European Midday Briefing : Stocks Struggle as Investors Look to Key U.S. Inflation Gauge

MARKET WRAPS

Stocks:

European stocks dipped into negative territory on Friday as investors awaited another key piece of U.S. inflation data.

The Federal Reserve's preferred inflation gauge, the core personal-consumption expenditures price index, is set to show that year over year price growth slowed to 3.4% in November. That progress has raised expectations the Fed will lower interest rates, perhaps as soon as March.

"Today's inflation print is the Fed puzzle's last crucial piece. If the PCE print comes in as soft as expected, or ideally softer-than-expected, we shall see the rally in bonds--and perhaps in stocks--extend the Santa rally," Swissquote Bank said.

Stocks on the Move

Adidas and Puma were the biggest fallers on the Stoxx Europe 600 index in early trading, after Nike lowered its revenue expectations for its fiscal 2024.

The lowered revenue guidance reflects a worse-than-expected consumer demand environment across markets, which will likely be a negative read-across for peers and retailers, RBC Capital Markets said.

Prosus and Ubisoft Entertainment shares fell sharply after China released draft regulations for the online-game industry that included restrictions on incentives to play or spend more online.

The European companies' stock falls follow a selloff in Chinese game stocks in Asian trading.

If implemented, the rule would lead to a reduction in player monetization, hitting revenue and profit margins for companies such as Tencent and Netease, Equita SIM said.

U.S. Markets:

Stock futures drifted lower, with Nike shares down more than 10% premarket.

Benchmark Treasury yields also edged lower. The 10-year yield had settled at just over 3.89% on Thursday.

Bonds:

Reacceleration of inflation and elections in a number of countries, including the U.S., are among the risks that fixed-income markets could face next year, J.P. Morgan Asset Management said.

It added that market pricing interest-rate cuts for March looks premature, nonetheless, investors should consider phases of weakness as a buying opportunity.

Energy:

Oil prices rose, supported by growing fears over trade disruptions due to the situation in the Red Sea and despite a buildup in U.S. oil inventories and rising output.

Metals:

Metals were higher on concerns over supply constraints and a broadly improved market sentiment.

Sucden Financial said seasonal activity is expected to pick up in the new year for copper and support prices above the $8,600 a metric ton level.

Meantime, gold made solid gains on a weaker dollar, weighed by the prospect of Fed interest-rate cuts early next year.

EMEA HEADLINES

Global Gaming Shares Fall After Draft China Rules Released

Global gaming stocks sank after Beijing released draft regulations for the online game industry that included restrictions on incentives to play or spend more online.

Shares of Netease, one of China's major online gaming companies, fell some 25%. Tencent, the Chinese tech juggernaut that is also a domestic gaming giant, ended the day down 12%-wiping out $46 billion in market value and representing its largest one-day share loss since October 2022.

U.K. Economy Shrank in 3Q, as Recession Signals Loom

The U.K.'s economy contracted in the third quarter with a downward revision to the previous quarter indicating that the country could be stuck in a period of subdued economic performance.

U.K. gross domestic product declined 0.1% on quarter in the July-to-September period, according to data from the Office for National Statistics released Friday, lower than the prior figure of flat growth in preliminary data published in November.

Israel Signals It Could Agree to Palestinian Authority Governing Gaza After the War

Israeli Prime Minister Benjamin Netanyahu's national security adviser indicated that Israel could accept a U.S. plan for a revamped Palestinian Authority to govern the Gaza Strip after the war, a sign that the Israeli leader is easing his opposition to the idea.

"Israel is aware of the desire of the international community and the countries of the region to integrate the Palestinian Authority the day after Hamas, and we make it clear that the matter will require a fundamental reform of the Palestinian Authority," Tzachi Hanegbi, who heads Israel's National Security Council, wrote in an opinion piece published Thursday on the Arabic-language news site Elaph.

GLOBAL NEWS

What to Watch in Friday's Spending Report: Inflation Closing In on Fed's Target

Inflation retreated further in November and consumers picked up their spending as moods improved, forecasters said, adding to signs that price pressures can be contained without a recession.

Emerging Markets Struggled in 2023. Here's Why Next Year May Be Better.

Emerging markets will get a much-needed catalyst for improvement in 2024: central banks around the world pivoting to lower interest rates.

For this year, the MSCI Emerging Markets index is on pace for another trouncing by the S&P 500 index-returning 5% to date, compared with a 26% gain for the S&P. China's sputtering economic recovery and investor apprehension about the country's prospects were a major drag.

Biden Administration Explores Raising Tariffs on Chinese EVs

WASHINGTON-The Biden administration is discussing raising tariffs on some Chinese goods, including electric vehicles, in an attempt to bolster the U.S. clean-energy industry against cheaper Chinese exports, people familiar with the matter said.

Biden administration officials, long divided over trade policy, have left in place Trump-era tariffs on roughly $300 billion of Chinese goods. But officials at the White House and other agencies are debating the levies again, the people said, with an eye on wrapping up a long-running review of the tariffs early next year.

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

(END) Dow Jones Newswires

12-22-23 0534ET