EMEA Morning Briefing : Stock Futures Mixed as Investors Pare Fed Cut Bets

MARKET WRAPS

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Services PMI data for EU, Germany, France, Italy, U.K.; EU PPI; Germany foreign trade; trading updates from Unicredit, Vodafone

Opening Call:

European stock futures were mixed after the Fed's Powell said a March rate cut is unlikely in a rare television interview. In Asia, stock benchmarks fell, dragged by Chinese equities. The dollar advanced; Treasury yields rose; while oil futures edged higher and gold fell.

Equities:

Stock futures were mixed after Federal Reserve Chair Jerome Powell said in a television interview broadcast on Sunday night in the U.S. that solid U.S. economic growth means officials don't have to rush the decision on when to start cutting interest rates.

Powell, speaking on "60 Minutes," said officials were trying to balance the risks of leaving rates too high for too long, which could cause an economic slowdown, and of cutting rates too soon and allowing inflation to settle above the Fed's 2% goal. The interview was taped Thursday from the Fed's Washington headquarters.

"There is no easy, simple, obvious path," Powell said. "We think the economy's in a good place. We think inflation is coming down. We just want to gain a little more confidence that it's coming down in a sustainable way."

Forex:

A Fed cut in March looks off the table after Friday's strong U.S. payrolls data, which should boost the dollar, said Matthew Ryan, head of market strategy at Ebury.

"This delayed start to easing should be bullish for the dollar," he said, adding that Ebury continues to see potential for the dollar to rise further in the near term.

Bonds:

Treasury yields rose early Monday after Fed Chair Powell said the strength of the U.S. economy allows the Fed to be "careful" in deciding when to cut interest rates.

Last week, the Fed policy statement said the central bank wanted to be more confident that inflation is moving down toward its 2% target. Powell later told reporters that it was unlikely that the committee would reach that level of confidence by the time of the March meeting, which is in seven weeks.

The Fed chair repeated those comments in the interview. A March rate cut "is not the most likely or base case," he said.

Energy:

Oil futures edged higher in Asia after falling last week. Prices had "faltered" over the course of last week, said Rob Haworth, senior investment strategy director at U.S. Bank Asset Management. Markets remain more focused on "global demand patterns," Haworth said.

Looking ahead, Haworth said that in order for oil to break its recent trading range, there would need to be "some significant uptick in global business activity, especially goods trading from China."

There's also the question over whether OPEC members "relent on output cuts, perhaps pressuring prices, though any acceleration for U.S. Strategic Petroleum Reserve purchases on lower prices likely limits losses," he said.

Metals:

Gold fell early Monday as a hotter-than-expected U.S. jobs report on Friday reinforces the Fed's wait-and-see approach on rates. The strong jobs report "makes it harder for the FOMC to be confident that the recent improvement in inflation is sustainable," ANZ said.

Investor demand for the precious metal evaporates as expectations for an imminent rate cut fade, the bank said.

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Copper prices dropped amid concerns about weaker demand. Expectations of a possible boost to demand from easing monetary policy diminished after strong U.S. employment data, ANZ said. Concerns about weak Chinese demand also weigh on the base metal, with the continued contraction of China's factory activity in January, ANZ added.

On the supply side, problems linger as production costs have been surging with falling margins.

TODAY'S TOP HEADLINES

Powell Says Fed Has New Focus: When to Cut Rates

Federal Reserve Chair Jerome Powell said the central bank has shifted its focus toward deciding when to begin cutting interest rates, but that solid economic growth means officials don't have to rush that decision.

Given recent economic strength, "we feel like we can approach the question of when to begin to reduce interest rates carefully," Powell said during a rare television interview broadcast on CBS on Sunday night.

Big Tech Stocks Find Little Room for Error After Monster Run

Investors have a simple request for tech titans this earnings season: Nothing less than perfection.

The "Magnificent Seven" group of tech companies has been the stock market's biggest engine for growth and profits over the past year. But after five of the companies turned in strong quarterly results last week, investors are being picky about which ones they reward.

Invest in America, Live in Europe-a Mantra Some Just Can't Shake

Even Europeans are starting to wonder why they bother to invest in their own region.

The economy is stuttering while the U.S. booms. It's an also-ran in a world dividing into blocs led by the U.S. and China. And its biggest companies wouldn't even make the top 10 in the S&P 500. The "Magnificent Seven" big U.S. stocks are, as of two weeks ago, collectively worth more than all western European listed stocks together. What's the point?

Week of Whipsawing Treasurys Casts Doubt on Soft-Landing Trade

The strongest U.S. jobs report in a year has dented investors' hopes that the Federal Reserve will drastically slash interest rates this year, the latest reversal for those betting the economy is on track to achieve a soft landing.

Data out Friday showed that workers' wages are rising much faster than economists anticipated, and there are few signs of an economic slowdown. Earlier last week, Fed Chair Jerome Powell said a rate cut in March was unlikely, disappointing those who had bet cuts were imminent. Bond prices, which had been shored up by the rate-cut expectations, tumbled, sending the 10-year Treasury yield to 4.030% Friday from as low as 3.815% on Thursday. Friday's rise was the 10-year yield's largest since September 2022.

Midair Fires and Malfunctions Surge on Russia's Planes as Sanctions Bite

When Ural Airlines Flight 1383 to the Siberian city of Omsk suffered a technical fault with its hydraulics last September, the pilots decided to divert to a different airport. Then they discovered the defect meant the aircraft was rapidly running out of fuel and needed to land quickly.

The aircraft, with 165 people onboard, eventually made a successful emergency landing in a stretch of farmland in southern Russia. The Airbus A320 jet remains there, fenced in and under 24-hour security, with its operator having recently agreed to pay rent to the land's owner.

Boeing Finds New Problem With 737 MAX Fuselages

Boeing is reworking 50 undelivered 737 MAX jets after a supplier's employee recently found misdrilled holes on some fuselages, a new production snafu for the aircraft manufacturer.

Spirit AeroSystems, which has been at the center of quality issues affecting 737s, supplied the fuselages.

Amazon's Jeff Bezos Filed Plan to Sell Up to $8.6 Billion of Stock

Jeff Bezos hasn't sold shares of the company he founded and serves as executive chair in more than two years, but he has plans to sell Amazon.com stock any day.

The retailer and cloud company's fourth-quarter 10-K filing to the Securities and Exchange Commission noted that on Nov. 8, 2023, Bezos "adopted a trading plan intended to satisfy Rule 10b5-1(c) to sell up to 50,000,000 shares of Amazon.com, Inc. common stock over a period ending on January 31, 2025."

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Expected Major Events for Monday

07:00/GER: Dec Foreign Trade

07:00/TUR: Jan CPI

07:00/TUR: Jan PPI

07:00/DEN: 4Q Consumer credit

07:30/HUN: Dec Preliminary External Trade

08:15/SPN: Jan Spain Services PMI

08:45/ITA: Jan Italy Services PMI

08:50/FRA: Jan France Services PMI

08:55/GER: Jan Germany Services PMI

09:00/EU: Jan Eurozone Services PMI

09:00/UK: Jan UK monthly car registrations figures

09:30/UK: Jan S&P Global UK Services PMI

09:30/UK: Jan UK Official Reserves

10:00/EU: Dec PPI

10:00/CYP: Jan Registered Unemployed

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

02-05-24 0019ET