European Midday Briefing : Stocks Struggle on Mixed PMIs

MARKET WRAPS

Stocks:

European shares lacked direction on Thursday as some disappointing economic data weighed on sentiment and with trading volumes thin due to the Thanksgiving holiday.

French economic activity looks unlikely to boost economic growth in the last quarter of the year, with the business climate weakening in November, dragged by lower construction output and retail trade, while the purchasing managers' index continued to stay low amid inflationary pressures.

With employment also cooling, the jobless rate is likely to continue to rise in the coming quarters, ING said.

"Ultimately, the activity indicators published so far for the fourth quarter are weak, and suggest that French economic growth is likely to continue slowing at the end of 2023."

Pantheon Macroeconomics said a sluggish private sector in France poses a risk to growth in the eurozone's second-largest economy.

"Overall, data suggest that risks are tilted to the downside for French GDP growth, consistent with the picture in the eurozone as a whole," it said.

In the U.K., data showed the private sector continues to face a challenging environment, despite improvement in the purchasing managers' index for November, Lloyds Bank said.

The composite index recovered above the 50-mark in November, boosted notably by a pickup in the services sector, while manufacturing also improved.

Stocks to Watch

Anglo American could see a strong cash-flow recovery, partly on an injection of cyclical recovery in the currently-low platinum metals and diamond prices, Deutsche Bank said, upgrading its rating to buy from hold but cutting the price target to 3,000 pence from 3,100 pence.

Additionally, for a cash-flow recovery to happen, the miner needs to address the squeeze on cash flow through reduced capital expense and a focus on costs and working capital, as well as address its too-complex portfolio which is negatively impacting its world-class copper business, Deutsche Bank said.

Forex:

MUFG said EUR/USD has a strong seasonal bias to rise at the end of the calendar year that could trigger an upside breakout from this year's trading range of 1.0500-1.1000, but there are downside risks for the pair too.

The main downside risk is that dollar weakness is overshooting levels implied by the recent change in short-term yield spreads, it said. However, a stronger signal from the Federal Reserve at the December meeting that it has reached the end of the rate-hike cycle could also trigger another leg lower for the dollar.

MUFG said the dollar is overvalued as the Fed's tightening cycle is over and there's a clearer economic slowdown on the horizon, but a major deprecation isn't lingering.

"We must though also caution that sharp U.S. dollar depreciation is also very unlikely given the global growth backdrop is unfavorable for non-dollar FX appreciation," it said, adding that the dollar has weakened meaningfully after the October inflation data and may recover some ground but the scope for notable gains is far less than before.

The Swedish krona fell after the Riksbank kept its policy rate unchanged at 4%, pointing to slowing demand in the Swedish economy. Analysts had seen a possibility of a rate increase. Falls were limited, however, as the Riksbank said the rate could be raised further early next year.

Bonds:

Ten-year Bund and Treasury yields have already peaked at 3% and 5%, respectively, and have room to fall further next year, Metzler Capital Markets said.

Metzler expects 10-year Bund yields to fall to 2.2% by the end of 2024, while 10-year Treasury yields should decline to 3.9%.

The German government has decided to withdraw from the market for inflation-linked bonds , the German Finance Agency said late Wednesday.

"From 2024, no further inflation-linked federal securities will be issued, nor will already outstanding securities be reopened," it said in a statement.

Energy:

Oil prices continued to retreat on the OPEC decision, with global events driving volatility across benchmarks.

"Several [OPEC] members are reportedly unhappy about their production targets for next year, levels which were announced back in June," ING said.

"This is specifically the case for Angola, Congo and Nigeria, who had their production targets cut since they struggled to hit their 2023 targets. These members were unhappy back then, and it was agreed that their targets would be revisited before the end of this year and possibly revised higher. Clearly, this has not happened."

Metals:

Metals were higher, with iron ore trading just under $130 a ton, after Chinese regulators looked to step up oversight of the main ingredient for steelmaking.

Bloomberg reported that authorities were drafting a list of property developers eligible for support to help stabilize the property market--boosting iron ore in the process.

"The willingness of policymakers to support such distressed property developers shows that Beijing is more worried about the economic and financial risks posed by the property sector," Commonwealth Bank of America said.

EMEA HEADLINES

Sweden's Riksbank Keeps Policy Rate at 4.0%, Signals Another Hike Could Come

Sweden's central bank on Thursday held its key policy rate at 4.0% but said rates could be raised at the start of next year if inflation prospects deteriorate.

A majority of economists polled by Dow Jones ahead of the decision had expected the policy rate to be lifted to 4.25%, though a minority had seen rates on hold.

Stellantis Repurchases $1.02 Bln Shares From Dongfeng Motor

Stellantis has bought back 50 million common shares from Dongfeng Motor International valued at 934 million euros ($1.02 billion).

The maker of Jeep, Dodge and a dozen other brands said late Wednesday that it will cancel the shares from the Hong Kong-based company, a subsidiary of China's Dongfeng Motor Group Company. Stellantis has a joint venture with the parent company.

Release of Gaza Hostages Is Delayed Until Friday

A planned release of 50 hostages held in Gaza along with 150 Palestinian prisoners and a pause in fighting has been delayed hours before it was set to begin on Thursday, Israeli, U.S. and regional officials said.

"The start of the release will take place according to the original agreement between the sides, and not before Friday," Israel's national security adviser Tzachi Hanegbi said Wednesday. Hanegbi said contacts toward the release of the hostages continued.

GLOBAL NEWS

China Regulators to Step Up Oversight of Iron-Ore Market After Prices Jump

Chinese regulators pledged to step up oversight of the nation's iron-ore market after a surge in prices for the main ingredient in steel, used in everything from apartments to bridges and electricity pylons.

Prices for iron ore have climbed on hopes of a turnaround in China's struggling property market, fanned by a Bloomberg report that said authorities were drafting a list of developers eligible for funding. China buys seven in every 10 metric tons of iron ore shipped globally, and its property sector accounts for roughly a third of that.

Mining Industry Seeks to Define One Global Standard for Ethical Practices

Four of the world's leading mining associations-representing 86 companies operating 700 mines across 60 countries-are developing a responsible mining code to define one minimum global standard for the industry's environmental impact, human rights and due diligence, in a bid to meet investor demands and define ethical practices.

"We are working to build a standard that is practical, implementable, and adaptable for any mine operator with a commitment to responsible mining practices anywhere in the world, regardless of commodity, geography or size," said a statement from the International Council on Mining and Metals, the World Gold Council, the Copper Mark and the Mining Association of Canada.

Why stocks' Thanksgiving-week performance is important to watch

While the U.S. trading week is shortened by the Thanksgiving holiday, it's important to watch the stock market's performance to see if the rally of the past month can be sustained through the year-end.

Stocks have rallied in November so far, with the S&P 500 index SPX logging a 8.6% gain month-to-date, while it's up 18.6% so far this year, according to FactSet data.

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

(END) Dow Jones Newswires

11-23-23 0523ET