EMEA Morning Briefing : Markets Breathe Sigh of Relief After PCE Inflation Data Met Expectations

MARKET WRAPS

Watch For:

Manufacturing PMI for eurozone, Germany, France, Italy, UK; E.U. flash estimate euro area inflation, unemployment; Italy provisional CPI, unemployment; U.K. nationwide house price index; trading updates from Daimler Truck, Pearson, Rightmove, IMCD

Opening Call:

Shares are set to rise in Europe on Friday after U.S. inflation data met expectations. In Asia, stock benchmarks were mostly up; Treasury yields weakened; the dollar consolidated; while oil rose and gold was barely changed.

Equities:

European stocks are poised to climb on Friday, as traders react mostly positively to U.S. PCE inflation coming in line with economists' expectations.

Fresh economic data did little to change the widespread belief that policymakers can cool inflation without provoking an economic slowdown.

"The Fed and almost every other central bank in the world are still going to cut rates," said Infrastructure Capital Advisors. "Do you want to be long the index, or short?"

Traders in interest-rate derivatives are now pricing in a 21% chance that the U.S. Federal Reserve will cut interest rates at its May policy meeting, up slightly from about 19% before Thursday's inflation data, according to the CME FedWatch Tool.

Forex:

The dollar consolidated in Asia, but may be supported by higher Treasury yields, which increase the appeal of U.S. fixed-income assets and demand for the greenback.

Despite sharp swings in global bond yields and periodic spikes in the yen, the dollar has stayed remarkably close to unchanged via month-end flows, Westpac Strategy Group said.

There is little to suggest an early break of the dollar's trading range as Fed officials continue to err on the side of patience, although they have hinted more toward mid-year easing, it added.

Bonds:

Treasury yields mostly declined as investors pushed out to June the outlook for Fed interest-rate cuts.

U.S. inflation data met expectations and markets are starting to turn their focus to February employment data due late next week.

Following January's higher-than-expected growth in payrolls of 353,000, Capital Economics forecasts a still strong 250,000 reading, while wage growth would continue a downward trend.

Energy:

Oil futures were higher in Asia amid signs of tighter supply and continued tensions in the Middle East.

Extended output cuts from OPEC+ are lending support to prices, the Saxo strategy team said.

Israeli troops opened fire on Palestinian civilians, the Israeli military and Gaza health officials said, prompting Hamas to pause cease-fire talks.

Metals:

Gold was flat, steadying after rising overnight following U.S. inflation data that firmed Fed rate-cut views.

The figures came in line with expectations, underlining that the stage is set for an interest-rate cut later this year, ANZ Research said.

It noted that Fed official Raphael Bostic said there will be some bumps along the way toward the Fed's 2% inflation target, but reiterated his view that easing can begin in the summer.

Gold prices are closely related to interest rates, with higher rates diminishing the appeal of the non-interest-bearing metal.

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Nickel prices were lower as excess supply worries weighed.

Indonesia, the world's largest nickel exporter, has said it doesn't expect any near-term recovery.

While it will ensure a stable supply of the battery metal for electric vehicle manufacturers, it has indicated that Indonesian smelters will cut production if prices fall below $15,000 a ton.

"We forecast nickel prices to remain under pressure in the short term as a surplus in the global market builds and a slowing global economy mutes stainless steel and EV demand," ING said.

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Iron ore rose, bouncing back despite more signs of weakness in China's property sector, ANZ Research said.

China's home-sales slump worsened last month, with the value of new home sales from the top 100 developers falling 60% on year.

"The market viewed the data as another reason why officials are likely to wheel out further support measures for the sector," ANZ Research said.

TODAY'S TOP HEADLINES

China's Factory Activity Slows Again, Highlighting Limits of Government Measures

BEIJING-China's vast manufacturing sector remained in contraction for a fifth consecutive month in February, underscoring the difficulties facing the country's leadership as it seeks to support a faltering economy, and raising hopes for bolder policy moves when top officials gather for annual legislative meetings next week.

An official gauge of China's factory activities edged down to 49.1 from January's 49.2, the country's National Bureau of Statistics said Friday. A reading below 50 indicates a contraction in activity while a reading above that mark suggests an expansion.

One Says 2.4%, Another Says 3.1%. Which Inflation Metric Is Right?

By one measure inflation is closing in on the Federal Reserve's 2% target. By another it is still far away. Whether, and how, that gap closes could be critical to Fed plans this year.

