European stocks eased lower on Monday, with miners and oil
companies weighed by weaker commodity prices and after Jerome
Powell said it was too soon to begin talking about Federal Reserve
On Friday, Powell offered the strongest signal yet that
officials are likely done raising rates by saying that their policy
setting is "well into restrictive territory, meaning that tight
monetary policy" is slowing economic activity.
But his comments were laced with caution. "It would be premature
to conclude with confidence that we have achieved a sufficiently
restrictive stance," Powell said in remarks at Spelman College in
"...it's hard to see what will puncture the renewed enthusiasm
for the idea that central banks are about to pivot when it comes to
rate policy, with this week's services data expected to point to
further weakness in Europe," CMC Markets UK said.
"The catalyst could be a set of strong U.S. jobs data, with the
likes of October JOLTs job openings tomorrow, the November ADP
payrolls report on Wednesday or Friday's non-farm payrolls
Stocks to Watch
AB InBev's shares are trading at a 3% premium to the European
beverages sector, with a free-cash-flow yield of 5.6%, meaning that
the group is currently fairly valued, Deutsche Bank said, after
downgrading the stock to hold from buy and cutting the target price
to EUR58 from EUR61.
"We continue to see AB InBev's broadly emerging-market focussed
sales exposure as attractive, combined with the company's
market-leading market-share positions."
Added to that, offerings such as business-to-consumer platform,
BEES, provide a competitive advantage, Deutsche Bank said.
Volkswagen, Stellantis and Renault should be more open about
whether their cash balances are reserved for investments or for
shareholders, Bernstein said.
The carmakers all carry hefty amounts of excess cash on their
industrial balance sheets, according to Bernstein's modeling.
"While we acknowledge continued uncertainties in the sector, we
also note that companies' balance sheets have never been
Given current valuations, we would urge companies to consider
the valuation impact of improved capital allocation frameworks as
opposed to continuing to hoard cash on their balance sheets."
Mercedes-Benz and BMW are doing a better job at capital
allocation and returning extra cash, Bernstein added.
Markets are clearly anticipating a change in the interest-rate
cycle, but in the case of the eurozone they might be running ahead
of themselves, ING Research said.
"It will come, but especially in EUR [euro area] we think market
pricing of cuts has advanced far enough," ING said.
Only a sudden shock or substantially weaker data would justify
even more aggressive cut expectations at this stage, they say.
Money markets price in 130 basis points of interest rate cuts by
the European Central Bank in 2024, according to Refinitiv data.
Both stocks and bonds look set for a pause after a rapid
Futures pointed to modest losses for stock indexes, while
Treasury prices were down, pushing yields up to 4.247%.
Investors will be looking ahead to important data this week to
keep supporting the case for a rate cut, with November nonfarm
payrolls numbers due at the end of the week.
The euro is likely to weaken as focus for the currency centers
on easing inflation pressures, with a secondary focus on slowing
growth, NatWest Markets said. "Both play euro negative against the
dollar and on the crosses."
The latest eurozone inflation data, which were much lower than
expected, suggest that the European Central Bank needs to
recalibrate its growth and inflation forecast ahead of the Dec. 14
policy meeting, NatWest said. NatWest expects the ECB's
interest-rate cuts to come sooner than many expect.
"With recent dollar weakness not justified, we see this as
negative for EUR/USD."
NatWest also said the dollar fell steadily through November, a
move which came "faster and more clearly" than expected.
"For both the dollar weakness in November and the U.S. Treasury
rally, we wonder if the move has gone too far too fast even if it
does jive with how we see 2024 eventually playing out," NatWest
On the dollar side, even more so than in Treasurys, NatWest said
it was skeptical of chasing the move in the near term because of
the broader growth outlook.
Danske Bank Research said the Swedish krona reached its
strongest since May against the euro on Friday and could rise
further into year-end.
December is historically a strong month for the Swedish krona,
hence, "we cannot rule out further Swedish krona-strength towards
year-end" even as 2024 could be another challenging year for the
currency, Danske said.
The krona's rally last week was driven by global markets, such
as declining U.S. bond yields boosting bets on interest-rate cuts
next year, rather than any Swedish-specific factors, Danske
Eurozone government bonds should face a long list of headwinds
ahead, which could push back 10-year German Bund yields to
2.75%-2.85% in January, Morgan Stanley Research said.
