EMEA Morning Briefing : Stocks Seen Lower Amid Risk-Off Bias

MARKET WRAPS

Watch For:

Germany labor market statistics (including unemployment); trading update from Ryanair

Opening Call:

Stock futures traded lower tracking declines in Asian stock benchmarks; the dollar weakened while oil futures and gold also declined.

Equities:

European stock futures were lower early Wednesday amid a slight risk-off sentiment.

U.S. stocks finished mostly lower Tuesday as investors took profits after a 2023 rally that left the S&P 500 index just shy of a fresh record.

There are news headlines to consider, but also a mood check, especially after 2023 went out with a big bang, said Steve Sosnick, chief strategist at Interactive Brokers.

"The mentality today is less about finishing the year on a positive note and more about the normal ebb and flow for markets, with a little bit bias toward risk-off."

The focus is on the release of the minutes from the Fed's Dec. 12-13 meeting, due later today, which will be watched for fresh insights into how officials have been thinking about the most likely path of inflation.

Also on watch is the December employment report, due Friday, the last one before the Fed's Jan. 31 meeting, when rates are expected to remain unchanged.

Forex:

The U.S. dollar weakened giving up earlier gains.

However, December's trend for a stronger euro and weaker dollar is being reversed as 2024 gets underway, said Societe Generale currency strategist Kit Juckes.

"Given that the euro has out-performed trends in both rates and economic surprises in recent weeks, this all means the odds are somewhat stacked against it," he said.

EUR/USD rose in December for the seventh year in a row, cementing December as its best month, while January is typically the euro's worst month, he noted.

Concerns about Germany's weak economy may now weigh on the currency, Juckes added.

Bonds:

Treasurys didn't trade in Asia due to a market holiday in Japan.

Markets remain convinced that the Fed will leave rates unchanged this month and start cutting them in March, while some forecasters doubt the pace of easing will be as fast as priced so far.

"If the Fed pivot continues to push mortgage rates lower, stock prices higher, and credit spreads tighter, we could get a solid rebound in the economy over the coming months," said Apollo's Torsten Slok.

Energy:

Oil futures declined amid divergent signals.

On the one hand, energy markets have been unable to avoid the broader pressure on risk assets, with equity markets also weaker, ING commodities strategists said.

On the other hand, there are growing tensions in the Middle East, they added.

Metals:

Gold edged lower early Wednesday.

Rate-cut expectations and other factors such as inflation-hedging purposes will likely continue to support the precious metal in early 2024, said Fawad Razaqzada, market analyst at City Index and FOREX.com.

Based on technical analysis, the August 2020 high of around $2,075/oz will be a pivotal resistance area for gold, as it hasn't been able to post a daily close above this level, the analyst said, adding that if and when it does, the December 2023 high of around $2,146/oz will come into focus.

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Copper prices declined as weak signals from China's manufacturing sector indicated potentially lower demand for copper, Saxo analysts said.

While copper plants reducing production needs for the winter season could pressure prices, demand may rise before the Lunar New Year for stocking purposes, which could happen in mid or late January, Nanhua Futures analysts said.

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Iron ore futures advanced amid positive sentiment.

Strong capital inflows after the holidays have lifted the ferrous metal's price, Baocheng Futures analyst Weihua Tu said.

However, prices will likely fluctuate in the short term as the tepid demand could limit upward momentum, the analyst added.

TODAY'S TOP HEADLINES

Hong Kong's IPO Drought Casts Pall Over Region's Businesses

A dearth of initial public offerings in Hong Kong is causing companies to suffer cash crunches and put off expansion plans, showing how the steep market downturn is taking a toll on businesses that need to raise money.

The Asian financial hub was for years the top international fundraising venue for companies from China and the broader region and came close to rivaling New York a few years ago. But a prolonged stock-market slump in Hong Kong and an exodus of foreign investors have made it exceedingly difficult for many companies to go public. Chinese regulators have also been sitting on many IPO applications, creating another barrier for businesses to overcome.

