MARKET WRAPS
Stocks:
European shares rose on Tuesday on mounting optimism that
interest rates will be cut this year.
Oil and gas majors advanced after crude futures jumped on rising
tensions in the Middle East. This followed news that Iran had sent
a warship into the Red Sea after U.S. attacks on Houthi Islamists
over the weekend.
Stocks to Watch
Lufthansa is likely to underperform its peers on long-haul
pricing, particularly in Asia, and GTF aircraft-engine problems
could hurt profit margins, Citi said, cutting its recommendation to
sell from neutral.
"The pricing tracker shows that Lufthansa underperforms peers on
long-haul Asia. We believe this is due to Frankfurt airport lifting
restrictions on Chinese airlines in summer 2023 and has led to more
competition," Citi said, citing its own analysis of pricing
data.
Moreover, about 8% of the German carrier group's fleet is
expected to be hit by aircraft groundings due to the GTF engine
problems which, combined with limited pricing power, suggests
higher risk to its 2024 EBIT margin target of around 8%.
U.S. Markets:
Futures for the S&P 500 and Dow industrials pointed to minor
gains while Nasdaq-100 futures edged lower. Meantime, Treasury
yields inched higher.
2023 ended with a rally in most assets, spurred by growing
belief that the Federal Reserve is about to start cutting interest
rates. Derivative markets place a high likelihood on the first cut
coming as soon as March. On Wall Street, optimism abounds about the
prospects for the stock market in 2024.
U.S. economic updates set for release on Tuesday include the
S&P manufacturing PMI for December, and November construction
spending.
Forex:
The inversion of the Treasury yield curve and the weakness of
the dollar have likely gone too far in the near term, although this
week's data releases are unlikely to prompt a reversal of this
trend yet, Danske Bank Research said.
For now, the market will probably look for confirmation of the
disinflationary trend to justify an inverted money-market curve and
the weaker dollar, Danske said.
Treasury bill supply hitting the market from the end of January
could prove the trigger for a reversal in front-end rates and
EUR/USD, Danske said.
Bonds:
Bond markets enter the new year at ambitious valuations, with
10-year Bund yields trading around 2% and almost 165 basis points
of ECB interest-rate cuts priced in for 2024, Commerzbank Research
said.
"Bond market valuations appeared ambitious already ahead of
Christmas and 10-year Bund yields reached their 2023-lows at 1.89%
before sharply rebounding in the volatile trading sessions between
the holidays, which were also characterized by low futures
turnover."
Gross and net government bond issuance in the eurozone is
expected to remain at record highs in 2024, Barclays Research said.
It forecast gross supply at around EUR1.32 trillion this year,
roughly unchanged versus 2023.
"This sticky gross issuance volume is because the improvement in
deficits is offset by higher refinancing requirements and a decline
in bill stock."
Barclays forecasts net government bond supply in the eurozone at
near EUR460 billion, approximately EUR65 billion lower than in
2023.
Barclays also said the U.K. Debt Management Office is expected
to maintain a heavy supply of gilts in the fiscal year 2024/25
mainly due to a higher amount of redemptions in that period.
Energy:
Oil prices rose close to 2% after attacks on ships in the Red
Sea by rebel Houthi forces added to worries that the war in Gaza
could spread further into the Middle East.
The U.S. destroyed three boats carrying militants supported by
Iran on Sunday after a Maersk-owned container ship came under
attack from Houthi forces late on Saturday.
Maersk is still planning to ship via the Red Sea and Suez Canal
in the near term, according to a company schedule released earlier
on Monday.
Metals:
Base metals and gold edged higher, supported by a weaker
dollar.
The dollar fell 2.1% last month, helping to lift commodity
prices, according to Peak Trading Research. This trend is likely to
continue depending on how the dollar moves, Peak added.
Markets will be looking to U.S. jobs data, with a series of
releases lined up this week.
"Bond markets are pricing a very dovish Fed this year, with the
first interest-rate cut projected by March, and six more cuts
penciled in by the end of 2024."
EMEA HEADLINES
Netherlands Blocks ASML Exports of Some Chip-Making Equipment to
China
The Netherlands has blocked chip-equipment manufacturer ASML's
exports to China of some lithography systems, which are essential
to making advanced microprocessors, in a partial license revocation
following U.S. export restrictions.
