MARKET WRAPS
Stocks:
Most European stock indexes struggled for momentum on Wednesday,
despite renewed optimism that interest rates could be cut early
next year, after data showed weaker-than expected consumer
inflation in the U.K. and lower producer prices in Germany.
"As worries regarding the implications of developments in the
Red Sea mount, the latest inflation numbers from Europe and Britain
give some respite," Swissquote Bank said.
Stocks to Watch
The diversified metals and mining sector will likely see
improving commodity prices and a macro environment conducive for
commodity exposure due to loosening monetary policy and resilient
economic growth, RBC Capital Markets said.
"Coming off of a year of relative underperformance, we are
constructive on the sector."
Base-metals exposed names like Glencore and Anglo American are
favored picks. The latter has had a difficult year, falling 42% to
date, but "considering Anglo American's balance sheet is ok and we
remain positive on its relative commodity suite, perhaps the worst
is over," RBC said.
European integrated oil-and-gas companies will face the decision
to either cut buybacks or increase leverage ahead of 4Q results,
Jefferies said.
Expectations are on the rise again that BP will keep its buyback
flat on quarter at $1.5 billion. Conversely, market sentiment
around Shell's buyback have moderated.
However, Jefferies sees BP cutting its buyback to $1 billion or
less, and Shell surprising by keeping its buyback stable on quarter
at $3.5 billion.
"In an uncertain macro environment, Shell remains our favorite
sector pick."
U.S. Markets:
Stock futures dipped but the S&P 500 remained just shy of
its record high set two nearly years ago. The Dow Jones Industrial
Average closed Tuesday at a record for a fifth-straight
session.
Bonds are rallying anew, with the 10-year yield on pace for a
seventh decline in eight sessions.
Investors remained big believers in a March rate cut. Even after
the recent Fed pushback, futures traders see a roughly 80% chance
of lower rates by March.
U.S. economic updates set for release on Wednesday include the
current account for the third quarter, followed by November
existing home sales and December consumer confidence.
Forex:
Sterling declined as markets price in Bank of England rate cuts
in early 2024 after weaker-than-expected U.K. November inflation
data.
"There's growing confidence cuts to the base rate could begin as
early as March and that by this time next year the economic
landscape will look very different," AJ Bell said.
Bonds:
The 10-year German Bund yield slipped below 2% for the first
time since late March, reflecting money markets' expectations of
robust interest-rate cuts by the European Central Bank next year as
inflation is slowing and the economy is likely weakening.
Markets currently price in 157 basis points of ECB rate cuts for
2024, with the first 25 basis point cut priced in for April.
DZ Bank Research said Bund yields are likely to rise in the
coming weeks as markets might have to slow their expectations of
interest-rate cuts by the ECB.
DZ Bank Research is significantly more cautious about ECB rate
cuts than the money market because it doesn't envisage inflation to
continue falling at its current pace.
"We are therefore forecasting a rebound in 10-year Bund yields
in the coming weeks," DZ said, expecting the Bund yield around 2.5%
on a three-month horizon. Toward the end of 2024, DZ forecasts the
yield at 2.2%.
Mizuho said the rally in risk assets, the ECB's announcement on
the future of reinvestments under the PEPP and the eurozone's macro
deceleration "are all powerful tailwinds for BTP-Bund
tighteners."
"We see no strong headwinds against further tightening towards
the year-to-date lows in the near term."
Mizuho said the next potential drivers of the BTP-Bund spread
are negotiation of the EU's new fiscal rules and Italy's 2024
funding plans.
Investors surveyed in BofA's global fund manager survey in
December remain bullish on bonds with allocation up one percentage
point on the month to net 20% overweight, the biggest overweight
since March 2009.
Regarding which asset class fund managers expect to perform best
in 2024, 45% said bonds.
Short-term rates will be lower over the next 12 months,
according to 89% of respondents in the survey, the most on record.
Also, a record 62% of investors in December expect bond yields to
be lower in 12 months time.
Energy:
Oil prices edged higher on concerns about global trade
disruptions after major companies paused transit through the Red
Sea due to recent attacks by Yemen's Houthi forces.
"The attacks in the Red Sea are the third major disruption to
maritime transport this year, alongside low water levels in the
Panama Canal and collapse of the Black Sea grain deal," Capital
Economics said.
"Higher transport costs will boost the prices of intermediate
goods and may rekindle some inflationary pressure."
Metals:
Metals ticked higher supported by market optimism around
interest rate cuts next year and hopes of a brighter demand
outlook.
The Democratic Republic of Congo, the world's top producer of
cobalt, is ready to welcome more U.S. investments in its mining
industry, which is dominated by Chinese miners, the country's
president said.
