European Midday Briefing : Stocks Make Cautious Start to Busy Week Ahead

MARKET WRAPS

Stocks:

Stocks struggled to make headway on Monday, at the start of a busy week of earnings, data and central bank meetings, and as investors faced escalating Middle East tensions.

U.S. Markets:

Stock futures wavered while benchmark Treasury yields fell but remained above 4.1%.

Around 100 S&P 500 companies are due to report earnings this week, including Apple, Starbucks, Boeing, Microsoft and General Motors. The results should offer clues as to whether stronger consumer spending will continue to bolster the U.S. economy. Earnings are due from Whirlpool and SoFi Technologies on Monday.

The Federal Reserve is expected to keep interest rates steady this week, but investors will parse comments from Jerome Powell for indications of future cuts. Data on the number of jobs added in January are due on Friday.

Forex:

The dollar was slightly weaker but if inflation numbers make a U-turn and interfere with the Fed's plan to cut rates, the currency would see higher demand, Swissquote Bank said.

The dollar could also gain if other major economies perform even more poorly than they are expected to-because faltering economies would require faster rate cuts outside the U.S. and lead to a stronger U.S. currency.

ING said the dollar has been the strongest performer across the G10 and emerging market currency blocs so far this year and this is probably down to U.S. growth holding up well. "This means that the Fed need not rush into rate cuts."

With seasonal factors staying strong for the dollar through January and February, "we think it is too early to make the case for a resumption of the dollar bear trend just yet," ING said, adding that 103.00-104.00 could well be this week's range for the DXY Index.

Bonds:

Eurozone government-bond yields were lower as market expectations of ECB rate cuts got a fresh boost from the Bank of France Governor's comments over the weekend.

In an interview with French paper La Tribune, Francois Villeroy de Galhau said the ECB "will cut our rates this year," and that all subsequent meetings are live.

"The ECB is keeping the market on a long leash and this week's likely soft growth and inflation data could add to rate-cut expectations," Commerzbank Research said.

Gilt yields also fell, with Thursday's Bank of England rate decision in view.

"We suspect the BOE will drop the suggestion that it could raise rates further on Thursday, but keep the signal that rates need to stay restrictive for an extended period," ING said.

Energy:

Crude futures rose on news that a drone strike launched by Iran-backed militia killed U.S. service members in Jordan.

The death of U.S. personnel "marks a critical inflection point in the ongoing conflict in the Middle East and raises a specter of a more substantial U.S. involvement in the war," RBC Capital Markets said.

"A more direct confrontation with Iran raises the specter of regional energy supply disruptions."

Metals:

Copper and aluminum prices were weaker as the dollar held steady after strong U.S. business activity and ahead of Wednesday's Fed decision.

Meantime, gold was almost 1% higher on rising geopolitical tensions in the Middle East and prices could be headed upward, technical analysis of volatility trends suggests.

The metal faces a possible bullish volatility breakout scenario as long as key medium-term pivotal support at $2,000/oz holds, according to Oanda.

EMEA HEADLINES

Philips Reaches Agreement With FDA Over Ventilator Recall

Royal Philips said it reached an agreement with the U.S. Food and Drug Administration on the terms of a settlement linked to recall of its Respironics ventilators.

The Dutch health-technology group on Monday said it booked a 363 million euros ($394 million) provision in the fourth quarter for remediation activities, inventory write-downs and onerous contract provisions related to the consent decree.

Ryanair Narrows Guidance After Higher Operating Costs Hurt Adjusted After-Tax Profit

Ryanair Holdings said that operating costs in the third quarter rose and led to a fall in adjusted after-tax profit as it narrowed its annual guidance for the metric.

The Irish budget airline said Monday that for the quarter ended Dec. 31 its fuel bill rose over 35% to 1.2 billion euros ($1.30 billion). It also booked higher staff costs which reflect pay restoration, crew, engineering and handler pay increases and higher crewing ratios as well as the earlier timing of maintenance costs.

Swiss Building-Materials Giant Plans Separation of U.S. Business

Switzerland's Holcim struck a deal to separate out its North America business, a big supplier of building materials that could be worth more than $30 billion.

The plans were unveiled Sunday, confirming an earlier report by The Wall Street Journal.

'What the Hell?' Europe Chafes at America's Protectionist Tilt

President Biden's 2021 declaration that "America is back" was welcomed by European officials eager to move past their trade troubles with the Trump administration.

Yet instead of reversing policies driven by Donald Trump's protectionist view, Biden has advanced many of them. The president has kept trade barriers in place, left European companies out of subsidies designed to bolster U.S. manufacturing and surprised allies with tighter restrictions on Chinese access to American technology.

GLOBAL NEWS

The S&P 500 Rallied to Records on the Back of Just One Sector

The S&P 500 is back at record levels for the first time in two years. Information technology is the only one of the index's 11 sectors that can say the same.

Home to the likes of Microsoft, Apple and Nvidia, the tech sector is riding the mania over artificial intelligence and has propelled the broader market to a record close in five of the last six trading sessions. The S&P 500 is up 2.5% to start 2024, while the tech segment has risen 5.9%.

Plummeting Inflation Raises New Risk for Fed: Rising Real Interest Rates

Federal Reserve officials start the year with a problem they would ordinarily love to have: Inflation has fallen much faster than expected.

It does, nonetheless, pose a conundrum. The reason: If inflation has sustainably returned to the Fed's 2% target, then real rates-nominal rates adjusted for inflation-have risen and might be restricting economic activity too much. This means the Fed needs to cut interest rates. The question is, when and by how much?

Three U.S. Troops Killed in Drone Attack in Jordan

Three U.S. service members were killed and at least 34 were injured in an Iran-backed militia's drone strike on a base in northeast Jordan, U.S. officials said on Sunday, marking the first American troops killed in hostile action since the start of the Hamas-Israeli conflict in Gaza.

A U.S. official said that the attack took place overnight at Tower 22, a small outpost near the Syria border. The drone struck living quarters for the troops, contributing to the high casualties, a U.S. official said.

Houthi Attacks Disrupt Shipping, Draw U.S. Into Direct Conflict

Yemen's Houthi rebels are carrying out audacious attacks to disrupt global commerce and draw the U.S. military into direct conflict, using Israel's war in Gaza to transform themselves from a marginal player among Iran-aligned forces into one of the Middle East's most formidable militant groups.

On Saturday, a day after one of the most significant attacks yet by the Houthis on an oil tanker, the vessel's operator said it was continuing to assess carefully the risks involved in any voyage. The Marlin Luanda, sailing on behalf of trading giant Trafigura Group, was struck Friday by a missile in the Gulf of Aden, causing a fire to break out in one cargo tank. It was eventually put out.

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

(END) Dow Jones Newswires

01-29-24 0518ET