European stocks eased lower on Monday, with miners and oil companies weighed by weaker commodity prices and after Jerome Powell said it was too soon to begin talking about Federal Reserve rate cuts.

On Friday, Powell offered the strongest signal yet that officials are likely done raising rates by saying that their policy setting is "well into restrictive territory, meaning that tight monetary policy" is slowing economic activity.

But his comments were laced with caution. "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance," Powell said in remarks at Spelman College in Atlanta.

"'s hard to see what will puncture the renewed enthusiasm for the idea that central banks are about to pivot when it comes to rate policy, with this week's services data expected to point to further weakness in Europe," CMC Markets UK said.

"The catalyst could be a set of strong U.S. jobs data, with the likes of October JOLTs job openings tomorrow, the November ADP payrolls report on Wednesday or Friday's non-farm payrolls report."

Stocks to Watch

AB InBev's shares are trading at a 3% premium to the European beverages sector, with a free-cash-flow yield of 5.6%, meaning that the group is currently fairly valued, Deutsche Bank said, after downgrading the stock to hold from buy and cutting the target price to EUR58 from EUR61.

"We continue to see AB InBev's broadly emerging-market focussed sales exposure as attractive, combined with the company's market-leading market-share positions."

Added to that, offerings such as business-to-consumer platform, BEES, provide a competitive advantage, Deutsche Bank said.

Volkswagen, Stellantis and Renault should be more open about whether their cash balances are reserved for investments or for shareholders, Bernstein said.

The carmakers all carry hefty amounts of excess cash on their industrial balance sheets, according to Bernstein's modeling.

"While we acknowledge continued uncertainties in the sector, we also note that companies' balance sheets have never been stronger.

Given current valuations, we would urge companies to consider the valuation impact of improved capital allocation frameworks as opposed to continuing to hoard cash on their balance sheets."

Mercedes-Benz and BMW are doing a better job at capital allocation and returning extra cash, Bernstein added.

Economic Insight

Markets are clearly anticipating a change in the interest-rate cycle, but in the case of the eurozone they might be running ahead of themselves, ING Research said.

"It will come, but especially in EUR [euro area] we think market pricing of cuts has advanced far enough," ING said.

Only a sudden shock or substantially weaker data would justify even more aggressive cut expectations at this stage, they say. Money markets price in 130 basis points of interest rate cuts by the European Central Bank in 2024, according to Refinitiv data.

U.S. Markets:

Both stocks and bonds look set for a pause after a rapid ascent.

Futures pointed to modest losses for stock indexes, while Treasury prices were down, pushing yields up to 4.247%.

Investors will be looking ahead to important data this week to keep supporting the case for a rate cut, with November nonfarm payrolls numbers due at the end of the week.


The euro is likely to weaken as focus for the currency centers on easing inflation pressures, with a secondary focus on slowing growth, NatWest Markets said. "Both play euro negative against the dollar and on the crosses."

The latest eurozone inflation data, which were much lower than expected, suggest that the European Central Bank needs to recalibrate its growth and inflation forecast ahead of the Dec. 14 policy meeting, NatWest said. NatWest expects the ECB's interest-rate cuts to come sooner than many expect.

"With recent dollar weakness not justified, we see this as negative for EUR/USD."

NatWest also said the dollar fell steadily through November, a move which came "faster and more clearly" than expected.

"For both the dollar weakness in November and the U.S. Treasury rally, we wonder if the move has gone too far too fast even if it does jive with how we see 2024 eventually playing out," NatWest said.

On the dollar side, even more so than in Treasurys, NatWest said it was skeptical of chasing the move in the near term because of the broader growth outlook.

Danske Bank Research said the Swedish krona reached its strongest since May against the euro on Friday and could rise further into year-end.

December is historically a strong month for the Swedish krona, hence, "we cannot rule out further Swedish krona-strength towards year-end" even as 2024 could be another challenging year for the currency, Danske said.

The krona's rally last week was driven by global markets, such as declining U.S. bond yields boosting bets on interest-rate cuts next year, rather than any Swedish-specific factors, Danske said.


