EMEA Morning Briefing : Stocks May Hover Amid Quiet Year-End Trade

MARKET WRAPS

Watch For:

UK Nationwide House Price Index

Opening Call:

European stock futures traded little changed ahead of the final trading session of 2023. Asian stock benchmarks were mixed; the dollar and Treasury yields were steady; oil futures edged higher and gold fell.

Equities:

Stock futures were little changed early Friday ahead of likely quiet trade on the last trading day of the year.

European equities should perform well in 2024, outperforming their U.S. counterparts, helped by lower relative valuations and earnings expectations, Pictet Asset Management said in its annual asset-allocation outlook.

"The U.S.'s stellar status in global stock markets will dim, while European equities will surprise in a good way."

European earnings expectations are "much more muted" than those in the U.S., leaving less room for disappointment, while caution toward eurozone equities should reverse as the economy recovers, Pictet said.

The asset manager calculated Europe trades on a 12-month forward price-to-earnings ratio of 12 times, compared to the U.S. at 19 times, a difference it described as "unprecedented."

Forex:

Dollar selling could continue during the last remaining trading hours of 2023 and is likely to hit its nadir sometime in January before the currency picks up again, said Jefferies global head of FX Brad Bechtel.

"I expect we will bottom in January, similar to last time, just as everyone convinces themselves they need to be dollar bears," he said.

Meanwhile, the European Central Bank's recent rhetoric suggesting interest rates are likely to stay high as inflation remains a problem contrast with hints of rate cuts from the Fed and support the euro, he said.

"Although I think the ECB capitulates, it's hard to get too short EUR/USD until they do."

Bonds:

Treasury yields steadied after moving higher overnight. Yields remain lower on the week, however, and have declined sharply since the 10-year topped 5% in October, a decline accelerated by expectations for the Federal Reserve to begin cutting interest rates in 2024.

The path of least resistance for yields remains lower thanks to the Fed's dovish pivot, "and until economic data or Fed speak causes a reversal of that momentum, it's not a question of if yields will decline, it's a question of 'by how much,'" said Tom Essaye, founder of Sevens Report Research.

Energy:

Oil futures rose Friday after falling overnight as several shipping companies have said they are ready to resume transit in the Red Sea. Oil will likely remain volatile in the short term due to geopolitical uncertainty in the Middle East, Guotai Junan said.

Meanwhile, U.S. Treasury yields could continue to fluctuate before further signals from the Fed on rate cuts, weighing on oil prices. Focus is on the implementation of production cuts by OPEC+ members in the next week, Guotai Junan added.

Metals:

Gold advanced in Asian trade after data showing the U.S. labor market continues to cool. With the U.S. labor market cooling and inflation gradually coming under control, markets see rate cuts from the Fed earlier than previously expected and by a greater magnitude, Guangfa Futures said.

Recently weaker U.S. Treasury yields and a softer dollar index are also propping up demand for gold. Amid weaker liquidity at year-end, gold prices may continue to fluctuate, Guangfa added.

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An accelerating turnaround in China's grid spending is positive for metals, said Citi, which expects grid investment growth there for 2023 will be the strongest since 2016. Copper and aluminum are the biggest beneficiaries of the pickup in grid investment, Citi said.

Citi noted implied grid spending in China was up 5.9% in the first 11 months of the year, following a 1.2% rise in 2022. The year prior marked the beginning of the turnaround, after falls in investment between 2015-2020.

"Decarbonization demand (of which grid is a component) is going to drive almost all of the demand for copper in the medium term, in our view, and should be supportive for a tight copper market," Citi said.

TODAY'S TOP HEADLINES

What Did Wall Street Get Right About Markets This Year? Not Much.

Almost no one thought 2023 would be a blockbuster year for stocks. They could hardly have been more wrong.

The Federal Reserve raised interest rates at the fastest clip since the 1980s, a regional banking crisis felled Silicon Valley Bank, and war broke out in the Middle East. Yet stocks kept climbing.

Biden Struggles to Push Trade Deals With Allies as Election Approaches

WASHINGTON-The Biden administration on Thursday extended for two years a temporary measure to suspend Trump-era tariffs on European steel and aluminum, the latest sign that the president is finding it difficult to resolve trade frictions as an election year approaches.

Washington and Brussels have failed to find a permanent solution to eliminate the levies more than two years after the negotiations began. With the announcement, the administration will keep in place a temporary import quota system that replaced Trump-era tariffs while talks continue. The EU has criticized the temporary fix, which could be undone if Biden isn't re-elected.

Santa Might Have One Last Gift for Investors

It looks as though Santa hasn't left town just yet.

The S&P 500 is poised to cap a roaring comeback this year with a Santa Claus rally, or the gain that stocks often get heading into the new year. That would mark the eighth straight year stocks got a Santa bump, which hasn't happened since the eight-year winning streak ending in 1976, according to Dow Jones Market Data.

Small Drones Are Helping Israel Navigate the Urban Battlefield in Gaza

The Israeli military has tried a variety of methods to explore Hamas's tunnels in Gaza: robots, robot dogs and real dogs. But what it has quickly learned is that the cheapest and most effective option for exploring the underground labyrinths-which are a potential death trap for soldiers-is a small quadcopter drone.

It isn't just tunnels. In the dense urban battlefield of Gaza, the Israeli military has been flying these quadcopters-essentially small helicopters with four rotors-into buildings before sending in soldiers. The devices are also providing smaller units with aerial reconnaissance and being used as guided munitions.

The New Star on the Political Scene: The Chip Industry

Semiconductors have played the starring role in state visits. Nvidia's chief executive was feted by heads of state like a visiting dignitary. Government delegations have shuttled around the globe hobnobbing with chip makers.

For an industry that suddenly finds itself as a geopolitical showpiece, the attention is a mixed bag.

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Expected Major Events for Friday

05:30/NED: Nov PPI

05:30/NED: Nov Retail turnover

07:00/UK: Dec Nationwide House Price Index

07:00/TUR: Nov Foreign Trade

07:45/FRA: Nov Housing starts

08:00/SVK: Dec Business tendency survey

08:00/SVK: Dec Economic sentiment indicator

08:00/SWI: Dec KOF economic barometer

09:00/BUL: Nov PPI

09:30/UK: Nov Capital issuance statistics

10:00/CRO: Nov Industrial Production Volume Index

10:00/GRE: Nov PPI

10:00/SPN: Dec Flash Estimate CPI

10:00/CRO: Nov Retail trade

10:00/CYP: Nov PPI

10:00/GRE: Oct Turnover Index in Retail Trade

10:00/BEL: 3Q Balance of Payments

11:00/POR: Nov Retail trade

13:00/POL: 3Q Quarterly Balance of Payments

15:59/UKR: Nov Industrial Production

16:59/SPN: Oct Monthly 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

12-29-23 0019ET