EMEA Morning Briefing : Shares Set to Rise Amid Shift in Rate Expectations

MARKET WRAPS

Watch For:

France industrial production index; trading updates from Danske Bank, Vodacom Group, Caixabank, ThyssenKrupp

Opening Call:

Shares could climb in Europe on Friday amid a shift in interest-rate expectations. In Asia, stocks were mostly higher; Treasury yields advanced; the dollar consolidated; while oil rose and gold was steady.

Equities:

European stock index futures point to a higher open on Friday, bouncing back from a fall the prior session after the Bank of England left UK interest rates on hold.

The BOE's three-way vote split reflected a difficult outlook, Rabobank said.

While the central bank no longer mentioned potential further interest-rate rises, it said geo-political factors could boost inflation.

"We believe cuts are coming, but also think it may take a little longer than the market is currently pricing. We have a first cut penciled in for September," Rabobank said.

Meanwhile, U.S. Fed communication after its decision to keep rates on hold is seen as "reinforcing our expectation of the first rate cut coming in May, followed by a steady cadence of cuts...through year-end," BNP Paribas said, citing slowing inflation. It expects a sequence of 25-basis point cuts.

Forex:

The dollar consolidated in Asia amid mixed signals.

Fed Chair Powell's recent pushback against March rate-cut expectations should have led to a decent short-term rise in the dollar, said Westpac Strategy Group.

However, renewed U.S. regional bank instability and some caution ahead of tonight's nonfarm payrolls have clouded the dollar's near-term prospects, it added.

Bonds:

Treasury yields swung back into positive territory after ending at their lowest levels of the past three to five weeks on Thursday, as traders considered a raft of risks to the U.S. economy, labor market, and Fed policy.

Traders pushed back on the timing of the Fed's first interest rate cut in 2024, and now see a 95.5% chance of at least a quarter-point reduction by May. However, they still mostly expect the central bank to lower borrowing costs to between 3.75%-4% before the year-end from the current level of 5.25% to 5.5%.

While Fed Chair Jerome Powell managed to persuade traders to take the possibility of a March rate cut off the table this week, he hasn't been able to convince them to give up on their expectations for as many as six quarter-point rate cuts in 2024.

Energy:

Oil futures rose in a likely technical rebound after settling at their lowest levels in almost two weeks overnight.

Gains may be limited amid unconfirmed news reports that some progress is being made toward a cease-fire agreement between Israel and Hamas.

A defusing of tensions in the Middle East would help ease supply-disruption worries.

Traders are also monitoring how fast U.S. oil production is coming back online after cold weather led to outages in North Dakota and elsewhere last month.

Metals:

Gold was trading steadily, but may be weighed by higher Treasury yields that reduce the appeal of the non-interest-bearing precious metal.

While gold prices have to break above the $2,065/oz level to spur buying activity, major triggers for changes in trend signals should be notably lowered in the next few sessions, said TD Securities.

This suggests that commodity trading advisers could soon return to the bid in the precious metal, it added.

---

Iron ore prices were lower amid sluggish demand.

Chinese steel mills' stocking needs have ended as Lunar New Year approaches, Huatai Futures said.

Meanwhile, China's property risks continue to weigh on investor sentiment, ANZ Research said.

The outlook for domestic steel demand from the property sector remains bleak, with demand from social housing and renewable energy only partly offsetting the weakness, it said.

Demand for the steelmaking material could face increasing headwinds as China's steel industry is pressured to reduce emissions, it added.

TODAY'S TOP HEADLINES

U.S. Imposes Sanctions on Israeli Settlers Involved in West Bank Attacks

The Biden administration has announced a new set of sanctions against Israeli settlers and others it deems responsible for attacks on Palestinians in the West Bank, as concerns grow in Washington that the Israeli government hasn't done enough to curb the violence.

Since the Oct. 7 Hamas attacks in Israel and the outbreak of the war in Gaza, attacks by Israeli settlers on Palestinians in the West Bank have doubled, according to the United Nations. Armed settlers in uniforms have shown up in Palestinian villages threatening to kill those who don't leave, say residents, Israeli peace activists and the U.N.

Shadow War With Iran Risks Turning Into a Direct Conflict

WASHINGTON-For decades, the U.S. and Iran have waged a shadow war across the Middle East following a rule understood by both sides: If you hit us, we will hit back, at least as hard.

But as the Biden administration prepares to retaliate for a drone strike by Iranian-backed militias that killed three American soldiers last weekend, the calculations of the two longstanding adversaries has changed. Neither Washington or Tehran appears eager for a direct military confrontation.

Apple Sales Rise in Holiday Quarter, Ending Streak of Declines

Apple posted a sales increase for the all-important holiday quarter, ending a recent slump that had been one of the company's worst earnings streaks in more than two decades.

On Thursday, Apple reported revenue of about $120 billion, up 2.1% from the October-to-December period a year earlier, and net income of $34 billion, up 13%. Both of those figures exceeded analyst expectations, according to FactSet.

Amazon Profit Surges on Strong Holiday Shopping

Amazon.com reported strong growth in sales and profit for the end of last year as robust holiday spending online helped extend its recovery from a postpandemic slump.

The e-commerce giant on Thursday also projected continued strength in the current quarter, thanks in part to interest in artificial intelligence that it said is driving healthy sales in its cloud-computing arm.

Facebook Parent Meta Initiates Dividend as Growth Continues

Facebook parent Meta Platforms posted its best quarterly sales growth in more than two years and initiated its first-ever dividend, a testament to its investments in artificial intelligence that have made targeted ads smarter.

The strong results come despite regulatory challenges and child-safety concerns. At a Senate hearing this week, Chief Executive Mark Zuckerberg told parents whose children were harmed by social media that he was sorry for their suffering, but he didn't say whether Meta played a role in causing harm to children.

Intel Delays $20 Billion Ohio Project, Citing Slow Chip Market

Intel is delaying the construction timetable for its $20 billion chip-manufacturing project in Ohio amid market challenges and the slow rollout of U.S. government grant money to grow the domestic industry.

While Intel's initial timeline had chip-making starting next year, construction on the project's manufacturing facilities now isn't expected to be finished until late 2026, according to people involved in the project.

Write to [e-mail]

Expected Major Events for Friday

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

07:00/ROM: Dec PPI

07:45/FRA: Dec Industrial production index

08:00/SPN: Jan Unemployment

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

11:00/IRL: Jan Irish Live Register latest monthly figures

16:00/DEN: Jan Foreign Exchange & Liquidity

All times in GMT. Powered by Onclusive and Dow Jones.

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

02-02-24 0017ET