MARKET WRAPS
Stocks:
European stocks edged lower on Monday, erasing early gains, and
with U.S. markets closed, trading volumes are likely to be lighter
than usual.
Investors continue to weigh the outlook for monetary policy
following some mixed signals on the U.S. economy.
Interactive Investor said U.S. bank earnings so far have been
mixed, though weaker U.S. producer prices data eased inflation
concerns following the recent stronger-than-expected U.S. CPI
data.
Stocks to Watch
ABN Amro is unlikely to strike cross-border deals soon, ING said
after Bloomberg reported that Deutsche Bank's CEO is exploring
deals with the Dutch lender and Commerzbank to boost its
valuation.
"Such press articles are not new, and we believe that it is
unlikely so early after the Silicon Valley Bank banking crisis to
see any large M&A, " ING said.
Cross-border deals offer little value without a banking union,
it added, noting that the Basel 4 reforms potentially coming in
2025 will help fuel such talks.
The Dutch State--which owns around 48% of ABN Amro--is unlikely
to prioritize profit over banking stability, ING said, noting the
weak position of any government resulting from November's elections
might be another reason to not rush into deals.
The first two weeks of the year were marked by escalating
tensions in the Middle East and the Indo-Pacific, events that
coupled with the war in Ukraine should continue to support European
defense sector spending, Citi said.
"Overall, we struggle to see a geopolitical climate in near-term
which lends itself to lower European defense spending."
Citi noted that several countries have elections in Europe this
year as does the U.S., which could have significant ramifications
on the urgency and degree to which European powers increase arms
spending.
Market Insight
Many investors remain overweight cash but Neuberger Berman
doesn't share this view as markets have begun to price for a
substantial decline in short-term interest rates.
Neuberger Berman's asset allocation committee "therefore thinks
it is time to deploy liquidity, locking in bond yields before they,
too, are dragged down, and seeking out value in equities and other
markets."
As a result, Neuberger Berman has "heavily" downgraded its view
on cash. "When cash begins to drag on returns but economic
fundamentals remain uncertain, conservative valuations become an
investor's friend."
Economic Insight
Jefferies's major call for 2024 is a bullish view on front-end
rates and steeper curves, but it doesn't share market views of
early interest-rate cuts.
"We are not in the March rate-cut camp for the Federal Reserve
or an April cut from the European Central Bank," it said.
Jefferies continues to expect the first rate cuts from both the
Fed and the ECB in June, with the view driven by the fact that
there is no urgency for the central banks to be overly aggressive
in rate cuts.
Forex:
The dollar is likely to stay in a tight range this week, keeping
the DXY index in the 102-103 region, ING said, but it could benefit
due to Middle East tensions and concerns about China-Taiwan
relations after Taiwan's elections.
Recent better-than-expected U.S. data haven't triggered a dollar
rebound and the consensus view that the currency will decline later
this year "seems to be making investors keen to sell dollar
rallies," ING said.
Investors probably need clearer signals from the Federal Reserve
that data don't justify the market pricing in so many interest-rate
cuts.
Bonds:
The eurozone government bond syndications pipeline should start
thinning out after last week's whopping volume of EUR41 billion,
Commerzbank Research said.
That said, the syndications that are usual at the beginning of
the year aren't over yet.
"Among the candidates for further syndications are Finland and
France," Commerzbank said.
However, France only came to market in late January/early
February in the last two years, indicating the French Treasury
Agency might wait until after this first supply wave has been
absorbed.
Gilt yields edged higher as investors awaited Tuesday's U.K.
labor market report and Wednesday's inflation data.
"So far this year, investors have been very constructive on U.K.
rates. This week, gilts will have to digest fresh labor market and
inflation data, which will put that appetite to the test," Mizuho
said.
Stronger-than-expected data would increase prospects of interest
rates staying higher for longer and dampen demand for gilts.
Energy:
Oil prices edged lower after rising earlier in the session with
investors keeping a close eye on the Middle East following U.S.-led
attacks against Houthi targets in Yemen.
On Sunday, the U.S. military shot down an anti-ship cruise
missile fired from Houthi militant areas of Yemen toward a U.S.
destroyer in the Southern Red Sea.
