European Midday Briefing : Investors Await This Week's ECB Decision

MARKET WRAPS

Stocks:

European stocks traded higher on Monday as the rebound continued after recent losses when markets scaled back expectations for interest-rate cuts.

"It's a warmer start to the week for the FTSE 100 and European indices, with stocks largely gaining ground. Even the sprinkle of cold skepticism about the prospects for interest rate cuts isn't acting as much of a dampener," Hargreaves Lansdown said.

Corporate earnings will be in focus this week, alongside interest-rate decisions by the Bank of Japan and the European Central Bank.

"This week's main event is the ECB meeting on Thursday, where we expect rates to stay on hold for now, but signal that the next rate change most likely is a cut, which may happen in the summer," Danske Bank said.

Stocks to Watch

Nokia 's recent margin guidance cut and market caution is further evidence of a weaker development in network sales, Citi said.

Citi also forecasts a 19% decline in Ericsson's network revenue for 4Q23 and sees further declines in 2024, with the weak market offsetting market share gains, leading to negative revisions to consensus.

Porsche looks poised for a transition year with little earnings growth, Citi said, but the brand's long-term story remains attractive.

Stellantis shares are still cheap, but buying them isn't an automatic win as many believe, Citi said.

Citi also said that EBIT margins risk dilution from high inventory in the U.S, where its market share slipped to 9.8% last year from 11%.

Economic Insight

Wage growth could snatch away an inflation victory that seems close now for the ECB, Commerzbank said.

Pay growth remains faster than is compatible with reaching the 2% rate targeted by the ECB, and pressures are likely to remain high in the wake of new pay deals and record low joblessness, it said.

This could mean inflation settling above the targeted range, at around 3%.

U.S. Markets:

Stock futures were higher, looking to build on Friday's gains that saw the S&P 500 hit a new record, as tech shares rallied.

Treasury yields edged lower but held above 4.1%.

Stocks to Watch

Microsoft said email accounts of some of the software company's senior leadership team have been accessed by hackers backed by the Russian government, allowing them to read some email messages and attached documents. Shares were up 0.4% in premarket trading.

Spirit Airlines and JetBlue Airways said they would appeal a federal judge's decision that blocked the $3.8 billion merger of the airlines. Spirit shares were rising 9.3% premarket.

Forex:

The dollar edged lower and it could struggle to rise unless concerns resurface that U.S. interest rates are likely to remain higher for longer and rate-cut expectations are trimmed back again, UniCredit Research said.

"A return of market expectations towards a high-for-longer scenario in terms of U.S. policy rates is needed to provide the greenback [dollar] with much more strength," it said.

Still, the dollar is firmer than it was at the end of 2023, helped by 10-year Treasury yields rising above 4%, UniCredit added.

Standard Chartered said sharp interest-rate cuts by the Fed would be negative for the dollar , but the dollar could also fall on moderate easing.

It thinks the full-scale dollar strength of late 2021 and 2022 is unlikely to return as it was driven by the Fed's no-compromise stance regarding tackling inflation.

Bonds:

Robust demand for eurozone government bonds year to date is a good sign but it is necessary to remain careful, Societe Generale Research said.

"There will be more deals in the next few weeks, and we will monitor whether the demand persists or starts fading amid supply fatigue."

Government bond yield spreads remain close to their tightest levels in a year but seem not too far from their fair value, SocGen said. "Nevertheless, we remain cautious, especially as there tends to be seasonal widening of spreads in February."

SEB Research said the evolution of interest-rate cut expectations will continue to be a key driver for long-term eurozone bonds.

Its base case is a soft landing, and in this scenario "there is only a modest downside in long rates from their current levels." Given this view, SEB expects 10-year Bund yields to trade around 2.0% at the end of 2024.

Citi Research is turning more positive on Italian government bonds , expecting 10-year BTP-Bund yield spread to continue to tighten toward 140-150 basis points, unless fundamentals are brought into play by any downside data surprises.

Energy:

Oil prices traded lower as concerns over the macroeconomic outlook and global oil demand offset the impact of geopolitical tensions in Russia and the Middle East.

Prices failed to gain momentum despite Ukraine's drone attack on a Russian fuel terminal in the Baltic Sea on Sunday and growing tensions in the Middle East amid increasing missile attacks throughout the region.

Metals:

Base metals and gold prices were lower on a mixed macroeconomic environment and as investors await key monetary policy decisions.

"Thursday's [ECB] decision will be the most impactful for our markets via the direction of the Euro," Peak Trading Research said.

EMEA HEADLINES

Gambling Deal to Create One of European Industry's Biggest Firms

La Francaise des Jeux has agreed to acquire Kindred Group for close to $2.7 billion, in a deal that would create one of Europe's biggest online gambling companies.

The deal follows calls for the possible sale of Kindred, which is listed in Stockholm, by Corvex Management, a New York activist investor headed by Keith Meister.

EU Tackles New $22 Billion Plan to Boost Ukraine Military Aid

BERLIN-European Union officials will this week start tackling a new plan to unlock tens of billions of dollars in military assistance for Ukraine, seeking to revamp a critical aid program bogged down by internal divisions.

The EU move comes after a number of European countries have increased their bilateral military assistance to Ukraine even as the Biden administration is hamstrung by Congress on providing large-scale assistance.

Ocean Shipping Rates Surge as Red Sea Attacks Continue

Global shipping prices are continuing to rise as Houthi rebels keep up attacks on cargo vessels in and around the Red Sea.

The disruptions are at a key point for ships passing through the Suez Canal and are creating ripples across supply chains in Europe and the U.S., delaying shipments and raising transportation costs.

GLOBAL NEWS

China Benchmark Lending Rates Held Steady

China's benchmark lending rates were kept steady after the central bank held its key policy rates unchanged earlier this month, according to data released by the People's Bank of China.

The one-year loan prime rate stayed at 3.45% while the five-year rate was left at 4.2%, said the PBOC.

Stocks Are at Record Highs, but Things Will Only Get Harder From Here

Wall Street entered 2024 betting the year would go perfectly, but an up-and-down start for stocks and bonds suggests the going won't be easy.

Stocks have climbed to records, driven by cooling inflation that has spurred investors to anticipate as many as six interest-rate cuts. Falling rates often boost share prices by reducing the relative appeal of bonds and making it cheaper for companies and consumers to borrow, lifting corporate profits.

Ahead of New Hampshire Primary, Underdog Nikki Haley Gets One-on-One Race With Donald Trump

DERRY, N.H.-Nikki Haley finally secured the one-on-one matchup against Donald Trump that she had long sought after Ron DeSantis dropped out of the Republican presidential nomination race two days before the New Hampshire primary. It might be too late.

The Florida governor, who endorsed the former president, wasn't expected to be a major factor in Tuesday's GOP primary. A poll released Sunday showed him at just 6% in the state.

Trump's Legal Woes Splinter GOP Unity

NASHUA, N.H.-A strong victory in New Hampshire's presidential primary will leave little doubt about Donald Trump's hold on the Republican nomination. But as he looks ahead to the general election, the former president will confront the concerns of fellow Republicans like Mario Faucher.

Faucher said he wouldn't vote for Trump if he is convicted in one of the four criminal cases he is facing. "If that happens, who's going to support Republicans?" asked Faucher, who drove from Massachusetts to Nashua on Friday to see Florida Gov. Ron DeSantis, his preferred candidate.

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

(END) Dow Jones Newswires

01-22-24 0549ET