EMEA Morning Briefing : Shares Set to Extend Rise on Dovish Bets

MARKET WRAPS

Watch For:

E.U. FCCI flash consumer confidence indicator; Germany GfK consumer climate survey; Italy balance of payments; U.K. CPI, producer prices; trading updates from Petrofac, Phoenix Group

Opening Call:

Shares may rise again in Europe on Wednesday as rate-cut hopes continue to underpin sentiment. In Asia, stock benchmarks advanced; Treasury yields were in the red; the dollar was flat; while oil was mixed and gold was barely changed.

Equities:

European stocks could continue higher on Wednesday, as equity traders take heart from more soft signals on global interest rates.

Traders remain energized by the prospect of the U.S. Federal Reserve starting to cut interest rates by spring 2024. More evidence of a sturdy U.S. economy is also providing a tailwind.

Some Fed officials in recent days pushed back against the market's hopes for lower borrowing costs as early as March, but equity investors seem to have shrugged off those comments for now.

Forex:

The dollar was barely changed after earlier snapping a two-trading-day winning streak.

Sterling is expected to fall against the dollar after a sharp rally following Fed and Bank of England meetings last week, said UBS.

"We think GBP/USD will top out between 1.28 and 1.30 and we like to sell upside risks around this level to generate some additional returns," UBS said.

The risk of a sharp decline in the U.K. and global economic growth could push GBP/USD considerably lower, it said.

Bonds:

Treasury yields fell as markets doubled down on dovish bets.

Helping to suppress yields was the continued hope that easing U.S. inflation means the Fed can start cutting interest rates next year, though a number of officials have tried recently to calm the market's enthusiasm for this narrative.

Also weighing on yields was Tuesday's decision by the Bank of Japan to keep interest rates at minus 0.1%, with Gov. Kazuo Ueda offering little evidence during his press conference that a move away from the central bank's ultra-loose stance is coming soon.

Energy:

Oil was mixed in Asia after earlier gains, as the temporary suspension of shipments through the Red Sea announced by some oil and shipping companies stoked worries over potential supply disruptions.

A price rebound could be short-term as long as production isn't affected, said Saxo Bank.

However, the risk of escalating tensions can't be ruled out, it cautioned.

Metals:

Gold prices were little changed after rising overnight on a weaker dollar and lower Treasury yields.

Gold continues to see end-of-the-year redemptions despite its recent price rally and positive outlook for 2024, said Saxo Bank.

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Copper prices were flat.

Copper would likely be weighed by the Fed's expected rate cuts and China's continued property downturn in 2024, Guangfa Futures said.

China, the world's leading copper consumer, remains a critical factor in the metal's price movements, it said.

Despite the property-sector drag, China's CNY1 trillion sovereign bond, which is used to finance infrastructure spending, could lend some support to copper demand, it added.

Increased use of copper in new energy fields could also prop up demand.

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Iron ore prices were higher amid low inventories.

However, iron-ore demand has shown signs of weakening, given lower demand for steel due to China's recent low temperatures and snowfall, Huatai Futures said.

Also, increased losses at steel mills have sent more into maintenance, it said.

The market will focus on steel mills' replenishment of raw materials to sustain production over the upcoming holidays, Huatai Futures said.

TODAY'S TOP HEADLINES

Wall Street's Stock-Market Optimism Isn't Stopping

Growing optimism about the U.S. economy continued propelling the stock and bond markets Tuesday, pushing the Dow Jones Industrial Average to its fifth record in as many days.

All three major indexes started the session in the green and didn't look back. Led by Walgreens Boots Alliance and Caterpillar, the Dow rose 0.7%, or 252 points. The tech-heavy Nasdaq Composite also edged 0.7% higher, while the S&P 500 rose 0.6%.

Powell's Pivot Sows Confusion Over When and How Fast Fed Will Cut

Federal Reserve Chair Jerome Powell was asked at a recent gathering what he does for fun. He paused, then grinned.

"For me, a really big party-this is as fun as it gets-is a really good inflation report," he said to laughter at Spelman College in Atlanta earlier this month.

