European Midday Briefing : Stocks Move Higher With U.S. CPI on Tap

MARKET WRAPS

Stocks:

European stocks rose on Thursday, although gains were limited, as investors looked towards U.S. inflation data which should give clues on the prospects for Federal Reserve interest-rate cuts.

Economists surveyed by The Wall Street Journal estimate consumer prices overall rose 0.2% in December from the prior month and increased 3.2% from a year earlier.

Many investors believe the retreat in inflation will allow the Fed to begin cutting interest rates as soon as March.

Shares on the Move

Marks & Spencer's said it expects its full fiscal-year results to meet market forecasts after a strong performance over Christmas. However, its shares dropped around 7% on some inevitable profit taking, after a blistering share price performance, but also on its cautious outlook, analysts noted.

Stocks to Watch

Daimler Truck's fourth-quarter margin looks strong , but 2024 could bring lower earnings, JP Morgan said. The company could post a fourth-quarter industrial margin of 10%--which JPM sees as a clear statement that it can hang with the best--on EUR15 billion in group sales, putting revenue for the year at the lower end of the full-year guidance range.

Economic Insight

Consumer concerns regarding the rising cost of living have eased over the last year, but people remain cautious about spending, Capgemini Research Institute said.

The report showed that 43% of respondents believe their personal finances will get worse in the coming months. In addition, 73% of consumers said they will be more loyal to companies that help them relieve financial pressure.

U.S. Markets:

Stock futures rose ahead of the CPI data, while the yield on the benchmark 10-year note was back below 4%.

Stocks to Watch

Citigroup said it was taking one-time charges of $1.3 billion related to exposures to geopolitical and economic risks in Argentina and Russia. The stock was falling 0.6% premarket.

Coinbase rose 4.6%, MicroStrategy gained 2.6%, and Marathon Digital was up 5.1% after the SEC approved the launch of the first spot Bitcoin exchange-traded funds .

Forex:

The dollar is pricing in the biggest interest-rate cuts of all G10 currencies, leaving very little safe-haven premium priced in and suggesting the U.S. currency has room to strengthen, Deutsche Bank Research said.

Even as the Fed cuts interest rates, the dollar is still likely to remain a higher-yielder among major currencies, suggesting the dollar should rise near term, it said.

"We see the risks skewed towards a stronger dollar for the first few months of 2024 with EUR/USD revisiting 1.05."

Danske Bank Research said the U.S. inflation data will likely be key to determining the near-term outlook for the dollar and U.S. rates, though it won't be a "game-changer," as it thinks the figures broadly will align with consensus.

The relatively loose financial conditions around the end of 2023, which helped push EUR/USD above 1.10, could very well tighten within the next couple of months, Danske Bank said, adding that it considers the euro remains a sell against the dollar from a strategic perspective.

Bonds:

Eurozone core government bond markets are expected to consolidate in the near term, HSBC Global Research said.

"We expect a period of volatile consolidation, with the chance of higher yields in the short term given the aggressive [interest-rate] cutting expectations in market prices."

HSBC Global Research turned neutral from mildly bullish this month on eurozone core bonds due to the lower yield levels which are close to its 2.00% end-2024 forecast for the 10-year Bund yield.

HSBC Global Research also said German 10-year Bund yields start to look cheap at levels around 2.40%, while a fall below 2% would take Bunds into rich territory.

"Our longer-term conviction for a decline in yields remains unchanged, but the question of how far and how fast that decline happens depends on several factors," it said.

The decline in inflation is the most significant "but a fall below 3% in core inflation is a necessary but not sufficient precondition for European Central Bank rate cuts."

Energy:

Oil prices inched higher on market concerns about heightened tensions in the Middle East.

Yemen's Houthi rebels carried out one of the largest missile and drone attacks on merchant vessels transiting the Red Sea earlier this week, raising fears of further escalation in the region and supply disruptions amid the Israel-Hamas war.

Metals:

Base metals and gold prices traded higher ahead of U.S. inflation data.

Nickel is stuck in a supply glut that will take some time to clear , BMI said, as it downgraded its forecast for 2024 to $20,000/metric ton from $20,600/ton before.

Weak demand in China and a subdued growth outlook across major markets will cap prices, BMI added.

Lithium investors are likely to experience further pain before any recovery in prices , according to Morgan Stanley.

The China lithium carbonate price has fallen to roughly $12,000/metric ton, down 80% in 2023 and its lowest value since mid-2021. The battery metal's dramatic retreat has sparked debate on whether prices may be near a nadir.

EMEA HEADLINES

Tesco Lifts Guidance After Strong Christmas Period

Tesco raised its profit guidance for the second time this fiscal year after it saw stronger-than-expected volume growth in the U.K. market during Christmas.

The U.K. grocer on Thursday said it expects retail adjusted operating profit-the company's preferred metric, which strips out exceptional and other one-off items-for fiscal 2024 of around 2.75 billion pounds ($3.50 billion). This compares with a previous guidance range of GBP2.6 billion to GBP2.7 billion, and GBP2.49 billion in fiscal 2023.

Taylor Wimpey 2023 Profit Seen at High End of Guidance Though Orders Slipped

Taylor Wimpey said its performance met its expectations, seeing operating profit at the high end of its previous guidance range, though its order book fell.

The house builder said Thursday it expects 2023 operating profit including joint ventures and excluding exceptional items to meet the high end of its prior guidance range of GBP440 million to 470 million pounds ($560.7 million- $598.9 million). For 2022, it posted an operating profit of GBP923.4 million.

Thomson Reuters Launches $626 Million Offer for Pagero

Thomson Reuters is launching a $626 million cash bid for Pagero Group, beating a rival offer made by Vertex for the Swedish e-invoicing provider last month.

Thomson Reuters said Thursday that it will begin a public tender offer to acquire all of Pagero's shares on Friday. It intends to pay 40 Swedish krona a share, valuing the Gothenburg-based company at SEK6.4 billion ($626.0 million).

GLOBAL NEWS

Fed's Williams says interest rates need to stay high 'for some time' to ensure inflation is tamed

New York Federal Reserve President John Williams said U.S. interest rates will likely need to stay high "for some time" until senior central bank officials are confident the rate of inflation is returning to 2%.

Williams made his remarks Tuesday at a speech in White Plains, N.Y. He is seen as a close ally of Fed Chairman Jerome Powell, so his words carry a lot of weight in financial markets.

U.S., U.K. Warships Shoot Down Houthi Barrage in Red Sea

MANAMA, Bahrain-U.S. and British warships shot down one of the largest barrages of missiles and drones fired by Yemen's Houthi rebels into the crucial Red Sea shipping lane, while Secretary of State Antony Blinken continued his efforts to prevent the conflict in Gaza from escalating into a regional war.

The U.S. is considering conducting strikes against land-based Houthi targets in Yemen in response to the attacks in the Red Sea, officials said. The overnight barrage would likely elicit a U.S. response, a defense official said Wednesday.

South Africa Accuses Israel of Genocide in U.N. Court

The International Court of Justice begins hearings Thursday on South Africa's accusation of genocide against Israel, contending that the Jewish state's military response to Hamas attacks launched from Gaza violates the international treaty drafted in the aftermath of Nazi Germany's systematic extermination of six million Jews.

More than 150 countries have ratified the Genocide Convention, which allows a nation to file a complaint against another it believes is committing genocide even if, as in South Africa's case, it has no direct connection to the conflict. South Africa argues that Israeli military operations, which the Gaza health ministry says have cost more than 23,000 Palestinian lives, are intended to wipe out Palestinians in Gaza as a distinct group.

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

01-11-24 0545ET