MARKET WRAPS
Stocks:
European stocks made modest gains on Tuesday although caution remained about the risk that interest-rate cuts will come later than previously expected.
The FTSE 100 was outperforming other European indexes, helped by solid gains for BP after it announced a large share buyback alongside full-year earnings.
"...the prospect of early rate cuts or rather the reluctance on the part of central banks to commit to them, has seen yields move sharply higher in both the U.S. and the U.K. over concern that inflation is proving to be stickier than it should be, particularly in the services sector," CMC Markets UK said.
Stocks to Watch
Entain's online recovery is not straightforward, Barclays said.
The company faces fierce competition in more than 50% of the online division in markets such as the U.K., Australia, Italy, Germany and the U.S. with peers including Flutter, bet365, Lottomatica, Tipico and DraftKings, Barclays said.
For the stock to work, the online segment needs to return to market growth rates and the U.S. share to stabilize and grow, but neither are a given. Entain may find holding and regaining share a more difficult task as it exits 2024 without extra promotional spend.
U.S. Markets:
Stock futures edged higher in early trading while benchmark bond yields held above 4.1%.
Earnings from Eli Lilly and UBS are among those in the limelight, along with results from Chipotle Mexican Grill, Ford and BP.
Stocks to Watch
Coherent: The manufacturer of lasers and semiconductors reported results for its latest quarter that topped Wall Street's estimates. Shares rose more than 10% premarket.
Palantir Technologies: The data analytics firm announced a record profit for 2023 as commercial orders jumped. The company's chief executive said its new AI platform is driving demand. Shares gained over 18% in premarket trading..
Forex:
The euro is vulnerable in the short term as the eurozone economy is most likely to suffer if Middle East tensions are protracted and it remains at risk of recession, Indosuez Wealth Management said.
Indosuez is tactically slightly underweight on EUR/USD, targeting it at the lower end of a range between 1.07 and 1.10. Eurozone recession risk "continues to linger and is preventing the currency from taking off now."
However, waning recession risks and central-bank rate cuts in the second quarter should support the euro, Indosuez said.
For the dollar, Indosuez takes a tactically positive view in the short-term but is slightly negative in the longer term.
Further out, procyclical currencies would benefit at the dollar's expense if the soft-landing scenario for 2024 materializes and major central banks begin to cut interest rates in the second quarter .
"The dollar is also suffering more structurally from de-dollarisation ," Indosuez said.
Indosuez said the Swiss franc, which trades close to all-time highs, could edge lower, although it's likely to remain in favor if geopolitical tensions persist.
Indosuez is tactically positive on USD/CHF and EUR/CHF, targeting 0.88 and 0.95 respectively, compared with current levels for USD/CHF of 0.8710 and EUR/CHF of 0.9367.
The dollar edged lower following steep gains on Monday and Commerzbank said while the currency remains supported it could soon run out of steam, and any further gains should be limited.
This week's calendar is light and "while there are plenty of Fed speakers on the schedule, it will be hard for them to sound any more hawkish than what we have already heard."
U.S. inflation is coming down so it shouldn't be too many months before the Fed cuts rates, Commerzbank said.
Bonds:
Eurozone government bond supply is going to be a constant throughout the year after a larger supply in January, Deutsche Bank Research said.
Even though the volume of syndicated issues seen in January might not be repeated, there will still be plenty of net-net supply to be absorbed by the market due to the expanding quantitative tightening of the ECB. https://newsplus.wsj.com/article/realtime/DNCO20240206001554
Deutsche Bank Research also said syndicated issues in January made the difference in the unprecedented supply versus January 2023.
Energy:
Oil prices edged lower as investors weighed escalating geopolitical risk in the Middle East against hawkish comments from the Fed and a stronger dollar.
"The only real threat to prices is escalation in the Persian Gulf between the U.S., Iran, and the coterie of producers who must ship through the Strait of Hormuz," Rabobank said.
Meanwhile, Saudi Arabia l eft its March price for Arab Light crude to Asian customers unchanged from the previous month at a more than two-year low.
The move surprised market watchers as the top oil exporter was expected to raise its official selling price amid supply disruption concerns, according to analysts.
Metals:
Base metals edged higher, clawing back some lost territory after multiple days of losses, while gold remained volatile following a rebound in U.S. yields and a stronger dollar.
