks Say Not So
Fast.
There may be a middle ground between blindly trusting central
bankers' interest-rate guidance and disregarding it completely.
On Tuesday, stocks fell, Treasury yields jumped and the U.S.
dollar rose against other currencies after Federal Reserve Gov.
Christopher Waller warned that any lowering of interest rates this
year will need to be "carefully calibrated and not rushed." Though
he is a well-known hawk, many other officials have also recently
suggested that investors may be expecting borrowing costs to come
down too far and too fast. European Central Bank rate setters made
the same point at the World Economic Forum in Davos this week,
including chief economist Philip Lane.
China's Economy Limps Into 2024
China's economy grew 5.2% last year, after expanding just 3% in
2022. For investors used to prepandemic rates of 6% or more, that
is a remarkably weak performance. Barring a big policy shift,
though, 2024 will probably bring more of the same.
There were a few bright spots in the monthly data for December,
released Wednesday. Year-over-year growth in investment, after
eight straight months of deceleration, leveled off in November and
ticked up modestly last month. That fits with somewhat easier
monetary conditions since November, too: Growth in outstanding debt
and equity finance rose to 9.5% from a year earlier last month, the
fastest pace since May.
Europe Braces for Trade Hit as Global Commerce Slows
Europe's trade relationships are set to suffer as global
conflicts and protectionism open a chillier chapter in
international commerce, hitting growth on the continent.
Trade is now growing at a slower pace than the world economy,
marking a fundamental shift away from the trade-centric globalism
prevalent since the end of the Cold War, Boston Consulting Group
said in a report published this month. The slowdown is due to
rising protectionism, including in China, and increased disruptions
from conflict, BCG said.
How Quickly Donald Trump Could Clinch the Republican
Nomination
Florida Gov. Ron DeSantis muscled out a second-place finish in
Iowa, but he trailed Donald Trump by roughly 30 points. Polls have
shown Nikki Haley on the rise in New Hampshire, in some cases
closing the gap with Trump to single digits. But beyond that, there
is little to suggest anyone is positioned to damp the air of
inevitability around Trump's campaign. If Trump continues winning
by margins similar to his dominant performance in Iowa, he is on a
path to securing the delegates needed to clinch the nomination in a
matter of weeks.
Here's a look at how the delegate math might add up through
Super Tuesday.
The Antiwar Candidate Prepared to Challenge Putin at the Ballot
Box
Boris Nadezhdin appears to have taken some extraordinary risks
in his quest to challenge Vladimir Putin in March's presidential
election.
He has spoken out against the war in Ukraine and blamed the
Russian leader for dragging the country back to the past. Instead
of turning in on itself, he says, Russia should instead court
Western investment and start speaking to America and Europe
again.
Write to ina.kreutz@wsj.com
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(END) Dow Jones Newswires
January 17, 2024 06:04 ET (11:04 GMT)
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