MARKET WRAPS
Stocks:
European stocks struggled for momentum on Wednesday, following a slew of corporate earnings and ahead of the Federal Reserve's interest-rate decision, due after Europe's close.
The Fed's monetary policy decision at 1900 GMT is awaited "for signs over whether a March rate cut is plausible," Scope Markets said.
"With inflation elevated and the U.S. economy growing at a healthy clip, the justification for a cut in just over seven weeks is questionable as things stand."
Markets are currently pricing in an around 46% probability of a 25 basis point Fed rate cut in March, while a cut in May is fully priced.
Shares on the Move
H&M fell almost 8% after it reported sales and profits for the fourth quarter that were below forecasts, and announced the appointment of a new CEO.
Novartis shares dropped around 5% after it reported fourth-quarter earnings and sales that missed consensus expectations and issued guidance that analysts said fell short of hopes.
Vodafone fell after it rejected a revised offer from Iliad to merge their Italian businesses.
Eurozone Inflation Data
Much hinges on Germany's inflation rate for January to see whether the eurozone will record a decent slowdown in price rises at the start of the year, Pantheon Macroeconomics said.
For the eurozone, headline inflation is likely to have fallen to 2.4% from 2.9% in December, but this will depend heavily on key economy Germany, which will publish its own figures later Wednesday, Pantheon said.
Inflation figures for the eurozone will be set out Thursday.
Early German regional inflation data for January suggested that headline inflation for the country fell markedly, Pantheon Macroeconomics said.
The data indicated a 0.8 percentage point fall in national CPI to 2.9%, while core inflation also looked to have eased by 0.1 points to 3.4%.
U.S. Markets:
Stock futures mostly declined, led lower by shares of Microsoft and Alphabet, and ahead of the Fed's interest-rate decision.
On the earnings front, Mastercard and Boeing are among the companies set to report before the market open. Results from Qualcomm are due after the market close.
Stocks to Watch
Alphabet slid more than 5% premarket after the company reported advertising sales for the fourth quarter that fell short of analyst expectations.
Microsoft posted its highest profit growth in more than two years, as excitement about AI helped power demand for its cloud services. Still, its shares fell 1.5% premarket.
Tesla fell 2.6% premarket after a judge struck down Elon Musk's multibillion-dollar pay package.
Forex:
The euro remained weak and risks falling against the dollar ahead of the Fed's policy decision, where policymakers are likely to be in no rush to cut interest rates, UniCredit Research said.
"We do not expect the Fed to rush with regard to rate cuts, but the intensity of easing [Fed Chair] Mr. Powell likely intends to flag will probably be the main driver today."
EUR/USD has failed to sustain gains above 1.0850 for now and it needs to rally back above 1.09/1.0930 to "stem selling pressure in a more convincing way," UniCredit said.
ING said that given recent solid U.S. data, it is unlikely to push the market to price any more rate cuts than the around 130 basis points currently priced in for this year and this should be "neutral/positive" for the dollar.
ING expects that the central message from the Fed will be "that imminent action was not on the table," and added that the DXY dollar index should trade toward the upper end of a 103-104 range.
Bonds:
U.K. gilt yields fell, tracking U.S. and eurozone government bond yields, ahead of announcements from the Fed and the Bank of England on Wednesday and Thursday respectively.
Investors will be looking for any indication on the timing of future interest-rate cuts. Declining risk appetite due to disappointing earnings from U.S. tech firms may have caused increased demand for safer assets such as government bonds, resulting in higher bond prices and decline in yields.
Energy:
Oil prices pulled back as focus shifted to demand concerns, even as tensions around Middle Eastern conflicts continued to smolder.
Saudi Aramco's decision to abandon plans to boost oil production capacity due to an uncertain demand outlook has stoked concerns, and while China has been taking supportive measures to help its faltering economy there is no clear indication of a strong demand revival just yet, analysts said.
Increasingly intense clashes in the Middle East have raised supply concerns, but this slump in demand is for now keeping downward pressure on prices.
Metals:
Base metals prices were firmer, with analysts saying recent economic data has highlighted the resilience of many developed nations to higher interest rates, and it appears prices have now factored that in.
"Liquidity is ample, and metals such as aluminum and copper are able to take any external shocks and return to the mean in due time," Sucden said.
