MARKET WRAPS
Stocks:
European stocks remained under pressure on Wednesday in another
cautious session amid rising bond yields and concerns that recent
bets on interest-rate cuts in 2024 may have been overdone.
Heavyweight mining and oil-linked stocks were weaker due to
lower crude and commodity prices.
Stocks to Watch
Eurozone banks' profitability, asset quality and capital
structures are expected to decline modestly in 2024, CreditSights
said.
This is due to the impact of inflationary pressures and "high,
although probably declining, interest rates."
However, banks' overall fundamentals are likely to remain
resilient in that period. "We are not expecting any material
[regulatory] developments in 2024."
Banks' credit losses are likely to rise gently while operating
expenses are seen staying flat or increasing modestly, CreditSights
said.
GSK is expected to guide for at least low single-digit EPS
growth for 2024 and settle the Zantac litigation case within the
coming months, Jefferies said, raising its rating on the stock to
buy from hold and lifting its target price to 1,900 pence from
1,550 pence.
It estimates GSK will pay $3-$4 billion to settle the case. The
company's growth profile is under appreciated and the current share
price offers attractive risk reward, Jefferies said.
Economic Insight
U.K. business sentiment ended 2023 stuck in a weak position ,
according to a survey of company directors.
The Institute of Directors Economic Confidence Index, which
gauges prospects for the country's economy, dipped to minus 28 in
December from minus 21 in November, nearing its recent low in June
of minus 30.
"Although aspects of the business environment have improved in
the last couple of months, particularly with regard to inflation,
this is not yet exerting a meaningful impact on business
decisionmaking," the IoD said.
U.S. Markets:
Stock-index futures were lower after the previous session saw
technology stocks suffer a sell-off on concerns the recent rally
has come too far too fast.
And investors remain wary of a move higher in Treasury yields,
which continued on Wednesday, with the 10-year note up to 3.985%
having traded around 3.80% just last week.
With the Fed's policy trajectory in mind, investors will be keen
to see the minutes from its December meeting, due to be released
after the European close. Richmond Fed President Tom Barkin is due
to speak earlier, before the opening bell.
Economic updates set for release on Wednesday include the job
openings survey for November, alongside the December ISM
manufacturing report.
Forex:
EUR/USD's pullback from its late-December high of 1.1139 may
extend further, based on technical charts.
Despite EUR/USD reaching 1.1139, there's no clear increase in
upward momentum and the pullback from 1.1139 was accompanied by
bearish divergence on daily moving average convergence divergence
indicator, UOB Global Economics & Markets Research said.
Downward momentum is also starting to build, which suggests
1.1139 may be a peak for the next 1-2 months. The rising trendline
that connects lows of November and December and the 55-day
exponential moving average, both around 1.0860, should offer strong
support, UOB said.
Bank of America Global Research expects the recent strength in
the Swiss franc to fade and recommends investors buy a three-month
EUR/CHF 1x1.5 ratio call spread option.
The Swiss franc was a G10 outperformer in 2023, particularly in
December, which BofA attributes to end-of-month rebalancing flows
rather than a directional play for lower EUR/CHF. The Swiss
National Bank's messages in December suggest it could favor a
weaker currency, BofA said.
"Whilst the symmetrical language on FX raises the chances of
intervention to weaken CHF, more likely is that FX sales to taper
the balance sheet...is likely to be the path of least
resistance."
Bonds:
The 20 basis point rise in 10-year German Bund yields over the
last three trading sessions took place in the absence of any
fundamental impulses, Commerzbank Research said.
"This is likely to change in the coming days with key U.S.
activity and eurozone inflation data due as central bankers return
from their holidays."
Austria, Belgium, Ireland, Italy, Portugal and Spain are all
expected to launch syndicated transactions , mostly in the 10-year
maturity segment, in the coming weeks, UniCredit Research said,
with January often the busiest month of the year in terms of
government bond issuance.
Energy:
Oil futures were weaker, pressured by a broader fall in risk
assets and despite a rise in Middle East tensions.
"While the geopolitical situation is a concern for the oil
market, a fairly comfortable oil balance over the first half of
2024 does help to ease some of these worries," ING said.
Metals:
Base metals and gold edged lower as a stronger dollar added
pressure to risk assets.
ING said gold investors will be eyeing this week's U.S. jobs
data, with Federal Reserve policy likely to be led by key economic
data releases.
"We believe that the Fed policy will remain key to the outlook
for gold prices in the months ahead."
A modest cyclical revival in China's growth in the first half of
2024 should help support most commodity prices, Capital Economics
said, adding that its in-house proxy of China's economic growth
points to a pick-up in activity and reckons recent PMI surverys
"are not reflecting economic reality.
