European Midday Briefing : Stocks Gain on Hopes of Cooling U.S. Jobs Data

MARKET WRAPS

Stocks:

European shares advanced on Friday with investors focused on the key U.S. jobs report looking for signals about how fast the labor market is cooling, which will feed into expectations for Federal Reserve policy and inflation.

"There is no question that jobs growth in the U.S. is slowing, however anyone thinking that the jobs slowdown is anything other than a natural evolution to a tightening labour market, and not a precursor to a hard landing isn't getting any encouragement for that latter view," CMC Markets UK said.

Stocks to Watch

AT&T's decision to choose Ericsson for its major Open RAN deployment is expected to turn the vendor's networks business to growth while margins should expand from 2024, Jefferies said.

For Nokia, however, the loss of AT&T revenue pushes out the improvement in growth and profitability at its mobile networks unit, it said.

"The announcement is clearly a blow for Nokia...However, we do not think AT&T's decision to exclude Nokia is necessarily a function of its lagging technology."

Jefferies upgraded Ericsson to buy from hold and raised its price target to SEK70 from SEK58. It downgraded Nokia to hold from buy and lowered its price target to EUR3 from EUR4.10.

Economic Insight

SEB Research has revised its call on the European Central Bank, expecting the first interest-rate cut in March, rather than in June, which was its previous forecast, "due to favourable progress in the disinflationary process."

Money market forwards price in a 20 basis point rate cut for March, according to Refinitiv.

SEB Research expects a total of 100 basis points of interest rate cuts in 2024 versus its previous forecast of 75 basis points and sees the deposit rate--currently 4%--to be lowered to 2% in 2025, below its previous forecast of 2.5%.

PGIM Fixed Income said the ECB is unlikely to start cutting interest rates until the second half of 2024 , even as weakening activity and fast-declining inflation have prompted markets to anticipate early and substantial rate cuts.

A breakdown of the drivers behind the bigger-than-expected drop in eurozone inflation in November isn't available yet, "but we doubt this is sufficient evidence for the ECB to pivot towards cutting rates so soon."

U.S. Markets:

Stock-index futures edged down along with Treasury prices ahead of the pivotal jobs report.

Also on the economic docket is a preliminary consumer-sentiment gauge.

Forex:

U.S. monthly jobs data at 1330 GMT will be watched to gauge whether markets are justified in pricing in a first interest-rate cut as early as March, and a figure in line with consensus could lift the dollar, MUFG said.

"A consensus print or better could see some of the March 2024 easing come out of the market."

That could give a boost to U.S. bond yields and the dollar into the close of this week and ahead of next Wednesday's Federal Reserve decision, it added.

November non-farm payrolls are expected to rise by 190,000, according to a WSJ poll.

USD/JPY is likely to extend its downtrend , based on technical charts, UOB Global Economics & Markets Research said, noting the currency pair's plunge on Thursday.

Bonds:

The bond rally will likely fade as central banks might start cutting rates later than some market pricing suggests, Societe Generale Research said.

"With inflation still high, global central banks are likely to keep policy restrictive for as long as they can. In this context, we believe the rally in bonds will likely run out of steam," SocGen said, adding that any meaningful reversal, however, would be an opportunity to reinitiate longs.

Energy:

Oil futures were close to 2% higher ahead of the U.S. jobs report. Despite the lift, prices remained on course to close the week 4% lower, with the market reacting poorly to OPEC's supply cut last week.

"Weaker demand data from China has further weighed on the sentiment in the short term," according to ING.

Metals:

Copper prices edged up while gold held steady ahead of the U.S. jobs report.

Commonwealth Bank of Australia expects the labor market to cool, forecasting 150,000 jobs to be added to the economy and unemployment rate of 4%, compared to the consensus of 183,000 and 3.9% respectively.

A softer than expected report would likely cement expectations for the Fed to cut rates in the first half of 2024, CBA said.

"The dollar can lift if markets grow more concerned about a U.S. recession and risk sentiment deteriorates," it added.

Citi predicts the shock to growth from rate increases in developed economies is not yet over, and that this should support precious metals prices, weigh on crude oil and cause head winds for base metals and iron ore.

Citi said it was bullish on gold and silver, "viewing them as safe havens amid an expected developed markets recession and their positive correlation with China's easing."

Although, there might be reasons for optimism in industrial commodities until Lunar New Year in February, due to anticipated support from China easing measures, it said.

EMEA HEADLINES

Anglo American Sees Lower Production; Targets to Cut Cost by $1 Bln Next Year

Anglo American said it expects lower production next year amid near-term constraints and volatile market conditions, and that it plans to lower costs by $1 billion.

The multinational diversified miner said Friday its output for 2023 increased by around 3% on year, driven by a ramp-up of operations at its Peruvian copper project Quellaveco and solid iron ore production, which offset lower platinum metals and diamonds production.

Europe Swears Off Russian Gas. The Unexpected Price.

Last year at this time, Europeans worried about freezing without natural gas imports from Russia. That didn't happen, and won't this year.

The European Union enters the winter of 2023-2024 with gas storage tanks nearly 95% full. Germany and its neighbors have activated half a dozen terminals for importing liquefied natural gas (LNG). France laid plans for six new nuclear power reactors. Thermostats are down and solar power capacity up by a quarter.

GLOBAL NEWS

Hiring Is Cooling From Earlier This Year. What to Watch in Friday's Jobs Report.

The November employment report will add to recent signs that the labor market and economy are slowing heading into 2024, analysts estimate.

Double Trouble: Investors Fight the Fed on Two Fronts

Investors are betting against the Fed-twice over. The first bet is the sudden turn from expecting the Federal Reserve to keep rates higher for longer to instead expecting rapid and deep cuts next year.

The second bet is almost the exact opposite, that the Fed will have to keep rates much higher in the long run than it says it will. Treasury yields have come down, but at around 4.1% the 10-year yield remains more than 1.5 percentage points above the Fed's forecast of long-run interest rates.

Emerging Markets Appear Solid Bet to Attract Money Leaving China

SYDNEY-The big winners from rising skittishness over the investment environment in China appear to be emerging markets such as India, the chief market strategist at financial advisory and asset-management firm Lazard said.

Foreign direct investment in China shrank for the first time in 25 years during the latest quarter as Beijing and Washington sparred over technology deemed sensitive to national security and critical minerals used in electric vehicles. Tensions have intensified further since then, illustrated by U.S. officials tightening rules around the sale of artificial intelligence-enabling chips to China.

Xi Jinping and EU Officials Seek to Ease Economic Tensions at Beijing Summit

Chinese leader Xi Jinping and Europe's top officials sought to ease tensions over trade and economic disputes at their first in-person summit in Beijing on Thursday.

The EU's relations with China have grown tenser in recent months over the bloc's trade deficit with China, which doubled to $400 billion in the last two years.

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

12-08-23 0528ET