"We are still not seeing a reduction in oil supply as a result
of developments in the region. But clearly the more escalation we
see in the region, the market will likely have to start pricing in
the larger risk of supply disruptions," ING said.
Metals:
Base metals were mixed after China's central bank left its key
policy rates unchanged against expectations of monetary easing,
while gold moved higher.
"The macro environment is sending mixed signals ahead of the MLK
[U.S.] market holiday and a quiet week for economic data," Peak
Trading Research said.
"Investors are betting on a dovish Fed, which supports stock
markets, bonds, and cryptos but isn't translating to better demand
for commodities."
Gold may undergo a breakout , based on technical charts, after
it staged a V-shaped reversal in last week's latter half at the
lower boundary of its medium-term ascending channel in place since
early October, together with a bullish momentum condition signaled
by the daily relative strength index's momentum indicator.
Uranium prices are surging faster than anticipated, Morgan
Stanley said.
The bank, which recently named the nuclear fuel as its top
mined-commodities pick, pointed out that uranium's $92.50/pound
spot price is now just 2.6% shy of MS's $95/pound 2Q forecast.
Estimated margins for hot rolled coil steel in China are at
their lowest since 2015, Morgan Stanley said, yet that doesn't
necessarily suggest recent softness in iron-ore prices will
continue.
EMEA HEADLINES
German Economy Contracted in 2023, Hit by Inflation and Weak
Foreign Demand
Germany's economy contracted in 2023, hindered by high inflation
that squeezed consumer spending, with the country's creaking
industrial model also suffering from weak global demand.
Price adjusted gross domestic product declined 0.3% compared
with the previous year, according to preliminary data published
Monday by Germany's statistics office Destatis.
Thomson Reuters Buys Majority Stake in Pagero
Thomson Reuters said it has bought a majority stake in the
Pagero Group, taking it closer toward full control of the
latter.
Apart from the key shareholders, including Summa Equity,
Pagero's chief executive Bengt Nilsson, several members of the
management team and employees, have sold their stock to the
company, Thomson Reuters said Monday.
GLOBAL NEWS
China Central Bank Keeps Key Policy Rates Unchanged
China's central bank on Monday kept its key policy rates
unchanged in an unexpected hold.
The country's major commercial banks had lowered their deposit
rates, a move seen as leaving room for more rate cuts.
It Won't Be a Recession-It Will Just Feel Like One
The good news is the probability of a recession is down sharply,
according to The Wall Street Journal's latest survey of economists.
The bad news is that, for a lot of people, it is still going to
feel like a recession.
Business and academic economists surveyed by the Journal lowered
the probability of a recession within the next year, to 39% from
48% in the October survey.
Congressional Leaders Strike Deal to Fund Government Into Early
March
WASHINGTON-Congressional leaders have reached an agreement on a
new stopgap spending bill that would extend government funding into
March, as House Speaker Mike Johnson (R., La.) sticks to his plan
to defy the most brass-knuckled budget hawks in his party in a bid
to avoid a government shutdown.
The government has been running on short-term spending laws,
known as continuing resolutions, or CRs, since the start of the
fiscal year on Oct. 1, as lawmakers continued to negotiate
full-year funding.
Taiwan Election Piles Pressure on Delicate U.S.-China Ties
Taiwan's election of the presidential candidate China most
distrusts puts at risk a fragile detente between Washington and
Beijing, threatening another flare-up between the world's biggest
economic and military powers.
Voters on Saturday gave the Democratic Progressive Party four
more years in power, this time by choosing as president-elect the
current vice president, Lai Ching-te, whom China condemns as an
inveterate agitator for Taiwan's independence-an outcome that
Beijing has vowed to prevent, by force if necessary.
After 100 Days, Israel-Hamas War Threatens to Spill Beyond Gaza,
Disrupt Global Trade
After 100 days, Israel's war with Hamas is turning into a
protracted conflict with no clear end, threatening to spread across
the Middle East, disrupt global trade and bog down the U.S.
One of the biggest geopolitical events this century, the war has
swung from a Hamas attack on Oct. 7 that Israel says killed 1,200
people to the Israeli military's ferocious retaliation against the
militant group in Gaza.
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(END) Dow Jones Newswires
January 15, 2024 05:34 ET (10:34 GMT)
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