Eurozone government bonds should face a long list of headwinds ahead, which could push back 10-year German Bund yields to 2.75%-2.85% in January, Morgan Stanley Research said.

"Moving closer to the December European Central Bank meeting, we now think the risk-reward on the long EUR duration is much less attractive than it was a few weeks ago," Morgan Stanley Research said.

In January, the renewed rise in government bond supply-as countries kick off their annual funding programs-warrant a discount at the long end, it added.

The front-end looks expensive as the market is pricing in one-and-half ECB interest-rate cut-38 basis points, according to Refinitiv-by April, while technical indicators suggest overbought conditions.

Commerzbank Research said it will be difficult for ECB policy makers to curb the rate-cut euphoria going into the blackout period ahead of next week's governing council meeting.

Comments from Bank of France Governor Francois Villeroy de Galhau at a conference on Friday that the ECB could mull rate cuts at some point in 2024 prompted a bond market rally and also added to money market expectations of rate cuts for next year.

Money markets currently expect 132 basis points of ECB rate cuts in 2024, according to Refinitiv data.

Greek government bonds are expected to continue to benefit from good investor interest after Fitch upgraded Greece to investment grade in a widely anticipated move on Friday, although most of the support should be in the price by now, Commerzbank Research said.

The 10-year Treasury yield may fall further, based on technical charts, UOB's Global Economics & Markets Research said.

The pace and extent of the 10-year yield's decline over the past month has exceeded UOB's expectations, and the 10-year yield could continue to drop over the next two months. However, any further fall will likely encounter solid support at the 55-week exponential moving average, which is currently 3.950%, UOB said.

Above the 55-week EMA, there is another support on the 10-year yield's rising trend line, which is 4.120%.


Oil futures were down more than 1%, giving up Asian gains, on uncertainties around the OPEC+ voluntary output cuts and global demand growth.

Meanwhile, geopolitical tensions in the Middle East intensified as Israel resumed combat operations in Gaza and after Iran-backed Houthi forces in Yemen claimed responsibility for attacks against a U.S. destroyer and three commercial ships operating in the Red Sea.

Brent is forecast to rise to an annual average of $85 a barrel in 2024, according to BMI, adding it expected a sharp slowdown in developed economies in the first half which will put prices under heavy pressure; while in the second half, as global growth passes its nadir, sentiment will strengthen, positioning Brent for healthy gains.


Base metals pulled back, with investors looking ahead to Friday's U.S. nonfarm payrolls figure and how it will affect Fed policy.

"Weaker job numbers on Friday would push the dollar lower and lever our commodity markets higher," Peak Trading Research said.

Gold prices softened, having spiked during the Asian trading hours and after hitting a new record high on Friday.

"Markets are pricing in several key interest rate cuts for next year--not only in the U.S. but also in Europe," Heraeus said.

"What's next for gold: If signs of low interest rates become more evident, gold should continue to soar next year."

Oanda said gold's medium-term uptrend is intact, but a minor pullback is possible, based on technical analysis.

Monday's swift rally has resulted in gold becoming extremely overbought, where the daily relative strength index momentum indicator is at 76.70, the highest since the medium-term uptrend began on Oct. 6, Oanda said.

On the hourly chart, gold has retreated from upper boundary of its ascending channel, which now acts as near-term resistance at $2,126/oz. Also, the hourly RSI momentum indicator has just exited from overbought territory, which increases risk of a minor pullback, adds Wong, pegging support at $2,067/oz.

UBS has downgraded lithium prices, cutting its medium-term price forecasts for the battery material by 23%-45%.

A surge in dealmaking among metals and mining companies is likely to continue into 2024, according to BMI. It sees demand for M&A supported by global energy-transition tailwinds and easing inflation pressures.

Deal activity has been climbing since 2020 and much of it has recently centered around energy-transition minerals, including copper and lithium, it notes. Gold-industry consolidation is also ongoing.

"While securing supply to transition metals, major mining companies will also continue to focus on reducing their exposure to coal assets," BMI said.


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12-04-23 0544ET