MARKET WRAPS
Watch For:
EU Harmonised CPI; no major corporate trading updates
expected
Opening Call:
European stock futures were little changed. Asian stock
benchmarks were broadly lower; the dollar weakened slightly;
Treasury yields steadied; while oil futures were mixed and gold
fell.
Equities:
European stock futures were treading water early Tuesday as
investors continue to bet on interest rate cuts next year.
San Francisco Fed President Mary Daly said Monday that it is
appropriate for the central bank to begin looking ahead to lowering
interest rates in 2024 because of how inflation has improved this
year.
"The market is kind of coasting on momentum," said Michael
Antonelli, market strategist at Baird.
"When you get these year-end rallies after a year where people
did a lot of hand-wringing, it's mostly positioning..It's people
saying, 'I can't afford to be on the sidelines,'" he said.
Analysts expect major U.S. data on inflation, household income,
and spending due Friday to be the next big mover for the
markets.
This week has the potential to be relatively quiet until
then.
Forex:
The U.S. dollar was a tad weaker early Tuesday.
The dollar can expect a "shallow" depreciation in 2024, while
the euro is likely to gain some momentum, strategists at Indosuez
Wealth Management said.
"We expect the dollar to depreciate slightly in 2024, as lower
federal interest rates and a weak global economy may favor
high-beta currencies, " they said.
Avoiding a recession in Europe should fuel risk appetite for the
euro.
"We believe that the European economy will recover from the
energy shock and regain a better balance with the rest of the
world, with our growth scenario in line with market consensus,
which should slowly support the currency's recovery."
--
The yen weakened after the Bank of Japan kept its policy targets
unchanged and didn't include any reference to possible
interest-rate increases.
Analysts and traders now expect the bank to scrap negative
interest rates in the first part of next year, perhaps at policy
meetings in January or April.
Bonds:
Treasury yields were little changed as traders considered
arguments against a dovish policy pivot by the Federal Reserve in
early 2024.
"Central bankers have begun to push back against the prospect
that easing could begin in March in the U.S. and the Euro area. We
agree, as there are a number of steps to go through before the Fed,
ECB, or BoE can cut, especially with the reporting lags in the
'hard data' they'd need to see," strategists at Macquarie said.
"The ECB and BoE are especially attuned to the wage data - the
main 'hold-up' to a clearer easing signal in the Euro area and U.K.
But the Fed has [to] overcome the wage hurdle."
As shelter rents drive disinflation, "the Fed could cut sooner
than its peers - in May or June," they said in a note.
Energy:
Oil futures were mixed in Asia on concerns over supply
disruptions following the recent attack on ships in the Red
Sea.
Oil giant BP on Monday paused oil and gas shipments through the
Red Sea on concerns over worker safety.
Meanwhile, "there's still a lot of uncertainty and debate around
the demand outlook for next year," Craig Erlam, senior market
analyst at Oanda, said.
While the prospect of rate cuts has boosted the odds of a softer
landing which could support demand, there's a risk that past cuts
could have an even more dampening impact on the global economy or
that OPEC+ compliance may be weak, he said.
Metals:
Gold prices fell early Tuesday.
"We keep a bullish outlook for gold into 2024 in the firm belief
that rates have peaked, and that Fed funds and real yields will
start to trend lower," Saxo Bank said.
Central banks' demand for gold is also potentially heading for
another record year, with more than 1000 tons being removed from
the market for a second year running, it said, adding that this is
one of the main reasons the yellow metal has managed to rally
despite surging real yields.
--
Copper prices were flat.
The recent rebound in copper prices has been driven by the rapid
decline in U.S. inflation and the end of the Fed's monetary
tightening cycle, Tongguan Jinyuan Futures analysts said.
Although China's deflationary pressures still exist, the
housing-market easing measures could prop up copper prices, as the
metal is widely used in power and construction industries, they
added.
--
Iron ore futures were higher with investor sentiment likely
still buoyed by the recent mortgage easing measures in Beijing and
Shanghai.
However, considering the poor operating conditions of steel
mills in China, weak steel demand may continue to suppress iron ore
prices, analysts at Baocheng Futures said.
TODAY'S TOP HEADLINES
Bank of Japan Sticks to Negative Interest Rates for Now
TOKYO-The Bank of Japan on Tuesday kept its policy targets
unchanged amid expectations among analysts that the bank is likely
to end its negative-interest-rate policy in the first half of next
year.
The yen weakened after the announcement, which didn't include
any reference to possible interest-rate increases in Japan.
Fed Official Says Rate Cuts Could Be Needed Next Year to Prevent
Overtightening
A Federal Reserve official said it is appropriate for the
central bank to begin looking ahead to lowering interest rates in
2024 because of how inflation has improved this year.
San Francisco Fed President Mary Daly said her outlook for
interest rates and inflation was "very close" to the median of
projections from 19 Fed officials last week. Most of them penciled
in at least three rate cuts next year amid a faster decline in
inflation than they anticipated.
Bank of America Bond Losses Narrowed From Rally to Estimated
$100 Billion
Few bank CEOs are probably happier with the bond market rally
than Bank of America's Brian Moynihan.
Bank of America was sitting on the industry's largest unrealized
bond losses by a wide margin at the end of the third quarter and
those losses have narrowed significantly since the fixed-income
rally got under way in late October.