Top Wall Street bull warns of a pause in stock rally but sees S&P 500 grinding higher in 2024

U.S. stocks are likely to start 2024 with a breather and to remain data-dependent until the start of fourth-quarter earnings season, as a bull run that saw the three major indexes post double-digit growth last year may lose steam in early January, according to strategists at Oppenheimer Asset Management.

"Considering the powerful rally that stocks stateside have had from a low since October 27, it should come as no surprise that traders and investors needed to take the opportunity to assess a move from the October low through last Friday," said strategists led by John Stoltzfus, chief investment strategist and managing director at Oppenheimer.

The Hottest Property in Gold Mining Is Copper

ADELAIDE, Australia-Gold miners recently celebrated the precious metal fetching its highest price ever. They are reinvesting much of that windfall in copper.

From central Mexico to the Australian Outback, gold producers led by Newmont and Barrick Gold are raising bets on copper through deals and other investments that will give them more influence over a commodity vital to the global energy transition. Copper is essential for building electric vehicles, wind turbines and solar-power systems.

Russia Targets Ukraine With Fresh Wave of Drones and Missiles

KYIV, Ukraine-Russia launched another mass drone-and-missile attack against Ukraine, the latest in a growing campaign to break Ukrainian morale and wear down its air-defense systems.

The barrage of 99 missiles early Tuesday morning was the second significant salvo in less than a week, after one of the largest missile attacks of the war on Friday. The heavy bombardments are putting pressure on Ukraine's stocks of air-defense missiles, which it receives primarily from the West.

Israel Remains Divided Despite Show of Wartime Unity, Court Ruling Underscores

TEL AVIV-Israel's Supreme Court ruling on Monday invalidating a law that was at the center of a contentious judicial overhaul was a reminder of the underlying divisions in Israeli society put aside during the war in Gaza-tensions that could erupt once the conflict is over.

The law-which was put forth by the government of Prime Minister Benjamin Netanyahu and would have curtailed the power of Israel's courts-was divisive. It ignited one of the largest and most sustained protest movements Israel has seen, bringing hundreds of thousands of people to the streets over months.

Tech's AI Hangover Might Just Be Getting Started

One thing already seems certain about 2024: AI is going to need to start showing the money. Whether it can is a whole other question.

Excitement for generative artificial intelligence sparked by OpenAI's chatbot was the dominant theme for investors in 2023. The Nasdaq Composite jumped 43% for the year-its second-best annual performance in 15 years. Meanwhile, technology and e-commerce companies on the S&P 500 averaged a gain of 57%, more than double the broad index's overall performance for the year. Indexes tracking subsectors such as chips and software recorded their best annual gains since 2009, when the market was bouncing back from the global financial crisis.

Behind Cheap Stuff From Shein and Temu: A Hard Bargain With Suppliers

SHENZHEN, China-E-commerce sellers Shein and Temu are offering a lifeline for small suppliers in China's manufacturing hubs-but it isn't always a straightforward win.

In recent years, thousands of Chinese factories and vendors have joined the supply chain for Shein and Temu, whose popularity has exploded in the U.S. with their offers of inexpensive made-in-China goods, from T-shirts and handbags to electronics and kitchen items.

Tesla Falls Behind China's BYD in Quarterly EV Sales for First Time

Chinese automaker BYD for the first time topped Tesla as the world's largest seller of electric vehicles on a quarterly basis, a sign of China's emerging strength in the global market for battery-powered cars.

BYD reported selling more than 526,000 fully electric vehicles in the fourth quarter of 2023, compared with Tesla's sales of nearly 485,000 for the same period.

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Expected Major Events for Wednesday

07:00/TUR: Dec PPI

07:00/TUR: Dec CPI

08:00/SPN: Dec Unemployment

08:30/SWI: Dec procure.ch Purchasing Managers' Index

08:55/GER: Dec Labour market statistics (incl unemployment)

11:00/POR: Nov Industrial production index

16:00/DEN: Dec Foreign Exchange & Liquidity

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

01-03-24 0014ET