The World Gold Council said central banks' demand for gold is expected to remain high this year and could offset a slowdown in consumer demand due to elevated gold prices and slowing economic growth, the World Gold Council said.
"Ongoing conflicts, trade tensions and over 60 elections taking place around the world are likely to encourage investors to turn to gold for its proven track-record as a safe haven asset."
Iron-ore prices are likely to retreat toward $100/metric ton in the months ahead, from roughly $135/ton now, according to Commonwealth Bank of Australia.
Its forecast is based on expectations of limited stimulus in China and, consequently, losses for steelmakers there.
EMEA HEADLINES
Novo Nordisk Begins Gradually Increasing Supply of Blockbuster Weight-Loss Drug Wegovy
Danish pharmaceutical giant Novo Nordisk this month started to gradually increase the supply of lower-dose strengths of its blockbuster Wegovy weight-loss drug, having limited supply in the U.S. since May to safeguard access for current patients.
The surging popularity of Wegovy has forced the company to restrict supply while it scrambles to increase stocks. Efforts to ease the pressure are continuing and the company has outlined plans to invest more than $6 billion to boost capacity.
Santander Sees Higher Profitability in 2024 After 4Q Net Profit Jump
Banco Santander said it expects higher profitability in 2024 after the bank reported an increased net profit for the fourth quarter.
The Spanish lender said Wednesday it is targeting mid-single digit revenue growth, a fully-loaded common equity Tier 1 ratio above 12% and a return on tangible equity-a key measure of profitability-of 16% in 2024. For 2023, Santander's return on tangible equity stood at 15.6%.
Vivendi Revises Separation Project, Plans to Split Into Four Units Instead of Three
Vivendi said its supervisory board approved a plan to split the group into several entities, but that it now looks to separate into four publicly traded businesses instead of three.
The French media group said late Tuesday that the entities resulting from the separation would be structured around its Canal+ TV business, Havas advertising business, a company grouping its publishing and distribution assets-including recently acquired Lagardere-and an investment company.
Europe Regulates Its Way to Last Place
These are humbling times for Europe. The continent barely escaped recession late last year as the U.S. boomed. It is losing out to the U.S. on artificial intelligence, and to China on electric vehicles.
There is one field where the European Union still leads the world: regulation. Having set the standard on regulating mergers, carbon emissions, data privacy, and e-commerce competition, the EU now seeks to do the same on AI. In December it unveiled a sweeping draft law that bans certain types of AI, tightly regulates others, and imposes huge fines for violators. Its executive arm, the European Commission, might investigate Microsoft's tie-up with OpenAI as potentially anticompetitive.
GLOBAL NEWS
Where Are Interest Rates Headed? What to Expect From the Fed Meeting
Federal Reserve officials are set to hold interest rates steady this week at a 23-year high, putting the focus on what, if anything, they say about when they might lower rates.
At their last three meetings, central-bank officials made no changes to their policy rate but debated whether they had to raise rates more. Now, officials are turning their attention to when they might lower rates, though several have signaled they are in no hurry.
Will a Hiring Slowdown Push the Fed to Cut Rates Soon?
U.S. employers aren't laying off many people, and that is a great thing. But they aren't hiring many people, either, and that is a bit troubling.
The Labor Department on Tuesday reported that a seasonally adjusted 1.62 million workers were laid off in December, compared with 1.53 million in November. This left layoff levels at 1% of U.S. employment. In the 20 years of available data preceding the pandemic, the layoff rate was never so low.
China Factory Activity Contracts for Fourth Straight Month
HONG KONG-Chinese factory activity remained in contraction for a fourth straight month, the latest sign that the country's economy is struggling to regain momentum, adding to pressure on policymakers to boost demand.
The muted activity in China's manufacturing sector suggests a soft start to the year, and highlights the limits of Chinese leaders' attempt to double down on manufacturing to drive the economy as other traditional growth engines, particularly real estate, remain in the doldrums.
Prospect of Trump 2.0 Has Europe Scrambling on Military Spending
BRUSSELS-The prospect of Donald Trump returning as president is prompting some of America's staunchest allies in Europe to push their neighbors that are more reluctant to spend into further action on defense and security.
(MORE TO FOLLOW) Dow Jones Newswires
01-31-24 0610ET