For over a decade, Chinese companies have spent billions of
dollars buying out U.S. and European miners in Congo's cobalt belt,
dominating the production of a metal that has become critical to
the global transition to cleaner energy.
EMEA HEADLINES
German Consumer Confidence Rises Again as Income Prospects
Brighten
Consumer confidence in Germany improved for the second-straight
month in data for January, as income expectations jumped, despite a
still-subdued outlook for the country's economy.
Germany's forward-looking consumer-sentiment index forecasts
confidence to improve to minus 25.1 in January, from minus 27.6 in
December, according to data published Wednesday by market-research
group GfK and the Nuremberg Institute for Market Decisions.
Telefonica stock climbs as Spanish government to match Saudi
stake
Shares in Telefonica rallied on Wednesday after the Spanish
government said it would buy a stake of up to 10% in the country's
telecommunications giant, which would match the investment made by
a Saudi Arabian company.
Telefonica shares ES:TEF TEF rose 5% in early Madrid trade and
have gained 11% this year.
ProSiebenSat.1 to Boost Spending on Local Content, End Deals
With Hollywood
ProSiebenSat.1 Media plans to double down on investment in local
programming and shift away from U.S. licensed content, ending
extensive long-term output deals with Hollywood studios.
The German media company said late Tuesday that its decision
took into account viewership trends in recent months, both on its
streaming platform Joyn and traditional TV.
GLOBAL NEWS
Powell's Pivot Sows Confusion Over When and How Fast Fed Will
Cut
Federal Reserve Chair Jerome Powell was asked at a recent
gathering what he does for fun. He paused, then grinned.
"For me, a really big party-this is as fun as it gets-is a
really good inflation report," he said to laughter at Spelman
College in Atlanta earlier this month.
China's Benchmark Lending Rates Held Steady
China's benchmark lending rates were kept unchanged as the
market had expected, after the central bank held its key policy
rates steady.
The one-year loan prime rate was left at 3.45% and the five-year
rate was the same as last month at 4.2%, according to the People's
Bank of China.
Pro Take: M&A Deals Take Longer, Fall Apart More Often,
Straining Startups
It took 15 months between the announcement of the definitive
agreement by Adobe to buy Figma and the deal's termination. Add to
that the time from the start of conversations, and it is a
protracted period.
Drawn-out merger processes strain private companies.
A Junk Bond Fund That Delivers High-Quality Returns
David Sherman has one guiding investment philosophy: Return of
capital is more important than return on capital.
It's a more nuanced principle than simply "Don't lose money,"
says Sherman, 58. Instead, he avoids taking undue risks. "It adds
an element of discipline," he adds.
Trump Disqualified From 2024 Presidential Primary Ballot,
Colorado Supreme Court Rules
Donald Trump can't appear on the 2024 presidential primary
ballot in Colorado because of his actions surrounding the Jan. 6,
2021, riot at the U.S. Capitol, the state's highest court ruled
Tuesday.
The first-of-its kind decision sided with a group of Colorado
voters who argued in a lawsuit that the Republican front-runner was
disqualified under a clause in the 14th Amendment. Enacted after
the Civil War, the provision disqualifies from public office those
who swore to defend the Constitution and then "engaged in
insurrection or rebellion" against the U.S.
Hamas, Palestinian Rivals Conduct Talks About Governing Postwar
Gaza
DOHA, Qatar-Hamas's political leaders have been talking with
their Palestinian rivals about how to govern Gaza and the West Bank
after the war ends, a fraught negotiation that threatens to put
them at odds with the militant wing fighting Israel.
The talks are the clearest sign that Hamas's political faction
is starting to plan for what follows the conflict.
France Passes Immigration Bill That Boosts Authorities' Power to
Deport Foreigners
PARIS-The French parliament on Tuesday approved an immigration
bill that boosts authorities' power to deport foreigners and limits
access to welfare and citizenship, cementing the rightward tilt of
President Emmanuel Macron's government.
Lawmakers at the Senate and the National Assembly, France's
lower house of parliament, approved the new legislation after
Macron's centrist party clinched a last-minute deal with the
conservative Les Républicains party following months of tense
negotiations.
U.S. Leads Bid to Secure Red Sea, but Shipping Firms Remain on
Edge
Hours after the U.S. announced a multinational task force to
protect commercial traffic through the Red Sea, shipping giant A.P.
Moller-Maersk said it would send its vessels around the Cape of
Good Hope in southern Africa instead.
The message was clear: Shipping firms, oil companies and
insurers remain jittery about a possible snarl to one of the
world's most crucial trade routes.
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(END) Dow Jones Newswires
December 20, 2023 05:07 ET (10:07 GMT)
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