"Moving closer to the December European Central Bank meeting, we
now think the risk-reward on the long EUR duration is much less
attractive than it was a few weeks ago," Morgan Stanley Research
In January, the renewed rise in government bond supply-as
countries kick off their annual funding programs-warrant a discount
at the long end, it added.
The front-end looks expensive as the market is pricing in
one-and-half ECB interest-rate cut-38 basis points, according to
Refinitiv-by April, while technical indicators suggest overbought
Commerzbank Research said it will be difficult for ECB policy
makers to curb the rate-cut euphoria going into the blackout period
ahead of next week's governing council meeting.
Comments from Bank of France Governor Francois Villeroy de
Galhau at a conference on Friday that the ECB could mull rate cuts
at some point in 2024 prompted a bond market rally and also added
to money market expectations of rate cuts for next year.
Money markets currently expect 132 basis points of ECB rate cuts
in 2024, according to Refinitiv data.
Greek government bonds are expected to continue to benefit from
good investor interest after Fitch upgraded Greece to investment
grade in a widely anticipated move on Friday, although most of the
support should be in the price by now, Commerzbank Research
The 10-year Treasury yield may fall further, based on technical
charts, UOB's Global Economics & Markets Research said.
The pace and extent of the 10-year yield's decline over the past
month has exceeded UOB's expectations, and the 10-year yield could
continue to drop over the next two months. However, any further
fall will likely encounter solid support at the 55-week exponential
moving average, which is currently 3.950%, UOB said.
Above the 55-week EMA, there is another support on the 10-year
yield's rising trend line, which is 4.120%.
Oil futures were down more than 1%, giving up Asian gains, on
uncertainties around the OPEC+ voluntary output cuts and global
Meanwhile, geopolitical tensions in the Middle East intensified
as Israel resumed combat operations in Gaza and after Iran-backed
Houthi forces in Yemen claimed responsibility for attacks against a
U.S. destroyer and three commercial ships operating in the Red
Brent is forecast to rise to an annual average of $85 a barrel
in 2024, according to BMI, adding it expected a sharp slowdown in
developed economies in the first half which will put prices under
heavy pressure; while in the second half, as global growth passes
its nadir, sentiment will strengthen, positioning Brent for healthy
Base metals pulled back, with investors looking ahead to
Friday's U.S. nonfarm payrolls figure and how it will affect Fed
"Weaker job numbers on Friday would push the dollar lower and
lever our commodity markets higher," Peak Trading Research
Gold prices softened, having spiked during the Asian trading
hours and after hitting a new record high on Friday.
"Markets are pricing in several key interest rate cuts for next
year--not only in the U.S. but also in Europe," Heraeus said.
"What's next for gold: If signs of low interest rates become
more evident, gold should continue to soar next year."
Oanda said gold's medium-term uptrend is intact, but a minor
pullback is possible, based on technical analysis.
Monday's swift rally has resulted in gold becoming extremely
overbought, where the daily relative strength index momentum
indicator is at 76.70, the highest since the medium-term uptrend
began on Oct. 6, Oanda said.
On the hourly chart, gold has retreated from upper boundary of
its ascending channel, which now acts as near-term resistance at
$2,126/oz. Also, the hourly RSI momentum indicator has just exited
from overbought territory, which increases risk of a minor
pullback, adds Wong, pegging support at $2,067/oz.
UBS has downgraded lithium prices, cutting its medium-term price
forecasts for the battery material by 23%-45%.
A surge in dealmaking among metals and mining companies is
likely to continue into 2024, according to BMI. It sees demand for
M&A supported by global energy-transition tailwinds and easing
Deal activity has been climbing since 2020 and much of it has
recently centered around energy-transition minerals, including
copper and lithium, it notes. Gold-industry consolidation is also
"While securing supply to transition metals, major mining
companies will also continue to focus on reducing their exposure to
coal assets," BMI said.