Why Central Banks Should (but Might Not) Keep the Market Flooded
With Money
Money printing gets a bad rap, but it may be better than the
alternative.
In the shadow of today's big monetary-policy debate about when
central banks might cut interest rates lies another crucial
question: How should they go about setting rates?
It's not even the new year and Goldman Sachs has already lifted
its S&P 500 target
The ink barely dried on Goldman Sachs' S&P 500 forecast for
next year before the Wall Street bank decided it just wasn't
bullish enough.
Chief U.S. equity strategist David Kostin bumped to 5,100 the
4,700 target that was laid out just weeks ago - 8% upside from
where the index stands currently. The S&P 500 SPX climbed 2.49%
last week to close at 4,719.19, just 1.6% off its Jan. 3, 2022
record high.
Why UBS Wants to Be the No. 6 Investment Bank in the U.S. (Yes,
No. 6)
More than a decade after throwing in the towel on its hopes of
being a major player in the lucrative U.S. investment-banking
market, UBS is making another push, but this time the Swiss
financial giant's ambitions are a bit more measured.
The takeover of local rival Credit Suisse and turmoil at other
global peers has opened a door of opportunity to build back up a
business that has been lagging behind rivals, UBS executives say.
They have been on a hiring spree for senior deal makers, expanded
research coverage and are ramping up pitches to potential
clients.
U.S. Vows Naval Forces to Protect Ships Passing Through Suez
Canal
The U.S. unveiled a multinational naval force to protect
merchant vessels in the Red Sea after Houthi rebel attacks
threatened the Suez Canal's central role in global trade.
On Monday, the Pentagon said it was establishing a security
operation to protect seaborne traffic from ballistic missiles and
drone attacks launched by the Houthi groups in Yemen. The effort,
called Operation Prosperity Guardian, will include the U.K.,
Bahrain, France, Norway and other countries.
Musk's X Faces Probe in Europe Over Handling of Illegal Content,
Disinformation
BRUSSELS-Elon Musk's social-media platform X will face a formal
probe in Europe over its handling of illegal content and
disinformation in a first test of the European Union's new
online-content law.
The European Commission, the bloc's executive arm, said Monday
it opened a formal infringement proceeding against X, the platform
formerly known as Twitter, under the Digital Services Act. The EU
legislation, which took effect earlier this year, requires some of
the world's biggest online platforms to take steps to address
illegal content and offer users a way to register complaints about
the platforms' moderation decisions, among other rules.
Volcano Near Iceland's Grindavik Erupts After Series of
Earthquakes
A volcano has erupted in Iceland after a string of earthquakes
rattled the area Monday evening.
The eruption began at approximately 10:17 local time, according
to the Icelandic Meteorological Office. It occurred about 2.5 miles
northeast of Grindavik, a small fishing town around 30 miles
southwest of the country's capital, Reykjavik.
Amazon in Talks to Invest in Diamond Sports
Amazon is in talks to invest in the biggest regional-sports
programmer, a move that would advance the e-commerce giant's
aggressive push into sports content as it takes on streaming rivals
like Disney and Netflix.
Diamond Sports Group, which carries the games of more than 40
major sports teams across the country and filed for bankruptcy
earlier this year, is actively negotiating with Amazon about a
strategic investment and a multiyear streaming partnership,
according to people familiar with the matter.
Apple to Halt Watch Sales as It Prepares to Comply With U.S.
Import Ban
Apple is set to halt sales of its smartwatch in the coming days
as it prepares to comply with a U.S. import ban ordered by a
federal trade agency that found the company violated patents of a
competitor.
The company will pause U.S. online sales of the Apple Watch
Series 9 and Apple Watch Ultra 2 beginning on Dec. 21 and in U.S.
stores after Dec. 24, removing from the market a popular Christmas
gift just days before the holiday. The Series 9 and Ultra 2 are the
primary newer models for sale on the company's website. The SE, an
older model that wasn't part of the ruling, will continue to be
sold. Previously sold watches won't be affected by the ban.
End of Adobe's Takeover Bid for Figma Spells New Challenges for
Venture Deals, Startups
The collapse of Adobe's effort to acquire collaboration-software
startup Figma for about $20 billion amid pushback from regulators
in the U.K. and Europe could be one more sobering influence on
venture capital.
Higher interest rates have already depressed the startup
ecosystem at both ends of the spectrum, including private funding
of early-stage startups and the ability of late-stage startups to
enter the public markets via an initial public offering. The demise
of the Figma deal reflects the increasing difficulty that some
startups will face as they pursue an acquisition by another
company.
Write to singaporeeditors@dowjones.com
Expected Major Events for Tuesday
07:00/SWI: Nov Trade Balance
08:00/SVK: Nov Harmonized CPI
08:00/AUT: Nov CPI
08:00/SPN: Oct Industrial Orders & Turnover
10:00/MLT: Nov Harmonised CPI
10:00/CYP: Nov Harmonised CPI
10:00/EU: Nov Harmonised CPI
11:00/UK: Dec CBI Industrial Trends Survey
13:00/HUN: Dec Hungarian interest rate decision
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(END) Dow Jones Newswires
December 19, 2023 00:15 ET (05:15 GMT)
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