European Midday Briefing : Stocks Struggle With U.S. Markets Closed

MARKET WRAPS

Stocks:

European stocks eased lower on Moinday following muted trading in most Asian markets and with Wall Street shut for the Presidents' Day holiday.

Stocks to Watch

Thales's space-exploration business is grappling with long-term uncertainty after SpaceX reduced the cost of putting satellites into orbit, ratcheting up competition for the French company, UBS said.

SpaceX reduced the cost of launching satellites by 70% to 80%, prompting Thales's European customers to retire their launchers, UBS said, downgrading the stock to sell from neutral.

Economic Insight

Deutsche Bank Research has fine-tuned its call on the European Central Bank, envisaging a more gradual easing cycle than previously thought.

"On balance, we continue to believe the first rate cut will be in April rather than June, but recent data and commentary is consistent with a more gradual easing cycle than we had thought."

Deutsche continues to forecast 150bp of cuts in 2024 and a further 50bp of cuts in 2025, but it now sees this easing cycle as more likely to consist of steady 25bp cuts rather than starting with 50bp cuts.

Forex:

The euro was flat against the dollar and it was likely to remain in a narrow range near term, ING said.

"One-week implied EUR/USD volatility at 5% suggests investors think EUR/USD is going nowhere fast. That is a sign to avoid chasing break-outs," ING said, adding that its baseline would assume EUR/USD traces out a 1.0700-1.0800/1.0810 range this week, possibly moving toward the upper end if data is solid.

Potential movers include the ECB survey of negotiated wage rates on Thursday and the release of flash purchasing manager surveys on Thursday.

As for PMIs, any better-than-expected readings for February could help the euro, ING said,

UniCredit Research said the dollar was still broadly firm despite the latest batch of weak activity data in the U.S., but it was off from last week's peaks against other FX majors,

"In a nutshell, investors are apparently not eager to ride in any one direction yet, probably also due to a lack of strong signals from charts."

Morgan Stanley Research affirmed its neutral stance on the dollar, seeing both tailwinds and headwinds for the currency.

"While remaining neutral, we retain our USD bullish skew due to the sizeable above consensus forecast for U.S. GDP from our economics team and risks of the 'inflation reacceleration' narrative gaining traction in FX markets."

Continued U.S. growth outperformance, a potentially stronger tightening bias from the Federal Reserve, and risks around a hard landing should all be USD-positive, but some signs of growth expectations rebounding from low levels in Europe and resilient U.S. stock markets might be USD headwinds, Morgan Stanley said.

Bonds:

Despite correlation between Bunds and Treasurys being high relative to the past year, and relative to previous cycles, Morgan Stanley Research continues to believe Bunds are attractive to be long duration given the macro data and valuations.

Generali Investments said Eurozone sovereigns , whose gross bond issuance volume is expected to reach a new record of around EUR1.3 trillion this year, have already issued almost 20% of this volume.

More than 50% of the bonds were very long-dated ones and the supply was met with strong demand and easily absorbed, Generali said.

Energy:

Oil prices were lower on market concerns over sluggish demand and as hopes for imminent Fed interest-rate cuts fade.

The prospect of higher-for-longer interest rates and an IEA report pointing to a significant slowdown in demand ewas weighing on sentiment, despite escalating tensions in the Middle East.

A Belize-flagged, U.K. registered and Lebanese-operated cargo ship named "Rubymar" was attacked by Houthi militants in the Gulf of Aden and is now at risk of sinking, a spokesperson for the Yemen-based rebels said Monday in a post on X.

Metals:

Base metals were weaker but gold firmer with U.S. markets closed and as eyes turned to China for hints over demand expectations, as the country returns to work after the Lunar New Year.

EMEA HEADLINES

Polymetal International to Sell Russian Business for $3.69 Bln

Polymetal International said it is selling its Russian business for $3.69 billion and intends to refocus its operations in Kazakhstan.

