EMEA Morning Briefing : Stock Futures Mostly Lower as U.S. Inflation Data Eyed

MARKET WRAPS

Watch For:

Germany ZEW Indicator of Economic Sentiment, balance of payments; France ILO unemployment; UK unemployment; trading updates from TUI, Randstad

Opening Call:

Stock futures were largely lower ahead of U.S. CPI data later today. Asian benchmarks returned from a holiday mostly higher; the dollar edged higher; Treasury yields were little changed; oil futures advanced while gold steadied.

Equities:

European stock futures were largely lower early Tuesday as markets awaited the first big U.S. inflation report later today.

Economists polled by The Wall Street Journal expect that overall consumer prices were up 2.9% in January from a year earlier. That would mark the smallest gain since March 2021.

"The [Federal Reserve] continues to look forward to rate cuts to offset an expected tightening of financial conditions as inflation returns to 2%, but the timing and magnitude remain elusive given the strength of the economy and lingering uncertainty over the path of inflation," said Tim Duy, chief U.S. economist at SGH Macro Advisors.

Forex:

The U.S. dollar could strengthen if the U.S. consumer-price report suggests higher-than-expected inflation, reinforcing less urge by the Fed to cut rates, said Abdelhadi Laabi, chief marketing officer at KAMA Capital. "Conversely, weaker-than-expected inflation could weaken the currency," he said.

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The sharp appreciation of the Swiss franc in both nominal and real terms since December has led Pictet Wealth Management to change their call to expecting the Swiss National Bank to cut interest rates this year, said economist Nadia Gharbi.

Pictet WM now expects the SNB to cut its policy rate by 25 basis points in June and again in September, bringing the policy rate down to 1.25%, having previously expected the SNB to stay on hold in 2024, albeit with risks tilted towards some easing in the second half of the year, she said.

"The SNB is now in a relatively comfortable position as inflation is within its target range," she says.

Bonds:

Treasury yields finished little changed Monday as traders looked ahead to the January consumer-price-index report due Tuesday.

Analysts expect Tuesday's CPI report for January to be good enough to provide further evidence of continued improvement on inflation - although there's an undercurrent of worry about shipping costs and fuel prices, which are no longer declining.

"The January Consumer-Price Index (CPI) report should show ongoing progress on inflation," BofA Securities said.

Energy:

Oil futures slightly higher early Tuesday, trading in a tight range amid mixed news out of the Middle East. Declining crude production from Iraq offset signs of progress toward a diplomatic solution regarding the Israel-Hamas tensions, which capped price gains, UOB said.

Markets will also be looking to monthly oil reports from OPEC released Tuesday, and from the IEA on Thursday.

Metals:

Gold was steady in Asia after edging lower overnight as the U.S. dollar wavered and U.S. bond yields fell, ANZ said. Investors are awaiting U.S. CPI data due later today, which could provide some insight into the Fed's next steps on interest rates, ANZ added.

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Nickel traded steadily, but the metal is likely supported by signs of tightening supply that may be spurred by a plant deactivation. Glencore plans to mothball its unprofitable Koniambo nickel operation in New Caledonia as it looks to sell its stake, ANZ said. The smelter hasn't made a profit in more than a decade of operation, the bank added.

TODAY'S TOP HEADLINES

What to Watch in the CPI Report: Will Inflation Fall Below 3%?

Inflation likely continues to cool. Lots of Americans are still experiencing sticker shock.

Michelin to Buy Back Shares After Flat 2023 Earnings

Michelin said it would buy back shares after it reported mostly flat earnings for 2023.

The French tire maker said it made 1.98 billion euros ($2.14 billion) in net profit for 2023, compared with EUR2 billion a year prior, on sales which declined by nearly 1% on year to EUR28.34 billion.

U.S. Seizes Iranian-Tied Cargo Jet Grounded in Argentina

The U.S. seized a Venezuelan-owned cargo jet with ties to Iran's Islamic Revolutionary Guard Corps that had been grounded in Argentina after its arrival two years ago prompted an investigation into possible terrorism ties, Biden administration officials said.

The Boeing 747, owned by Venezuela state airline Emtrasur, arrived in Florida on Monday, the Justice Department said. The plane had been sold to Emtrasur by Iran's Mahan Air, a transaction that the Justice Department said violated U.S. sanctions laws levied against the private Iranian carrier. Mahan has been blacklisted by the U.S. Treasury for alleged arms trafficking.

Israel Proposes Rafah Evacuation Despite U.S. Concerns

TEL AVIV-Israel is proposing the creation of sprawling tent cities in Gaza as part of an evacuation plan to be funded by the U.S. and its Arab Gulf partners ahead of an impending invasion of a city in the strip's south which Israel says is the last bastion of Hamas.

The proposal, which was presented to Egypt in recent days, came as the Biden administration is warning Israel against going into Rafah without a strategy to protect civilians. A military operation in Rafah shouldn't proceed without "a credible plan for ensuring the safety and support of more than one million people sheltering," President Biden said Monday.

Arm Stock Extends Rally. SoftBank Comes Along for the Ride.

Arm shares soared as much as 37% on Monday, as the earnings-driven rally for the chip design firm continued to unfold.

While Arm has given back some of the session's earlier gains, the stock remains about 27% higher, at around $146.80, and is now up more than 80% over the past three trading sessions. At this morning's peak at $164, the stock was trading for more than triple its September 2023 IPO price of $51.

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Expected Major Events for Tuesday

06:30/FRA: 4Q ILO Unemployment and Labour Market-related indicators

07:00/TUR: Dec Balance of Payments

07:00/UK: Jan UK monthly unemployment figures

07:30/SWI: Jan CPI

09:00/CZE: Dec Monthly Balance of Payments

10:00/GER: Feb ZEW Indicator of Economic Sentiment

13:00/POL: Dec Balance of Payments

16:59/GER: Dec Balance of Payments

16:59/AUT: Feb OPEC Monthly Oil Market Report

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

(END) Dow Jones Newswires

02-13-24 0017ET