European Midday Briefing : Stocks Gain, With the Fed, Big U.S. Tech in Focus

MARKET WRAPS

Stocks:

Stocks traded in positive territory on Tuesday as investors looked ahead to the Federal Reserve decision.

Fed officials are meeting today and Wednesday to decide on their next interest-rate move. The central bank is expected to keep rates steady, but also to take a symbolically important step by no longer signaling that rates are more likely to rise than fall.

The FTSE 100 was outperforming European peers, led by strong gains for WPP after a bullish trading update .

The focus later will be on results from Alphabet, Microsoft, Snap and Pfizer, according to Interactive Investor.

U.S. Markets:

Stock futures held near record highs at the start of a busy period for Big Tech earnings, with Microsoft and Alphabet set to report after today's close.

On the data front, updates include the S&P Case-Shiller home price index for November, the December job openings report and January consumer confidence.

Forex:

The euro weakened further as investors bet on early ECB rate cuts, with money markets pricing a high chance of this in April.

Comments from Peter Kazimir, governor of the National Bank of Slovakia, on Monday that the rate-cut debate is now premature got less attention and markets instead focused on Bank of France Governor Francois Villeroy de Galhau who effectively implied that any next meeting is a place for key policy decisions, KBC Bank said.

The dollar could strengthen if upcoming U.S. jobs data-including JOLTs on Wednesday and monthly non-farm payrolls figures on Friday-suggest the Fed is unlikely to cut interest rates in March, MUFG said.

"Without evidence of further weakness in the U.S. labor market in the coming months, we are not convinced yet that the Fed will cut rates as soon as in March in light of the resilience of the U.S. economy to higher rates," MUFG said.

This partly supports MUFG's expectation the dollar will rebound in 1Q.

TD Securities said that after the recent correction higher, the dollar doesn't look cheap nor oversold and its strength may fade soon .

Bonds:

The outlook for fixed income looks better as inflation, while still above central bank targets, has moderated significantly and as a slowing but still-resilient economic growth has fueled optimism for a soft landing, Nuveen said.

The recent increase in bond yields has created an opportunity for investors to benefit from several rate cuts expected this year, Nuveen added.

It favors extending the duration in fixed income portfolios and added that investment grade corporate bonds, given their higher relative quality, could provide a cushion if the economy weakens more than expected.

Emerging markets' economic growth levels and rate cuts by some EM central banks are pluses for EM debt, Nuveen said.

Energy:

Oil was broadly flat after falling more than 1% in the previous session, as prices continue to be supported by growing concerns around a conflict escalation in the Middle East.

Aramco said it had been ordered by the Saudi government to keep its oil production capacity at 12 million barrels a day. The company said it received the instruction while it was working to increase its production capacity to 13 million barrels a day.

Citi said Saudi Arabia's move to have Aramco halt its maximum production capacity increase can be seen as OPEC+ starting to recognize the size of the capacity overhang in oil markets and the need for the country to give way to competitors.

Metals:

Base metals were mixed as a court order to liquidate Evergrande brings back China's property sector into the spotlight and as investors await the Fed's policy meeting on Wednesday.

EMEA HEADLINES

German Economy Shrank at End of 2023

Germany's economy contracted in the final quarter of 2023, only narrowly missing a recession, due to low global demand and high inflation which continued to weigh on the country's economy.

Germany's gross domestic product shrank 0.3% from October to December compared with the previous quarter, adjusted for price, seasonal and calendar variations, according to preliminary data from the country's statistics office released Tuesday.

Diageo Profit Falls, Dragged by Sales Decline in Latin America, Caribbean

Diageo said profit for the first half of its fiscal 2024 fell, dragged by a sharp decline in sales at its Latin American and Caribbean divisions.

In its first earnings release reported in dollars, the London-based maker of Johnnie Walker scotch whisky, Guinness stout and Smirnoff vodka said Tuesday that it made a pretax profit of $3.08 billion for the six months ended Dec. 31 compared with $3.60 billion for the same period a year earlier.

Hapag-Lloyd Slides to Operating Loss on Freight-Rate Slump

Hapag-Lloyd reported a swing to an operating loss for the fourth quarter after revenue more than halved, hit by sharply lower freight rates.

