EMEA Morning Briefing : Stock Futures Higher as Tech Rally Boosts Sentiment

MARKET WRAPS

Watch For:

UK monthly retail sales; trading updates from Investor AB, Deliveroo, Sasol

Opening Call:

Stock futures advanced as a tech-driven rally boosted sentiment. Asian stock benchmarks were largely higher; the dollar weakened slightly; Treasury yields were little changed; oil futures were mixed fell and gold edged higher.

Equities:

European stock futures rose early Friday, extending an upbeat mood spurred by technology names, which powered indexes in the U.S. and Asia higher.

Meanwhile, investors are still concerned that the Federal Reserve may not wind down its aggressive monetary tightening as quickly as market participants expect following strong December retail-sales data and after policymakers talked down expectations for an early start to rate cuts.

Investors in both stock and bond markets are now speculating that the central bank will be in no rush to cut borrowing costs as the economy shows signs of resilience.

"This is an economy that continues to surprise to the upside," said Nadia Lovell, senior U.S. equity strategist for the chief investment office at UBS Wealth Management.

"People were maybe too optimistic about how many are coming this year," said Doug Evans, chief investment officer at Callan Family Office. "Yes, the Fed will ease-but probably not at the cadence people were expecting."

Forex:

Tight monetary policy in Brazil and Mexico reduce the importance of global growth for emerging market currencies, Bank of America said.

"EM currencies have become more idiosyncratic," the bank said, adding that the dollar remains "the main driver of EM FX and its first principal component."

BofA said that contrary to the pre-Covid pattern, EM currencies could benefit if commodity prices, especially oil, fall.

Bonds:

The decline in Treasury yields in the past couple of months "has rendered the long-duration trade probably moot," said Kevin Flanagan, head of fixed income strategy at WisdomTree.

Investors would have to envision the 10-year yield falling closer to 3% to buy long-duration bonds, since these highly interest-rate-sensitive bonds gain value when borrowing costs decline.

The duration trade gained traction in October, as the 10-year rose toward 5%. The benchmark declined to 3.8% in December and is now near 4.15%, as investors expect the Fed to start cutting rates soon. "The Treasurys market has priced in a lot of good news," Flanagan said."

Energy:

Oil futures were mixed early Friday amid divergent signals. On the one hand, lingering tensions in the Middle East and higher equity markets have supported oil prices, ING said.

On the other hand, the IEA's latest oil-market report was somewhat bearish, ING said, noting that the agency forecast that global oil demand growth will slow to 1.2 million barrels a day in 2024 from 2.3 million barrels a day in 2023.

Metals:

Gold edged higher in Asia, supported by the mild weakness of USD, which typically has an inverse correlation with the precious metal.

Attacks by the U.S. military on Houthi weaponry in Yemen as well as Pakistan's airstrikes in Iran have resulted in an escalation of tensions in the region, said IG. Geopolitical tensions can often spur demand for gold.

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Copper prices advanced amid supply concerns. Low prices and a tough regulatory environment have led to mine closures across base-metal markets, ANZ said.

The shutdown of the Cobre Panama mine and cuts to output at Anglo American operations have raised supply risks, ANZ added. New projects are also being delayed, further fueling supply worries. That is helping offset concerns around weaker demand, the bank said.

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Iron-ore prices rose, rebounding from recent weakness. However, analysts reckon iron-ore prices could continue to be weighed amid concerns about Chinese steel mills' production cuts due to poor profitability and a lack of new stimulus measures.

The iron-ore market continues to see relatively sufficient supply, neutral demand and accumulating inventories, Xinhu Futures said. Market sentiment remains subdued in the absence of strong Chinese stimulus measures on the macro front, Xinhu said.

TODAY'S TOP HEADLINES

A Hot Debt Market Is Slashing Borrowing Costs for Riskier Companies

Companies with low credit ratings are rushing to slash their borrowing costs even before the Federal Reserve makes a single interest-rate cut.

As of Thursday morning, companies such as SeaWorld Entertainment and Dave & Buster's had asked investors to cut the interest rates on some $62 billion of sub-investment grade loans in January-already the largest monthly total in three years, according to PitchBook LCD.

AI Is the Talk of Davos. Is It Time to Sell?

The mood of the global elite meeting in Davos, Switzerland, is a useful indicator for investors-as long as they do the opposite.

When the elite are depressed, buy. When they're positive, sell. When they're focused on crypto, as in 2021, get out. This year it was impossible to move in the snow-blanketed resort without having artificial intelligence pushed at you.

Fed's Bostic makes case for first rate cut in July-September quarter

Atlanta Fed President Raphael Bostic on Thursday laid out the case for the central bank holding off from any interest-rate cut until the July-September quarter.

Bostic said he has recently moved up his projected time to begin reducing the Fed's benchmark rate to the third quarter from the fourth quarter because of the unexpected progress on inflation and economic activity.

The Red Sea Conflict Is Scrambling Shipping. Europe Is Bearing the Brunt.

For the second time in three years, a conflict in Europe's unruly neighborhood is threatening to weaken an already struggling economy while a more robust U.S. is watching from a safer distance.

This time, attacks by Houthi rebels in Yemen targeting cargo ships in the Red Sea have persuaded more carriers to opt for the safer but longer and more expensive journey around Africa via the Cape of Good Hope.

EU Commission Intends to Block Amazon's iRobot Acquisition

The European Union's competition watchdog intends to block Amazon's $1.7 billion bid to purchase Roomba maker iRobot, people familiar with the matter said.

Competition officials from the European Commission, the bloc's executive body, met Thursday with representatives from Amazon to discuss the deal, one of those people said. Amazon was told during the meeting that the deal was likely to be rejected, the person said. Amazon declined to comment.

Drugmakers Raise Prices of Ozempic, Mounjaro and Hundreds of Other Drugs

Drugmakers kicked off 2024 by raising the list prices for Ozempic, Mounjaro and dozens of other widely used medicines.

Companies including Novo Nordisk, the maker of Ozempic, and Eli Lilly, which sells Mounjaro, raised list prices on 775 brand-name drugs during the first half of January, according to an analysis for The Wall Street Journal by 46brooklyn Research, a nonprofit drug-pricing analytics group.

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Expected Major Events for Friday

07:00/GER: Dec PPI

07:00/UK: Dec UK monthly retail sales figures

07:30/SWI: Dec PPI

07:30/SWI: Dec Import Price Index

09:00/ICE: Dec Harmonized CPI

09:00/POL: Dec PPI

15:59/GRE: Nov Balance of Payments

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

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

(END) Dow Jones Newswires

01-19-24 0017ET