The Netherlands-based company said Monday that the Dutch
government recently partially revoked an export license for
shipping the NXT:2050i and NXT:2100i lithography systems to China
in 2023.
Iberdrola's Avangrid Ends $4.3 Billion Deal With PNM
Resources
Iberdrola's U.S. renewables subsidiary Avangrid has ended a
merger agreement with power company PNM Resources after rejecting a
bid to extend the deadline of the $4.3 billion deal reached in
October 2020.
The Spanish energy company said Tuesday that Avangrid-which is
81.5%-owned by Iberdrola and houses its U.S. renewable-energy
assets as well as electric and natural-gas utilities-terminated the
deal after conditions for closing it weren't met in the timeframe
the parties agreed to.
U.K. Shop-Price Inflation Held Steady in December, Report
Says
Annual U.K. shop-price inflation was unchanged in December, with
growth at the lowest rate since June 2022, a report by NielsenIQ
and the British Retail Consortium showed Tuesday.
Prices at U.K. stores were up 4.3% on year in December, matching
November's rate and below the three-month average rate of 4.6%.
GLOBAL NEWS
China's Private Factory Activity Expands for Second Month
A private gauge of China's factory activity expanded at a faster
clip in December, contrasting with the official index, which fell
deeper into contraction.
The China Caixin manufacturing purchasing managers index rose to
50.8 in December, up slightly from 50.7 in November, according to
data released Tuesday by Caixin Media and S&P Global.
Optimism Abounds on Wall Street This New Year
Wall Street is feeling sunny about the stock market as the
calendar flips to 2024.
Last year's widespread skepticism proved to be misplaced. Stocks
rose through much of 2023, powered by the rise of artificial
intelligence and an economy that stayed stronger than nearly all of
Wall Street had anticipated. The recession that investors had
largely agreed was imminent never came.
Shale Is Keeping the World Awash With Oil as Conflicts
Abound
A surprise surge in American oil and gas production and exports
is helping to keep the world stocked, blunting the impact of
widening conflict in the Middle East that has crimped key shipping
lanes.
When Iranian-backed Houthi militants began launching missiles
and drones at ships crossing the Red Sea near Yemen in October,
many feared disruption to the vital shipping lane would drive up
energy prices. But oil and gas prices this past month have sunk
about 5% and 23%, respectively.
Western Anxiety About Chinese EVs Could Prove Self-Defeating
China hawks have the upper hand in the political battle over
electric vehicles. They should be wary of overplaying it.
The rules for getting a tax credit on EV purchases in the U.S.
changed recently. One difference will help stimulate sales: The
credit, worth up to $7,500, is now available at the point of sale
rather than at the end of the tax year, meaning it can be used as
part of a down payment. Other changes will have the opposite
effect. Among new sourcing requirements designed to foster a North
American supply chain, battery components manufactured in China,
the world's largest supplier, now make models ineligible.
Israel Reshuffles Forces, Prepares for Long-Term Conflict in
Gaza
TEL AVIV-Israel began preparations for prolonged fighting in the
Gaza Strip, reshuffling forces as it weighs how to sustain
lower-intensity fighting over the long term.
Israel's top general said that it would take at least several
more months to destroy Hamas's military capabilities in the
enclave.
U.S. Navy Destroys Boats Controlled by Iran-Backed Militias in
Red Sea
The U.S. Navy destroyed three boats carrying militants supported
by Iran after they attacked a containership in the Red Sea, while
Iran-allied militias struck a U.S. base in Syria, raising the risk
that the war in Gaza could drag the U.S. into broader tensions in
the region.
On Saturday evening, the Maersk Hangzhou, a Singapore-flagged
container vessel that operates between Europe and Asia, came under
missile attack, the U.S. said. Four boats later approached the
vessel, shot at it and attempted to board it, according to Danish
shipping giant Moller-Maersk, which operates the containership.
Write to paul.larkins@dowjones.com
Write to us at newsletters@dowjones.com
We offer an enhanced version of this briefing that is optimized
for viewing on mobile devices and sent directly to your email
inbox. If you would like to sign up, please go to
https://newsplus.wsj.com/subscriptions.
This article is a text version of a Wall Street Journal
newsletter published earlier today.
(END) Dow Jones Newswires
January 02, 2024 05:32 ET (10:32 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.