European Midday Briefing : Stocks Rise, Building on Positive Momentum

MARKET WRAPS

Stocks:

European stocks rose on Wednesday, building on the previous session's gains, as investors shrugged off the slightly higher-than-expected U.S. inflation data.

Stocks to Watch

Glencore could reward shareholders in 2H if the coal unit demerger is deferred, Deutsche Bank said, lifting its rating on the stock to buy from hold.

U.S. Markets:

Stock futures were mostly lower after the S&P 500 closed at a record high even as inflation in February was hotter than expected.

Benchmark Treasury yields edged up a little.

Stocks to Watch

Coinbase said late Tuesday it plans to carry out a $1 billion convertible-debt offering to raise money. Its stock traded up around 1% premarket, as bitcoin resumed its rally .

Intel was falling 1.5% after a report from Bloomberg said the Pentagon was pulling out of a plan to spend as much as $2.5 billion on a chip grant to the company.

Forex:

Sterling showed little reaction to data showing that the U.K. economy expanded by 0.2% in January as moves in the FX market broadly remained muted.

Brown Brothers Harriman said GBP/USD was "trading heavy" even as the data pointed to U.K. interest rates staying higher for longer.

"The U.K economy is on track to recover quickly from its end-2023 technical recession, supporting the case for no immediate Bank of England policy rate cuts."

ING said the market reaction to the unexpected rise in annual U.S. inflation has so far been contained, leaving the dollar trading steady, but this news could soon push the currency higher.

"The hot CPI should warrant a stronger dollar from these levels, and we think there is a good chance that the dollar will find more support in the coming days."

For now, the recent message by Jerome Powell that interest rates will be cut this year "continues to resonate loudly with investors."

Long dollar positions provide a good equity hedge given the negative correlation between equities and the dollar, J.P. Morgan said.

"Given the low level of FX [volatility], this favors expressing long dollar positions via options."

J.P. Morgan favors options betting on the dollar against the euro and Canadian dollar due to lingering U.S. economic outperformance and the prospect of tariffs if Donald Trump wins the election.

EUR/USD digital puts also offer an attractive hedge against a scenario of higher-for-longer interest rates, it added.

Bonds:

The 10-year Italian BTP-German Bund yield spread is expected to fall further to 100 basis points by year-end, Pantheon said.

"We maintain our view that the BTP spread will fall to 100bp this year, but supply-demand dynamics imply that risks remain to the upside."

Italian BTPs are still well supported by a reasonably calm domestic political environment, the revival of risk appetite and, to a lesser extent, the ECB's reinvestments under the Pandemic Emergency Purchase Programme, Pantheon said.

Energy:

Oil prices edged higher after industry data showed a large draw in U.S. inventories, while the hot inflation data didn't seem to hurt expectations around interest-rate cuts this year.

Market watchers now await official U.S. inventories data from the EIA later on Wednesday and the International Energy Agency's monthly report due on Thursday.

Metals:

Metal prices were mixed, with base metals rising but gold taking minor losses following a surge in Treasury yields.

Base metals edged slightly higher, following on from Tuesday's gains, Sucden Financial said.

While the recent narrative around metals has been driven mostly by a softer macroeconomic picture, the upside suggests the appetite for higher prices is building across the complex, Sucden added.

Aluminum and copper prices are both testing their upper trading ranges, which could quickly trigger strong gains if they break through, it said.

EMEA HEADLINES

Volkswagen Brand Posts Higher Profit, But Audi Unit Takes Hit

Volkswagen Group reported a lower operating margin and profit for its Audi unit but its flagship division increased profitability.

The German carmaker said Wednesday that the Audi division posted an operating return on sales of 9% in 2023 compared with 12.3% in 2022 as the premium group suffered from high material costs and effects from commodity hedging. Operating profit decreased to 6.3 billion euros ($6.89 billion) from EUR7.6 billion for the unit, which includes the Audi, Lamborghini, Bentley and Ducati brands.