The miner on Monday said its business JSC Polymetal will be sold to buyer JSC Mangazeya Plus, an entity of Russian precious metals miner Mangazeya Mining.

Anglo American Platinum Restructuring Could Affect Around 4,300 Jobs

Anglo American Platinum said more than 4,300 jobs could be affected in a restructuring as it grapples with lower prices, rising costs and an uncertain outlook.

The South African precious metals company-which is majority owned by Anglo American-on Monday said that revenue for last-year was 124.6 billion South African rand ($6.60 billion), compared with ZAR164.1 billion a year prior.

Forvia Shares Jump on Restructuring Plan That Would Trim Workforce

Forvia shares rose Monday after it said a reduction of up to 10,000 jobs would save about 500 million euros ($538.9 million) yearly from 2028 as the company adapts to EU electric-vehicle policies.

At 0838 GMT shares in the French car supplier were up 4.3% to EUR16.76 after rising as high as EUR17.02.

Currys Shares Soar to Lead FTSE 250 After Takeover Interest

Currys led the FTSE 250 index in early trading after the U.K. electronics retailer attracted takeover interest.

Shares at 0809 GMT were up 33% to 62.70 pence, the stock's sharpest intraday percentage move in 23 years.

GLOBAL NEWS

The Stock Market Is Melting Up. Prepare for a Short-Term Correction.

No cut, no problem-at least not for the stock market.

It should have been a bad week for an overextended market, one that had risen for 14 of the previous 15 weeks. A pair of stronger-than-expected January inflation prints forced investors to wake up to the realization that the Federal Reserve won't be cutting interest rates as often or as soon as they'd expected, while a pair of shaky retail sales reports suggested that the economy wasn't as strong as thought.

Nvidia's earnings report could kill the momentum driving U.S. stocks higher, regardless of how it turns out.

Wall Street is growing increasingly uneasy about an options-driven momentum trade that has helped push the S&P 500 index into record territory.

As demand for bullish call options surges to its highest level in years, some analysts have set their sights squarely on Nvidia Corp.'s NVDA Wednesday earnings report, warning that it could be the catalyst that slams the brakes on this trade, potentially reversing a substantial amount of the market's rally over the past four months.

How War in Europe Boosts the U.S. Economy

Proponents of support for Ukraine usually invoke U.S. strategic interests or moral obligations. Lately, they are making a more calculating case: It is good for the economy.

In the two years since Russia invaded Ukraine, the U.S. defense industry has experienced a boom in orders for weapons and munitions. Business is coming from European allies trying to build out their military capabilities as well as from the Pentagon, which is both buying new equipment from defense manufacturers and replenishing military stocks depleted by deliveries to Ukraine.

FBI Director Says China Cyberattacks on U.S. Infrastructure Now at Unprecedented Scale

MUNICH-As intelligence chiefs and policymakers gathered for this city's annual security conference focused on the wars in Ukraine and the Middle East, the director of the Federal Bureau of Investigation urged them not to lose sight of another threat: China.

Christopher Wray on Sunday said Beijing's efforts to covertly plant offensive malware inside U.S. critical infrastructure networks is now at "a scale greater than we'd seen before," an issue he has deemed a defining national security threat.

Israeli Cabinet Opposes Unilateral Recognition of a Palestinian State

TEL AVIV-The government of Israeli Prime Minister Benjamin Netanyahu on Sunday voted to oppose plans by some allies to recognize a Palestinian state without Israeli participation in talks, but signaled willingness to engage in direct negotiations with Palestinians, something that hasn't taken place in over a decade.

The vote, urged by Netanyahu, came after the U.K. and France said that they were open to recognizing a Palestinian state amid increasing pressure on Israel to create a viable path toward a two-state solution. Recognizing a Palestinian state without Israeli approval would mark a shift from longstanding U.S. and European policy, which has sought a negotiated solution between the two sides that would result in two internationally recognized states living side by side.

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

(END) Dow Jones Newswires

02-19-24 0530ET