European Midday Briefing : Caution Dominates as Key Events Awaited

MARKET WRAPS

Stocks:

European shares posted modest losses on Tuesday in cautious early trading, as investors looked ahead to some key, market moving events this week.

Wednesday's U.K. budget, testimony from Jerome Powell and a European Central Bank decision on Thursday and U.S. jobs data on Friday will be scrutinized as traders try to estimate when central banks will start cutting interest rates.

News that China had set an ambitious 5% growth target for 2024 failed to lift sentiment, with economists saying the goal would require more policy support as challenges mount.

U.S. Markets:

Stock futures were lower, after major indexes slipped from record highs on Monday.

Earnings are due from Target and CrowdStrike, while it's also Super Tuesday, with 15 states set to hold presidential primary elections.

Forex:

If the ECB starts cutting interest rates before the Federal Reserve, an expected weakening of the dollar and a tightening of transatlantic yield spreads could be delayed, Generali Asset Management said.

Generali AM expects the ECB to start cutting interest rates on June 6, just ahead of the Fed's expected first rate reduction on June 12. It expects a cumulative 100 basis points of ECB rate cuts in 2024, while for the Fed they forecast a total of 75 bps, less than the 90bps anticipated by markets, with a risk of a smaller 50bps being implemented.

ING said market participants are likely to be reluctant to sell dollars ahead of Powell's testimony this week.

It pointed to comments on Monday by the Fed's Raphael Bostic, which "feed into the prevailing view that the Fed is in no rush to cut rates."

This view will likely be echoed in Powell's testimony, ING added.

U.S. ISM services data for February due at 1500 GMT is unlikely to be a major market mover, although "a repeat of the strong January release would be dollar-positive," ING said.

Bonds:

Treasurys are attractive as a way to hedge against recession risk, even as the market appears to be pricing in a soft landing, Russell Investments said.

"But a soft landing is not certain, and while we think a soft landing is more likely than a recession, we still believe there's a 40% probability of a U.S. recession in the next 12-18 months."

If a recession were to materialize, the inflationary pressures would sharply dissipate, giving the Fed considerable latitude to cut interest rates aggressively to cushion the economic blow, Russell Investments said.

Energy:

Oil prices edged lower after China's growth targets provided little optimism about an immediate economic rebound, and fears of slowing demand continued to weigh on sentiment.

"Lower fiscal spending could restrict the economic stimulus measures by China even as the government aims to push the economy higher," ING said.

Still, OPEC+'s extension of supply cuts amid signs of a tightening market and concerns over deadlocked ceasefire talks between Israel and Hamas continue to broadly underpin prices.

Metals:

Base metals were little changed, with gold edging slightly up, as investors looked ahead to a busy slate of market-moving events.

Sucden Financial analysts said gold could be entering overbought territory, predicting a downward correction, potentially bringing the precious metal back to around $2,050 an ounce.

There will be plenty of macroeconomic releases and central bank speakers this week, but any data is unlikely to change momentum in base metals trading--at most volatility could increase to reflect fluctuations in the dollar, Sucden said.

Iron Ore

Rising stockpiles of iron ore at China's steel mills aren't a cause for concern yet, according to Morgan Stanley, which said increasing mill inventories have recently weighed on prices, but that the rise in stocks isn't out of character at this time of year.

"Chinese inventories at ports and mills are often looked to as a barometer for the health of iron ore's fundamentals, but we can't see evidence of concerning shifts here," MS said.

While the build in inventories this year has been stronger than in 2023, it is similar to what occurred in prior years, MS added.

EMEA HEADLINES

Bayer Decides Against Splitting Into Separate Units for Now

Bayer doesn't plan to pursue a split into separate units for now, Chief Executive Bill Anderson said.

"On the question of the company's structure and a possible breakup of the group, our answer is 'not now'-and this shouldn't be misunderstood as 'never'," Anderson said Tuesday.