Activity and import data all point to resilient commodity
demand," it said.
HSBC expects commodity prices to rise an average 2% in 2024 ,
before falling 4% in 2025. That follows a sharper-than-expected
fall in 2023.
Despite the pullback, commodity prices remain at elevated levels
and "squeezed supply, better Chinese demand and the energy
transition are all set to support commodity prices in 2024," HSBC
said.
EMEA HEADLINES
Airbus In Talks to Buy Atos Cybersecurity Unit for Up to $2
Billion
Airbus is in talks to buy Atos's cybersecurity unit, with an
indicative offer that values the business at up to 1.8 billion
euros ($1.97 billion) including debt.
Facing fresh financial constraints, French IT group Atos is
revisiting its asset-sale plans nearly a year after the European
plane maker's failed bid to take a minority stake in the Atos
division that houses the cybersecurity unit.
GLOBAL NEWS
Tech's AI Hangover Might Just Be Getting Started
One thing already seems certain about 2024: AI is going to need
to start showing the money. Whether it can is a whole other
question.
Excitement for generative artificial intelligence sparked by
OpenAI's chatbot was the dominant theme for investors in 2023. The
Nasdaq Composite jumped 43% for the year-its second-best annual
performance in 15 years. Meanwhile, technology and e-commerce
companies on the S&P 500 averaged a gain of 57%, more than
double the broad index's overall performance for the year. Indexes
tracking subsectors such as chips and software recorded their best
annual gains since 2009, when the market was bouncing back from the
global financial crisis.
How Serious Is the Fed About Cutting Rates? Watch Today's Fed
Minutes for Clues.
Federal Reserve officials signaled at last month's meeting that
the central bank will implement three quarter-point rate cuts this
year. Investors will get a better idea of what conditions prompted
the Federal Open Market Committee to make this call when the
minutes of that meeting are released today.
The minutes from the FOMC's Dec. 12-13 meeting will be released
at 2 p.m. and should provide some additional insight into how Fed
officials' views of the economy have shifted in recent months and
what economic data policy makers are prioritizing to make their
economic projections.
Top Wall Street bull warns of a pause in stock rally but sees
S&P 500 grinding higher in 2024
U.S. stocks are likely to start 2024 with a breather and to
remain data-dependent until the start of fourth-quarter earnings
season, as a bull run that saw the three major indexes post
double-digit growth last year may lose steam in early January,
according to strategists at Oppenheimer Asset Management.
"Considering the powerful rally that stocks stateside have had
from a low since October 27, it should come as no surprise that
traders and investors needed to take the opportunity to assess a
move from the October low through last Friday," said strategists
led by John Stoltzfus, chief investment strategist and managing
director at Oppenheimer.
Donald Trump Asks Maine Court to Reverse State's Ballot Ban
Donald Trump's campaign on Tuesday asked a Maine court to
reverse last week's decision by the state's top election official
to remove the Republican front-runner from the presidential
ballot.
Trump's legal team filed a suit in Kennebec County Superior
Court defending his eligibility for office and challenging the
authority of Maine's secretary of state to disqualify him from its
primary contest.
Top Hamas Leader Killed in Suspected Israeli Strike in
Beirut
A suspected Israeli attack targeted a Hamas gathering in Beirut
on Tuesday, killing at least seven members of the Palestinian
militant group, including one of its most influential founding
members, according to Lebanese and Palestinian security officials,
sending shock waves through the Middle East and bringing weekslong
hostage negotiations to a halt.
Powerful blasts rocked a Beirut neighborhood early Tuesday
evening, killing Saleh al-Arouri, a founder of the Hamas military
wing, deputy head of its political bureau and, according to the
group, an architect of the group's Oct. 7 attacks in southern
Israel that killed 1,200 people, most of them civilians. The
explosions sent shattered glass and car parts flying through the
streets near one of the city's famed sweet shops.
Israel Remains Divided Despite Show of Wartime Unity, Court
Ruling Underscores
TEL AVIV-Israel's Supreme Court ruling on Monday invalidating a
law that was at the center of a contentious judicial overhaul was a
reminder of the underlying divisions in Israeli society put aside
during the war in Gaza-tensions that could erupt once the conflict
is over.
The law-which was put forth by the government of Prime Minister
Benjamin Netanyahu and would have curtailed the power of Israel's
courts-was divisive. It ignited one of the largest and most
sustained protest movements Israel has seen, bringing hundreds of
thousands of people to the streets over months.
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(END) Dow Jones Newswires
January 03, 2024 05:25 ET (10:25 GMT)
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