Barkin says Fed makes 'good progress' on taming inflation, but too early to talk rate cuts

The president of the Richmond Federal Reserve said the central bank is making "good progress" in slowing inflation, but he was unwilling to commit to a specific timetable for cutting interest rates.

"I think you have to acknowledge that the data has come in pretty nicely, " said Thomas Barkin said in a video interview with Yahoo Finance. He was referring to a series of recent reports that show a softening economy and waning inflation.

U.S. Leads Bid to Secure Red Sea, but Shipping Firms Remain on Edge

Hours after the U.S. announced a multinational task force to protect commercial traffic through the Red Sea, shipping giant A.P. Moller-Maersk said it would send its vessels around the Cape of Good Hope in southern Africa instead.

The message was clear: Shipping firms, oil companies and insurers remain jittery about a possible snarl to one of the world's most crucial trade routes.

China's Benchmark Lending Rates Held Steady

China's benchmark lending rates were kept unchanged as the market had expected, after the central bank held its key policy rates steady.

The one-year loan prime rate was left at 3.45% and the five-year rate was the same as last month at 4.2%, according to the People's Bank of China.

Volkswagen Job Cuts to Help Save Flagship Brand $4.37 Billion Next Year

Volkswagen has reached a deal with workers that will help its flagship brand save up to 4 billion euros ($4.37 billion) next year by reducing the size of its workforce.

The German carmaker said Tuesday that it aims to cut administrative staff costs at the Volkswagen brand by 20% as part of a restructuring meant to slash group costs by EUR10 billion. With the move, the brand aims to reach a 6.5% profitability target by 2026 and contribute earnings of EUR10 billion by that same year, it said.

Universal Eyes European Theme-Park Challenge to Disney

Comcast's NBCUniversal is considering a theme-park resort in the United Kingdom-a move that could create another front in its competition with Disney.

The company has purchased a plot of land in Bedford, England, roughly 60 miles north of London. A spokeswoman for Universal Destinations and Experiences, NBCUniversal's theme-park division, says the company is in the early stages of exploring the feasibility of a theme park and resort at the site. If developed, it would be the first resort Universal has operated in the U.K. and its only property in Europe.

Hamas, Palestinian Rivals Conduct Talks About Governing Postwar Gaza

DOHA, Qatar-Hamas's political leaders have been talking with their Palestinian rivals about how to govern Gaza and the West Bank after the war ends, a fraught negotiation that threatens to put them at odds with the militant wing fighting Israel.

The talks are the clearest sign that Hamas's political faction is starting to plan for what follows the conflict.

France Passes Immigration Bill That Boosts Authorities' Power to Deport Foreigners

PARIS-The French parliament on Tuesday approved an immigration bill that boosts authorities' power to deport foreigners and limits access to welfare and citizenship, cementing the rightward tilt of President Emmanuel Macron's government.

Lawmakers at the Senate and the National Assembly, France's lower house of parliament, approved the new legislation after Macron's centrist party clinched a last-minute deal with the conservative Les Républicains party following months of tense negotiations.

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Expected Major Events for Wednesday

05:30/NED: Dec Consumer confidence survey

07:00/UK: Nov UK producer prices

07:00/UK: Nov CPI

07:00/EU: Nov New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

07:00/GER: Nov PPI

07:00/DEN: Dec Consumer expectations

07:00/GER: Jan GfK consumer climate survey

08:00/SWI: 3Q Balance of Payments

09:00/POL: Nov Average gross wages

09:00/POL: Nov PPI

09:00/POL: Nov Industrial Production Index

09:00/EU: Oct Euro area balance of payments

09:00/POL: Nov Agricultural prices

09:30/UK: Oct UK House Price Index

10:00/EU: Oct Construction output

10:00/BEL: Dec Consumer Confidence Survey

10:00/ITA: Oct Balance of Payments

10:00/LUX: Nov Unemployment

11:00/POR: Nov PPI

11:00/UK: Nov Aluminium Production report

15:00/EU: Dec FCCI Flash Consumer Confidence Indicator

17:59/POR: Sep ICSG Copper Report

17:59/POR: Oct Balance of Payments

All times in GMT. Powered by Onclusive and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

12-20-23 0016ET