European Midday Briefing : Stocks Struggle Again as November Rally Continues to Stall

MARKET WRAPS

Stocks:

European stocks fell for a second day as the November rally runs out of steam.

And with prospects for Federal Reserve policy still foremost in investors' minds, the PCE inflation report for October, published on Thursday, may also be encouraging some trader reticence, according to Hargreaves Lansdown.

"Subdued sentiment is hanging around with investors keeping their powder dry ahead of a key inflation report in the U.S., while the impact of elevated interest rates on economies is still being assessed."

U.S. Markets:

Index futures pointed to another sleepy day in the stock market, while ten-year Treasury yields hovered around 4.4%.

The VIX, a gauge that measures expected swings in the S&P 500, stood close to its lowest level of 2023.

There are quite a number of Fed officials slated to make comments on Tuesday. These include Christopher Waller, Michelle Bowman and Austan Goolsbee.

Economic updates set for release include the S&P Case-Shiller home price index for September and the November report on consumer confidence.

Companies presenting results on Tuesday include CrowdStrike, Workday and Hewlett Packard Enterprises, all after the closing bell rings.

Forex:

The euro may be able to hold onto higher levels against the dollar, Helaba Research said, with comments from ECB speakers and technical factors favorable for the European currency.

Some indicators show signs of the euro being overbought, however, and these "would have to be examined more closely if the euro were to rise again."

ING Research said EUR/USD is likely to struggle to hold onto any rise above 1.10 and is more likely to drop back towards 1.09 in the coming days.

EUR/USD remains "almost solely" driven by moves in the dollar and ING said the dollar is likely to be propped up if solid U.S. economic data cast doubt on recent growing expectations for U.S. interest-rate cuts next year, with money markets currently pricing in a first rate cut in June.

"The recent drop in [U.S.] rates significantly increases the chances of pushbacks against rate-cut speculations, which can help the dollar rebound."

Commerzbank said the dollar should fall further if U.S. consumer confidence data at 1500 GMT is weaker than expected, potentially lifting EUR/USD to 1.10.

"Anything that suggests that a recession is looming and that Fed Funds might soon fall again, seems to be taken as an opportunity to trade the dollar weaker."

There is little chance of the dollar recovering even in the event of surprising strong data as "the risks are asymmetrical - to the dollar's disadvantage."

Lombard Odier said the current configuration of high Treasury yields and sluggish global growth may persist in the months ahead, keeping the dollar supported toward the top of recent ranges.

This would see the euro moving toward the bottom of a 1.00-1.10 range versus the dollar in the first half of 2024. However, lower U.S. yields and a global growth recovery could eventually shift the dollar lower in the second half, it added.

Among other currencies Lombard Odier continues to favor the Swiss franc, is more neutral on the euro, and remains cautious on sterling.

Bonds:

German Bunds are in "joyful anticipation" of lower inflation numbers that look in store on Wednesday from Germany, Commerzbank Research said, adding 10-year yields look set to test 2.5%.

German headline inflation, measured according to national standards, is expected to decelerate to 3.5% in November from 3.8% in October, according to The Wall Street Journal's poll of analysts.

Energy:

Oil prices edged higher on a weaker dollar and growing expectations of deeper output cuts at the upcoming OPEC+ meeting on Thursday.

"If OPEC+ want to provide more solid support to the market and ensure that we do not see stocks building early next year, they will need to agree on deeper and broader cuts," ING said.

Yet, "with aggressive cuts already in place, it does leave one wondering the degree to which the group could surprise the market with deeper-than-expected cuts."

Metals:

Base metals and gold were little changed with some mixed signals on the macroeconomic outlook.

"Stock markets and the dollar still believe in the dovish Fed, but crude oil and forward-looking inflation expectations are bracing for softer demand and lower global growth," Peak Trading Research said.

It added that commodity markets will be looking ahead to Thursday, with OPEC+ due to meet to discuss oil output, while the U.S. PCE inflation reading is also due.

EMEA HEADLINES

German Consumer Confidence Ticks Up Slightly as Spending Intentions Grow

Consumer confidence in Germany improved slightly in data for December, as willingness to buy improved on month amid easing inflation, despite a subdued economic climate.