The German shipping company posted a loss before interest and taxes of about 200 million euros ($216.7 million) for the fourth quarter compared with a profit of EUR3.3 billion in the same period a year earlier, according to preliminary figures released Tuesday.

Renault Cancels IPO Plans for Ampere

Renault said it has decided to cancel the initial public offering of its electric-car unit Ampere partly due to equity-market conditions.

In 2022, the French automaker said it intended to list the business, and the trading debut was scheduled for spring 2024.

BBVA Plans $846 Mln Buyback After Profit Rises

Banco Bilbao Vizcaya Argentaria plans a share buyback of 781 million euros ($846.1 million) after fourth-quarter net profit climbed on higher income, taking its full-year result to a new record.

The Spanish bank said Tuesday that net profit for the three months to the end of December was EUR2.06 billion, up from EUR1.58 billion in the same period of 2022.

GLOBAL NEWS

The Fed Meeting Isn't Just About Rate Cuts. Why the Balance Sheet Might Matter More for Stocks.

The Federal Reserve will release its monetary policy decision on Wednesday, and investors will be listening to what it says about possible rate cuts. They should be paying as much attention-if not more-to what it says about quantitative tightening.

When it comes to rate cuts, investors shouldn't expect much. The Fed is expected to hold its policy rate steady in the coming meeting, with the CME FedWatch tool putting the chances of a hold at 97%. What Chairman Jerome Powell says about a possible March cut will matter, but so will what the Fed says about quantitative tightening, or QT for short, as it manages its balance sheet-another tool in its battle to tame inflation.

Key China Bond Yield Hits Lowest in Over Two Decades as Easing Hopes Rise

The yield on China's benchmark government bond dropped to its lowest level in over two decades on growing expectations that Beijing will deliver more monetary policy easing to help bolster its economy.

China's 10-year bond yield slid below the psychologically-important 2.5% level early on Tuesday, touching 2.47%-its lowest since about 2002. It then clawed back some ground and was last at 2.51%.

Why Oil Prices Rose After Shrugging Off a Crisis

Oil prices have climbed, and not just because of the recent turmoil in the Red Sea.

Futures on Brent crude gained more than 6% last week to settle at $83.55 a barrel Friday, their highest level since early November. The rise came after winter storms slammed U.S. oil production and new data showed the country's economy has remained resilient, suggesting robust demand for fuel ahead.

Global Deal Activity on Course to Rebound This Year

SYDNEY-A downturn in global mergers and acquisitions is on track to reverse in 2024 as market participants get more certainty on interest rates, but dealmaking in corners of Australia's energy and resources sector faces uncertainty as the prices of some commodities slump.

In 2023, the total global M&A market dropped 15% to US$3.2 trillion, the lowest level in a decade, according to advisory firm Bain & Co. in a new report. The value of strategic deals-in which a company buys or sells all or part of another company-fell by 6%, with the Americas market holding steady but Europe and Asia faltering. Across sectors, deals in energy and natural resources jumped, while tech deals slowed.

Three Ways the U.S. Could Punish Iran After Fatal Drone Attack

WASHINGTON-The U.S. range of options for responding to Sunday's deadly Iranian-backed militia attack includes a direct strike against Iran, hitting the regime's proxy groups or personnel abroad, and ratcheting up financial pressure on Tehran's battered economy.

The strike that killed three U.S. Army reserve service members in a military outpost in Jordan has led to calls for a firm response against Iran, which backs an array of militant groups around the Middle East that have targeted Americans. In seeking an appropriate response, the White House must weigh its desire to send a strong signal to Iran and its proxies, congressional pressure for decisive action, and the Biden administration's desire to prevent sparking a broader regional war.

Qatar's Prime Minister Says Progress Made on Hostage-Release Deal

Leaders from Egypt, Israel, Qatar and the U.S. have made progress toward a deal that would free Israeli hostages held by Hamas in exchange for a cease-fire in Gaza, Qatar's prime minister said Monday.

"We are in a much better place than where we were a few weeks ago," said Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani, during a public forum in Washington.

Write to [e-mail]

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

01-30-24 0527ET