E.ON Plans to Increase Its European Investments to 2028

E.ON said that it will increase its investments in Europe, with a majority planned for Germany, and added that it anticipated its earnings in 2024 would normalize.

The German utility said that it will invest 42 billion euros ($45.90 billion) in the 2024 to 2028 period, focusing on energy networks and energy infrastructure solutions.

Zara Owner Inditex Posts Higher Sales, Plans Higher Investments

Zara clothing-store owner Inditex plans to boost investments to meet strong demand after it reported sales growth for its latest fiscal quarter and got off to a positive start to the new year.

The Spanish fashion group said Wednesday that sales were 10.34 billion euros ($11.30 billion) for the quarter ended Jan. 31, up from EUR9.51 billion a year earlier.

Adidas Proposes Flat Dividend as 2024 Growth Expected in Second Half

Adidas said it will propose a flat dividend for 2023 and that growth this year is expected to be geared toward the second half.

The German athletic apparel and footwear company on Wednesday said it would propose a dividend of EUR0.70 a share, and that it plans to return to its policy of paying annual dividends to shareholders in the range of 30% to 50% of net income from continuing operations.

GLOBAL NEWS

It's a Higher-for-Longer World for Rates, and That's OK

Investors are getting used to the idea that interest rates in the U.S. could stay high for longer than they had hoped. That isn't necessarily a bad thing.

Inflation has come in slightly higher than expected for a second straight month. The core consumer-price index, which strips out food and energy prices, was up 3.8% from a year earlier in February, the Labor Department said Tuesday. That was down from 3.9% in January, but above economists' expectations for a 3.7% rise.

Corporate Bond Issuance Is Booming-But Not Sustainability-Linked Bonds

It's been a roaring start to the year for corporate bond issuance. But sustainability-linked debt, a relatively new and once-hot market niche, has plummeted since reaching a peak during the pandemic.

Sustainability-linked bonds are similar to ordinary bonds, with one key difference: Their interest rates rise if companies don't meet the environmental, social or governance targets that they set for themselves. The bonds appeal to issuers because the proceeds can be used for general purposes-unlike green bonds, which require companies to use the proceeds for a designated environmental project-and they also attract socially conscious investors.

Frothy U.S. Stock Market Just Isn't Crazy Enough to Be a Bubble

When everybody's talking about a bubble in the stock market, should we worry or relax? The answer from past bubbles seems to be a bit of both-with one big caveat about today's market.

The caveat comes first. While it might feel like everyone in the markets is talking about whether there is a bubble, mentions in the media and searches on Google aren't especially elevated.

High-Stakes Rematch Is Set as Biden, Trump Clinch Party Nominations

President Biden and former President Donald Trump won enough delegates to become the presumptive nominees of their parties in the latest round of primary voting Tuesday, more definitively starting the clock on a bitter and costly eight-month general election campaign.

For months there has been little uncertainty about their eventual selection-a pairing of elderly candidates most Americans don't want. Biden pushed beyond the delegates he needed after winning the Democratic primary in Georgia, while Trump got there after taking the Republican contest in Washington state, according to the Associated Press.

Gaza Airdrops Take Huge Effort and Don't Solve Hunger Crisis

U.S. AIR FORCE FLIGHT OVER NORTH GAZA-Rice, flour, milk, pasta and canned food glided out the back of this transport plane in 400-pound bundles, hurtling toward the bombed-out terrain 2,000 feet below where hungry Palestinians scrambled for a scrap of desperately needed humanitarian aid.

The flight on a C-130 from Jordan to the Gaza Strip on Sunday took two hours, cost roughly $30,000 and needed nine experienced crew members. Its 3.2-ton payload was barely enough to feed 4,000 people in the besieged territory, where almost the entire population of 2.2 million is now in urgent need of lifesaving assistance, say the United Nations and nonprofit relief groups.

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

(END) Dow Jones Newswires

03-13-24 0659ET