European Midday Briefing : Stocks Steady on Inflation, Fed Hopes

MARKET WRAPS

Stocks:

European shares edged up on Wednesday on hopes that inflation will continue to fall and as expectations grow that the Federal Reserve may start trimming interest rates next year.

Pantheon Macroeconomics said early regional data suggested that inflation in Germany eased further in November.

The data also suggested that eurozone inflation in food, alcohol and tobacco could be an upside surprise in figures to be released on Thursday.

U.S. Markets:

Stock futures inched higher but the main action in markets was that the steep drop in bond yields endured.

The yield on the benchmark 10-year Treasury note fell below 4.3%, a significant level when considering where it started the month-hovering above 4.8%.

Meantime, the Cboe Volatility Index continued to fall. Now solidly below 13, the VIX is trading near its lowest levels of this year.

Up ahead: Earnings from Hormel Foods, Foot Locker and Dollar Tree are due before markets open. Salesforce will report after the close..

Forex:

The dollar was falling as the market reverses a trend of "excessive" optimism towards the currency amid growing evidence the Fed has likely finished raising interest rates, Commerzbank said.

"What we are seeing is typical for the greenback at the end of a Fed rate hike cycle: Excessive dollar optimism on the part of market participants who had seen the dollar as a one-way street has to be priced out," it added.

The DXY dollar index earlier hit a 16-week low of 102.4670, helped by comments by the Fed's Christopher Waller who said a slowing U.S. economy could tame inflation.

Standard Chartered said the U.S. unemployment rate has begun rising from a cyclical trough, marking a turning point which is "associated with dollar weakness."

"Confirmation that the labor market is softening while inflation is on a steady downtrend could encourage policy rate cuts and weaken the dollar, " Standard Chartered said.

Typically after a point when unemployment keeps rising, the dollar tends to rebound, it said.

Bonds:

Eurozone government bond yields were lower again, extending Tuesday's declines, as investors expect inflation to decelerate further.

"Subdued German inflation numbers and struggling break-evens look set to boost 10-year Bunds below 2.5% [in yield]," Commerzbank Research said.

The preliminary estimate for headline German inflation, due for release at 1300 GMT, is expected to fall to 3.5% in November from 3.8% in October, measured according to national standards.

DZ Bank Research said Germany's inflation rate is making great strides toward the ECB's 2% target, and if Wednesday's data underpin this, bond markets are likely to celebrate.

A pronounced decline in German CPI could further reinforce the view among market participants that the ECB will refrain from raising its key rates again, DZ Bank said, adding that it would likely stir greater hopes of a swift loosening of the monetary reins.

"Given that the German inflation rate has a comparatively heavy weight in the pan-EMU [eurozone] basket of goods and services, such a reading may again spark euphoria."

Energy:

Crude futures weakened slightly as the market awaits OPEC+'s crucial decision to extend or deepen supply cuts.

"The outlook for the oil market in 2024 will largely depend on OPEC+ policy," ING said.

DNB Markets said OPEC's core members could be motivated by geopolitical tensions in the Middle East to take on deeper output cuts but a quota rollover is still seen as the easiest way forward.

"Any deeper cut has primarily to be shouldered by Saudi, Russia, UAE and Kuwait," DNB said. "However, a pressure for deeper cuts could result in a non-deal."

Reaching consensus among the group's members will be challenging amid disputes over production targets and Brent crude above $80 a barrel. Therefore, it is more likely that the meeting will result in Saudi Arabia extending its unilateral production cut into 2024.

Further support to prices on Wednesday likely stemmed from disruptions to oil loadings in the Black Sea, with Kazakhstan's energy ministry indicating that output at its largest fields has been cut by 56%, ING added.

Metals:

Base metals were mixed, with gold continuing to strengthen, helped by a weakening dollar and buoyed by the Fed's Waller, according to CBA.

"Given his typically hawkish bias in the past, the comments suggest that the FOMC are done raising rates and may be on track to cut rates next year," CBA said.

EMEA HEADLINES

Richemont Says It Has No Plans to Invest in Farfetch, or Lend to It

Compagnie Financiere Richemont said that it has no financial obligations toward the luxury fashion e-commerce company Farfetch and doesn't plan to lend to or invest in it.

The Swiss-based luxury group's release comes after Farfetch said late Tuesday that it wouldn't publish its third-quarter results, which were due Wednesday. The company won't provide forecasts at this time, and any prior guidance should no longer be relied upon, Farfetch said.

Ferrovial to Sell Stake in London's Heathrow Airport

Ferrovial is to sell its stake in London's Heathrow Airport after striking a deal with a French private-equity group and Saudi Arabia's sovereign wealth fund.

The Spanish construction company said late on Tuesday that Ardian and Saudi Arabia's Public Investment Fund would pay 2.37 billion pounds ($3.01 billion) to acquire its 25% stake in FGP Topco, the parent company of Heathrow Airport Holdings.

Deliveroo Targets Stronger GTV Growth Over Longer Term; Backs Guidance

Deliveroo set out a plan to grow gross transaction value in the mid-teens percentage a year over the longer term and backed its guidance for 2023 ahead of its capital markets day.

The U.K. food-delivery company reiterated that is aiming to deliver lower single-digits percentage GTV growth in constant currency this year and adjusted earnings before interest, taxes, depreciation and amortization in the range of 60 million pounds to 80 million pounds ($76.2 million-$101.6 million).

GLOBAL NEWS

Washington warily eyes the death of the Chinese economic 'juggernaut'

The Chinese economy faces stiff headwinds including a slumping housing sector, heavy government debt loads and rising unemployment, and U.S. policymakers are taking notice.

"Over the past few months sentiment in China's economy has grown increasingly negative," said Republican Rep. French Hill of Arkansas at an event on China's economic outlook at the Center for Strategic and International Studies on Tuesday.

U.S. Urges Israel to Change Tactics in Gaza

WASHINGTON-The U.S. is pressing Israel to modify its plans for the next phase of its campaign in Gaza to better protect civilians and rebut criticism that the White House has given Israeli forces carte blanche to wage its war with Hamas.

The U.S. push to have Israel fight a more targeted war signals a shift away from President Biden's full-throated support at the outset for the campaign to oust Hamas, and is the focus of intensive consultations between Biden and Prime Minister Benjamin Netanyahu on how to handle the conflict-one that Washington has worked with Arab allies to prevent from broadening beyond Gaza.

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

(END) Dow Jones Newswires

11-29-23 0520ET