Germany's forward-looking consumer-sentiment index forecasts confidence to improve to minus 27.8 in December, from minus 28.3 in November, according to data published Tuesday by market-research group GfK and the Nuremberg Institute for Market Decisions.

Novartis Raises Mid-Term Sales Growth Targets

Novartis lifted its sales growth guidance for the mid-term after what it called a progress in delivering its pure-play strategy.

The Swiss pharmaceutical company upgraded on Tuesday its compound annual growth rate to 5% in the period between 2022 and 2027 and said that it expects a core operating income margin of around 40% by 2027.

Rolls-Royce Lays Out Mid-Term Targets, Cost Savings

Rolls-Royce Holdings said that it expects to deliver between 400 million and 500 million pounds ($505.1 million-$631.4 million) in cost savings in the mid-term, paving the way to restore capital returns, as it set out its financial targets ahead of its capital markets day.

The U.K.-based aircraft engine manufacturer said that its efficiency initiatives to optimize costs will boost its balance sheet and lead it to reestablishing shareholder distribution. Dividends have been suspended since 2020 and while a company-compiled consensus doesn't see a payout for 2023, analysts estimate that a 1.0 pence per share dividend will be paid for 2024 and a 3.3 pence one for 2025.

EasyJet Seeks Holidays Business Boost After Return to Dividends

easyJet said it aims to increase growth of its holidays segment in fiscal 2024 and outlined its first dividend payout since the start of the Covid-19 pandemic after swinging to a pretax profit.

The U.K. budget airline on Tuesday said it expects to deliver a total capacity growth of around 9% in fiscal 2024 while its holidays segment is targeted to grow by more than 35%, taking the U.K. market share to 7% from 5%.

Impala Platinum Says 11 People Died in Shaft Incident

Impala Platinum Holdings said 11 employees died in a shaft incident at its Rustenburg operations in South Africa, with 75 hospitalized, in the worst mining accident for a South African company in 14 years.

The precious-metals mining company said Tuesday that the rescue operation is complete and all 86 employees are accounted for.

Shares in Ubisoft Tumble on Bond Placement News

Shares in Ubisoft Entertainment tumbled after the company placed bonds convertible or exchangeable into shares.

At 0813 GMT, Ubisoft shares traded 6.9% lower at EUR27.39.

UK Shop-Price Inflation Continued to Lose Pace in November, Report Says

Annual shop-price inflation in the U.K. decelerated further in early November on the back of lower energy prices while retailer competition ahead of Christmas is helping to push prices down, a report by NielsenIQ and the British Retail Consortium showed on Tuesday.

Prices at U.K. stores in the first week of November were 4.3% higher on year, lower than October's 5.2% rise and below the three-month average rate of 5.3%, the report showed.

GLOBAL NEWS

PBOC Governor Calls for More Efforts to Transform China's Economy

China's central bank governor warned against continuing to rely on infrastructure and real-estate sectors, and pointed to the need to nurture new growth drivers as Beijing looks to chart a new path for the world's second-largest economy.

Though "the traditional model of relying heavily on infrastructure and real estate might generate higher growth," it delays structural adjustment and undermines the sustainability of economic expansion, People's Bank of China Gov. Pan Gongsheng said in a keynote speech Tuesday at a financial conference in Hong Kong.

S&P 500 may rise 10% by end of 2024 amid worries that small-cap stocks 'can't hack' higher rates, says BofA

U.S. stocks will probably keep climbing next year, with S&P 500 companies in a stronger position to adapt to higher interest rates than smaller ones, according to BofA Global Research.

BofA is forecasting that the S&P 500 will end 2024 at 5,000, which is up about 10% from the index's closing level Monday at 4,550.43. The S&P 500 SPX, which tracks U.S. large-cap stocks, has far stronger gains in 2023 than the small-cap-focused Russell 2000 index.

Israel, Hamas Agree to Extend Truce by Two Days

Israel and Hamas agreed on Monday to a two-day extension of their truce in Gaza to allow for the release of more Israeli hostages as part of a fragile agreement that has brought respite from seven weeks of war, according to Egyptian, Qatari and Hamas negotiators.

Hamas released another 11 Israeli hostages Monday night as part of the initial deal. The latest group, which included no Americans, were in Israel, Egyptian officials said. The 11 included six citizens of Argentina, three French citizens and two German citizens, according to Qatari officials.

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11-28-23 0541ET