MARKET WRAPS

Watch For:

Flash PMI for E.U., Germany, France, U.K.; trading updates from Alstom, Tod's, ASML Holding, Swedbank, X5 Retail Group, easyJet, Fresnillo, Tullow Oil

Opening Call:

Shares may open slightly higher in Europe ahead of company earnings and manufacturing PMI. In Asia, stock benchmarks were mixed; Treasury yields fell; the dollar weakened; oil fell, while gold was barely changed.

Equities:

European shares are poised to tick higher on Wednesday as the market waits for earnings reports, as well as a raft of economic data.

TD Ameritrade has its eyes on Thursday's U.S. macroeconomic numbers on durable-goods orders, GDP growth and jobless-benefit claims data. On Friday, the numbers to watch include the Federal Reserve's preferred inflation gauge, the personal-consumption expenditures price index, along with numbers on personal income and spending.

If the data remain resilient, "it really complicates that timetable" investors may have for when interest rate cuts will arrive, it said.

The earnings season will go into high gear next week, when about 23% of the S&P 500 will present their numbers.

Forex:

The dollar lost strength in Asia ahead of U.S. economic activity and inflation data.

Markets expect durable goods orders and GDP to slow on Thursday, with jobless claims edging higher. PCE inflation, due Friday, is forecast to cool a little. Meanwhile, markets now see the Fed starting to cut interest rates in May and no longer in March.

Meanwhile, Morgan Stanley Research recommends investors buy two-week EUR/GBP calls to benefit from valuations.

Short EUR/GBP positions "appear stretched" and EUR/GBP implied volatility--a measure of options pricing--"seems complacently underpriced" given upcoming European Central Bank and Bank of England meetings and important economic data.

EUR/GBP is also uniquely sensitive to rate differentials and insensitive to risk appetite, it says. It cautions that the window for this trade is narrow, however, as sterling could rise after the Feb. 1 Bank of England meeting if focus switches to fiscal policy.

Bonds:

Treasury yields declined ahead of U.S. GDP and inflation data this week.

Traders await fresh information that may challenge the current consensus on the economy's trajectory and Federal Reserve monetary policy.

Markets are pricing in a 97.4% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.50% at its meeting next Wednesday, according to the CME FedWatch Tool.

The chance of a 25-basis-point rate cut by March is now seen at 46.2%, down from 75.6% a month ago. The central bank is mostly expected to take its fed-funds rate target back down to at least 4%-4.25% by December.

Energy:

Oil fell after earlier slight gains, as traders continue to monitor ongoing tensions in the Middle East and weather-related oil production disruptions in North Dakota.

"Fundamentally, threats to supply have been elevated for months amid the Israel-Hamas conflict in the Middle East, but worries about fading consumer demand had kept prices subdued near the low end of the 2023 trading range for much of the fourth quarter," said Sevens Report Research.

Oil market dynamics started to change over the last week, it said.

"The combination of cold weather knocking out a big portion of oil production in North Dakota since late last week, and news of an apparent Ukrainian drone attack on a Russian fuel export that temporarily halted operations at the facility this week, have tipped the fundamental scales in favor of the bulls for the very near term."

Metals:

Gold was trading steadily, supported by buying interest from commodity trading advisers, also known as speculators.

There appears to be CTA buying activity, said TD Securities, in a research note.

The brokerage reckons that CTAs are poised to repurchase their recently liquidated positions in the precious metal above the $2,000/oz level.

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Copper prices were higher as supply-side issues came back into focus.

Severe drought conditions at the Panama Canal and concerns about attacks on vessels at the Suez Canal have affected the red metal's transit, Galaxy Futures said.

China's and the U.S.'s copper imports have fallen as a result, it said.

Transportation disruptions will likely continue this year and weigh on copper supply in the first half, it added.

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Iron ore prices rose amid hopes of more stimulus from China.

Investor sentiment was also boosted by stronger demand ahead of the Lunar New Year holiday, ANZ Research said.

It reckons that Chinese Premier Li Qiang's recent calls for more rigorous measures to stabilize capital markets could be positive for the economy.

That could help offset rising supplies, as exports from Australia and Brazil have shown signs of a recovery in recent weeks, it added.


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01-24-24 0016ET