The Labor Department's monthly report on consumer prices, known as the consumer-price index or CPI, is generally thought of as "the" inflation report. It generates headlines, features in politicians' speeches and moves markets-including earlier this month when a hotter-than-expected report sent the Dow Jones Industrial Average tumbling over 500 points.

Birkenstock shares slide 8% after sandal maker posts loss in its second report as public company

Birkenstock Holdings Plc's stock tumbled 8% Thursday, after the German sandal and clog maker posted another quarterly loss in its second earnings report as a public company.

Birkenstock BIRK had a net loss of 7 million euros ($7.6 million), or 4 cents a share, for the quarter through Dec. 31 - narrower than its loss of 9 million euros, or 5 cents a share, in the year-earlier period.

Document From 2022 Reveals Putin's Punishing Terms for Peace

Russian President Vladimir Putin has in recent weeks publicly hinted that he would be open to discussions to end the war in Ukraine on Moscow's terms, as Kyiv's military momentum stalls.

The outlines of a deal the Russian leader likely wants can be seen in a draft peace treaty drawn up by Russian and Ukrainian negotiators in April 2022, about six weeks after the start of the war. Western officials and analysts say those objectives remain largely unchanged after two years of fighting: Turn Ukraine into a neutered state permanently vulnerable to Russian military aggression.

Israeli Forces Fire on Palestinian Civilians Amid Aid Delivery Chaos

TEL AVIV-Israeli troops opened fire on Palestinian civilians as a chaotic series of events unfolded involving a convoy of aid trucks in the Gaza Strip, the Israeli military and Gaza health officials said, prompting Hamas to pause delicate cease-fire negotiations.

The Israeli military and Palestinian witnesses and officials gave conflicting accounts of what happened. Gaza health officials said more than 100 Palestinians were killed and 700 injured.

Putin Warns an Anxious West Over Nuclear War

Russian President Vladimir Putin has raised the specter of a nuclear conflict if Ukraine's allies step further into the war, a refrain the West had begun to tune out but that has gained resonance as collective security guarantees under NATO come under scrutiny.

While the Russian leader has repeatedly issued nuclear threats-and experts say the use of such weapons remains highly unlikely-the warnings come amid heightened anxiety in Europe about U.S. commitment to its security. Presidential candidate Donald Trump said earlier in February that he would encourage Russia to invade North Atlantic Treaty Organization countries that don't pay enough into the alliance.

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Expected Major Events for Friday

00:01/UK: Feb BRC-Sensormatic IQ Footfall Monitor

01:01/IRL: Feb Ireland Manufacturing PMI

05:30/NED: Feb Flash Estimate CPI

06:00/NED: Feb Netherlands Manufacturing PMI

07:00/TUR: Feb Turkey Manufacturing PMI

07:00/UK: Feb Nationwide House Price Index

07:30/SWI: Jan Retail Sales

07:45/FRA: Jan Housing starts

08:00/POL: Feb Poland Manufacturing PMI

08:00/CZE: 4Q GDP

08:15/SPN: Feb Spain Manufacturing PMI

08:30/CZE: Feb Czech Republic Manufacturing PMI

08:30/SWI: Feb procure.ch Purchasing Managers' Index

08:30/EU: Feb EuroCOIN indicator of euro area economic activity

08:45/ITA: Feb Italy Manufacturing PMI

08:50/FRA: Feb France Manufacturing PMI

08:55/GER: Feb Germany Manufacturing PMI

09:00/EU: Feb Eurozone Manufacturing PMI

09:00/GRE: Feb Greece Manufacturing PMI

09:00/ITA: Jan Unemployment

09:30/UK: Feb S&P Global UK Manufacturing PMI

09:30/UK: 4Q Bank of England external business statistics

10:00/CYP: 4Q GDP

10:00/ITA: Feb Cities CPI

10:00/ITA: Feb Provisional CPI

10:00/EU: Feb Flash Estimate euro area inflation

10:00/EU: Jan Unemployment

10:00/GRE: Jan Labour Force Survey

11:00/POR: Jan Retail trade

11:00/ITA: Annual GDP yearly data

11:00/ITA: Annual General Govt Debt

11:00/POR: Jan Industrial production index

11:00/IRL: 4Q GDP

11:00/IRL: 4Q Balance of Payments

15:59/UKR: Jan Industrial Production

16:59/AUT: Feb Unemployment figures

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

(END) Dow Jones Newswires

03-01-24 0019ET