Roche Strikes Deal to Buy Drug Developer Carmot Therapeutics for
Roche aims to buy Carmot Therapeutics, a California-based
pharmaceutical firm developing drugs to treat obesity and
The Swiss pharmaceutical company said it has entered an
agreement to acquire the private company for $2.7 billion with
additional payments of up to $400 million based on drug-development
Germany Books Wider Trade Surplus as Exports Fall Less
Germany's trade surplus widened a little more than expected in
October as imports fell more sharply than exports.
The eurozone's most important economy booked an adjusted trade
surplus-representing the difference between exports and imports of
goods-of 17.8 billion euros ($19.37 billion) climbing from EUR16.7
billion in September, according to figures set out Monday by
federal statistics agency Destatis.
Swiss Life CEO to Step Down
Swiss Life Holding said Patrick Frost has decided to step down
as chief executive at the group's annual general meeting in May
next year, after 10 years at the helm of the insurer.
The company said Monday that Matthias Aellig, currently chief
financial officer, would succeed Frost as CEO as of May 16, 2024.
Marco Gerussi, who served as head of finance transformation since
2018, will replace Aellig as CFO.
Goods Deflation Is Back. It Could Speed Inflation's Return to
After a historic run-up in inflation, Americans are now starting
to see something they haven't in three years: deflation.
To be sure, deflation-that is, falling prices-is largely
confined to appliances, furniture, used cars and other goods.
Economywide deflation, when prices of most goods and services
continuously fall, isn't in the cards.
Stock Funds Get Back on Their Feet
Stock funds might have a decent year after all.
After three straight months of declines, stocks rallied, for the
most part, in November-adding to stock-fund investors' 2023 gains.
The average U.S.-stock fund rose 9.1% in November, according to
Refinitiv Lipper data, to expand the year-to-date gain for stock
funds to 13.4%.
How to Use Industry ETFs to Ride Waves of Momentum
Momentum-trading mutual funds, which try to hold stocks that
benefit most from upward market trends, first appeared in the
1980s. There are still some out there. But these days, investors
who want to ride market upturns-or bet on market reversals-are
turning more to single-industry ETFs.
Investors over time have shifted to industry exchange-traded
funds as a low-cost alternative to momentum mutual funds, whose
returns have faltered over the past 20 years.
The Stocks Investors Are Putting Under the Tree
Retailers are making modest predictions about the holiday
shopping season-and their stocks are going gangbusters in
Victoria's Secret, Foot Locker, Ulta Beauty and Dollar Tree are
among the companies that offered somewhat mixed assessments of the
state of the shopper last week. Yet each received an ovation from
U.S. Destroyer, Commercial Vessels Attacked by Drones, Missiles
in Red Sea
A U.S. destroyer and three commercial ships operating in the Red
Sea came under drone and ballistic-missile attacks, the Pentagon
said Sunday, marking the most significant escalation of a weekslong
military attack on ships operating in those waters.
In two instances on Sunday, the USS Carney, an Arleigh
Burke-class destroyer, came under attack, including while
responding to distress calls from nearby commercial ships that
faced missile attacks, the Pentagon said. The Carney also shot down
a drone that flew nearby.
House GOP Moves Toward Formalizing Impeachment Probe of
WASHINGTON-House Republican leaders are moving toward a vote on
formalizing an impeachment probe into President Biden, aiming to
bolster an investigation that some in the party are still wary of
pushing forward too quickly.
House Speaker Mike Johnson (R., La.) and committee chairmen made
a case to rank-and-file lawmakers on Friday, with a vote possible
as soon as this week. House Republicans have already spent months
trying to tie Biden to his family members' overseas business
dealings and gather support for their claims-which he denies-that
he benefited from them. They so far have failed to deliver evidence
backing up their most strident claims about the president.
Israel-Hamas Deal Talks Stall as Fighting Ramps Up
Talks between Israel and Hamas to hand over hostages held in
Gaza in return for a pause in fighting there have stalled, the
White House said Sunday, while Israeli forces step up attacks and
direct Palestinians in the enclave to move into a narrower strip of
"The negotiations have stopped. That said, what hasn't stopped
is our own involvement, trying to get those back on track...We
would like that to happen today," White House National Security
Council spokesman John Kirby told NBC. He blamed Hamas for failing
to provide a fresh list of civilian women and children to be
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(END) Dow Jones Newswires
December 04, 2023 05:44 ET (10:44 GMT)
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