Sucden Financial said China might have experienced economic expansion in the services sector, but the country's decision to reduce its dependence on foreign investment has caused a recent decline in the performance of base metals, exacerbated by a rally in the dollar.
Iron Ore
The global iron-ore market is likely to record a modest surplus this year and next, Citi said. It expects the surplus for both 2024 and 2025 to account for roughly 1%-2% of total seaborne supply.
"However, the market remains highly susceptible to weather and operational disruptions."
EMEA HEADLINES
UBS to Restart Buybacks After Progress on Credit Suisse Integration
UBS Group plans to restart share buybacks later this year as it continues to digest its acquisition of Credit Suisse, even as integration-related costs dragged the Swiss bank into its second quarterly net loss in a row.
The company said Tuesday that it plans to reinstate buybacks, distributing up to $1 billion to shareholders in the second half. The repurchase will start after the legal merger of subsidiaries UBS AG and Credit Suisse AG by the second quarter of the year, with the aim of surpassing pre-takeover levels by 2026.
Infineon Cuts Chip Sales Guidance Amid Weak Personal-Electronics Demand
Infineon Technologies lowered its sales forecasts for fiscal 2024 as the group reckons with months of weak demand for chips in personal electronics such as computers and smartphones.
The German chip maker said Tuesday that it is aiming for around 16 billion euros ($17.19 billion) in sales for the year ending in September, down about 2% from fiscal 2023. Its segment result margin-a key profitability metric-is expected in the low to mid-20s percentage range compared with 27% in fiscal 2023. The group had previously guided for roughly EUR17 billion in revenue and a segment result margin of about 24%.
Novartis to Buy MorphoSys for $2.9 Billion; Deal Seen Closing in 1H
Novartis entered into an agreement to acquire biopharmaceutical company MorphoSys for 2.7 billion euros ($2.9 billion).
Swiss drug giant Novartis said that under the agreed transaction, approved by the boards of both companies, it would make a voluntary public takeover for all no-par value bearer shares of MorphoSys for 68 euros a share. The deal is expected to close in the first half of 2024.
German Manufacturing Orders Unexpectedly Soar on Aircraft Purchases
German manufacturing orders jumped unexpectedly in December, driven by bumper aircraft purchases, although excluding larger orders they still fell, reflecting a difficult environment for the sector.
Orders were 8.9% higher than the previous month, German statistics office Destatis said Tuesday, flipping expectations that they would fall 0.5%, according to a consensus of economists polled by The Wall Street Journal.
U.K. Retail Sales Growth Slowed in January on Weak Demand, Report Says
Retail sales growth in the U.K. slowed in January mainly due to easing inflation and weak consumer demand, with cost-of-living pressures entering their third year, according to British Retail Consortium data.
Total retail sales for the four weeks to Jan. 27 increased by 1.2% on month compared with 1.7% growth the prior month and the three-month average of 1.9%, the BRC-KPMG Retail Sales Monitor said Tuesday. Growth stood at 4.2% in January last year.
Looming Rate Cuts Make Bonds Attractive, Even After Recent Rallies, Jupiter AM Says - Interview
The prospect of significant interest-rate cuts by both the Federal Reserve and the European Central Bank promise solid returns for bond investors in 2024, Ariel Bezalel, fixed income investment manager at Jupiter Asset Management told Dow Jones Newswires.
Government bonds have already priced in meaningful rate cuts but there's still more room for yields to fall, he said in an interview.
GLOBAL NEWS
BOJ to Mull Ending Stock-Buying Program When Inflation Goal in Sight, Gov. Says
TOKYO-Bank of Japan Gov. Kazuo Ueda said Tuesday that the bank would discuss the possibility of ending its stock-buying program when it becomes confident about achieving sustainable 2% inflation.
"We will consider whether we should continue [the stock-buying program] and other measures when the time comes for us to review our current large-scale monetary easing-that is, when the sustainable and stable achievement of our price goal is in sight," Ueda said in a parliamentary committee meeting.
RBA Shifts to Neutral Stance on Interest Rates
SYDNEY-The Reserve Bank of Australia moved to a more neutral stance on interest rates Tuesday but pointedly reminded markets not to rule out the prospect of a further interest rate increase if inflation remains sticky.
(MORE TO FOLLOW) Dow Jones Newswires
02-06-24 0519ET