Thales Forecasts Continued Sales Growth After Defense Spending Pushes Orders to New High

Thales said it expects strong sales growth this year after rising military spending drove orders above analysts' expectations to a record high.

The French aerospace-and-defense company on Tuesday posted 18.43 billion euros ($20.01 billion) in sales for 2023, up 4.9% in reported terms and 7.9% organically. Thales had forecast organic sales growth of 5% to 7% for last year.

Traton Posts Record Revenue on Jump in Truck, Bus Sales

Traton revenue jumped last year on higher sales and the company on Tuesday proposed a higher shareholder dividend.

The Volkswagen-owned commercial-vehicle maker's sales revenue rose to a record 46.87 billion euros ($50.88 billion)from EUR40.33 billion in 2022 as truck and bus sales jumped 11% to 338,183, the company said. Analysts had expected sales at EUR46.14 billion, according to a Visible Alpha consensus.

Sandoz Shares Fall After Finance Chief Change

Sandoz Group shares fell Tuesday after the company said Chief Financial Officer Colin Bond would retire at the end of June and be replaced by Remco Steenbergen, from Deutsche Lufthansa.

At 0859 GMT, shares in Sandoz were trading down 3.4% at CHF27.44, having fallen as much as 5.1% earlier, but the stock remained up 1.4% since the beginning of the year.

Schaeffler Shares Slip After Earnings Miss Expectations

Schaeffler shares traded lower Tuesday after the company posted 2023 earnings below expectations.

At 0904 GMT, shares in the transport-industry supplier were down 3.8% to EUR6.32 after falling as low as EUR6.27.

U.K. Retail Sales Growth Damped by Wet Weather, Report Says

Retail sales growth in the U.K. slowed in February, when consumer demand was damped by record rainfall, according to a British Retail Consortium report.

Total retail sales for the four weeks to Feb. 24 increased by 1.1% on year, compared with annual 1.2% growth the prior month and the three-month average of 1.4%, according to the BRC-KPMG Retail Sales Monitor report published Tuesday. Annual growth stood at 5.2% in February last year.

GLOBAL NEWS

China Sets Ambitious 5% Growth Target for 2024

BEIJING-China set an economic growth target of around 5% for the year, unchanged from the previous year, a goal that economists say will require more policy support as challenges mount.

This year's goal, announced Tuesday by Premier Li Qiang at the start of the country's annual legislative session, is higher than the International Monetary Fund and World Bank's estimates for Chinese growth this year, suggesting confidence among Chinese leaders about their ability to turn the economy around at a time of widespread pessimism about the country's future.

Supreme Court Restores Donald Trump's Ballot Eligibility

WASHINGTON-The Supreme Court ruled unanimously Monday that states lack the power to reject presidential candidates on the grounds they engaged in rebellion or insurrection against the U.S., a decision that restored former President Donald Trump's name to Colorado's ballot and ended similar challenges to his candidacy elsewhere.

The unsigned opinion puts to rest a series of state-level claims that Trump isn't eligible to be president a second time under a long dormant constitutional provision barring former officials who engaged in insurrection or rebellion from holding office again.

U.S. and Allies Reach for Last Resort to Get Aid to Gazans

The U.S. and its Middle East allies are turning to airdrops of food aid into Gaza, a stopgap measure reflecting the impasse foreign powers face in addressing a humanitarian crisis and ending the Israel-Hamas war.

The airdrops, in which military transport planes drop packages of food and other aid into the isolated enclave after coordinating with Israel, come as negotiators race to broker a cease-fire between Israel and Hamas that would free Israeli hostages and allow a surge of aid into the war-torn strip. Israel has imposed a deadline of the start of the Muslim holy month of Ramadan in the coming days for Hamas to release hostages or face an attack on the city of Rafah in southern Gaza, where more than a million displaced Palestinians have sought shelter from the fighting.

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

(END) Dow Jones Newswires

03-05-24 0517ET