MARKET WRAPS
Stocks:
European stocks were back in the red on Friday, as investors
continued to reconsider dovish Federal Reserve rate bets.
The monthly U.S. jobs report at 1330 GMT, if strong, could pour
more cold water on market expectations the Fed will cut interest
rates as early as March.
U.S. Markets:
Ahead of the jobs report, stock futures were a little lower and
Treasury yields were up, above 4%.
Economists forecast that hiring slowed and unemployment ticked
higher from November.
Here is a roundup of projections from economists surveyed by The
Wall Street Journal:
170,000 new jobs added in December, versus 199,000 in
November
3.8% unemployment rate, up from 3.7% in November
Average hourly earnings up 0.3% from November
Forex:
Eurozone provisional inflation data for December are due at 1000
GMT and could lift the euro if they mirror Thursday's
higher-than-expected German inflation figures and dampen
expectations for interest-rate cuts by the European Central Bank,
ING said.
"Today's release of December CPI for the euro area looks as good
an excuse as any for a repricing of the 2024 ECB easing cycle," ING
said, adding that this should offer the euro a little support.
Gains could be limited, however, given that expectations for
fewer rate cuts could dampen risk appetite.
The dollar rose ahead of U.S. monthly jobs data. Thursday's ADP
private payrolls and weekly jobless claims were better than
expected and bond yields rose, lifting the 10-year Treasury yield
above 4%.
"With [U.S.] money markets currently pricing 16bps of easing in
March this year, there is still clearly some room for a further
back-up in short-term rates," ING said.
This year's trend of a rising DXY dollar index "has a little
further to run," it added.
Bonds:
Citi Research has affirmed its year-end target of 2.15% for the
10-year German Bund yield, taking a strategically neutral
duration.
Citi Research had set this target in early December, prior to
the rally that took place late last year, implying its forecast has
already been breached.
"However, we do not feel inclined to adjust the year-end
forecast. While we firmly believe the yield peak...is unlikely to
be revisited, we are not inclined to chase the rally."
Citi also said the spread between 10-year Italian BTP and German
Bund yields is around 15 basis points too tight versus its
medium-term outlook.
Commerzbank Research said eurozone government bond supply
scheduled at auctions next week is expected to be around EUR20
billion--with the exact volume being subject to Italy's
announcement on Monday--and is expected to be accompanied by
syndications.
Societe Generale Research said Belgium faces a potential rating
downgrade in mid-February when Fitch reviews the country's AA-
rating which has a negative outlook.
"We think there's a decent risk that the rating agency will
downgrade the country to A+, as the June election will unlikely
result in any positive surprises vis-a-vis the country's public
finances."
Energy:
Oil prices edged higher in Europe on persisting concerns over
escalating tensions in the Middle East and disruptions to global
supply.
"There is still plenty of tension in the Middle East with Houthi
rebels launching a sea drone in the Red Sea, [while] a U.S. air
strike in Baghdad killed a commander of an Iranian-backed militia
group, and Islamic State claimed responsibility for two explosions
in Iran earlier this week," ING said.
Metals:
Base metals were weaker and gold flat ahead of the U.S. nonfarm
payrolls report, with investors aiming to gauge how the Fed will
approach monetary policy this year
"With the data looking more promising, yesterday saw investors
grow increasingly skeptical about the likelihood of a rate cut by
March," Deutsche Bank said.
EMEA HEADLINES
Sodexo Backs Forecast After 1Q Revenue Growth
Sodexo posted an increase in revenue for the first quarter and
said it is on track to meet its fiscal 2024 targets.
The French catering and food service company on Friday posted
revenue of 6.29 billion euros ($6.89 billion) for the quarter ended
in November, up 8.2% organically from the same period last year. On
a reported basis, revenue grew 3.1%.
Supermarket Giant Drops Pepsi and Lay's Over Price Increases
One of the world's biggest supermarket chains said it would drop
several PepsiCo products to protest what it called unacceptable
price increases, a rare public standoff between a grocer and food
maker after more than two years of rising prices.
Carrefour, which operates thousands of stores across more than
30 countries, said it would stop selling Pepsi, Doritos and other
products in France, Italy, Spain and Belgium. A spokesman for the
French company said Thursday that it had decided to add notes to
store shelves to explain the changes to customers.
U.K. Economy Faces Mounting Uncertainties in 2024
The only certainty in 2024 could be uncertainty for the British
economy, still reeling from sky-high inflation and rapidly rising
interest rates, and gearing up for a general-election.
Indeed, the U.K. is probably the macroeconomic environment where
uncertainty is the highest, according to Julien Lafargue, chief
market strategist at Barclays Private Bank.
GLOBAL NEWS
Markets Moving in Lockstep Threaten to Make for a Trying
2024
Some investors hold that as goes January, so goes the year. The
performance so far-with the S&P 500 down 1.7% by Thursday's
close-doesn't hold out great hope. But the first three trading days
of the year offered a useful run-through of three of the ways that
inflation and the economy affect your portfolio.
The year started the way the last one ended, with all the focus
on the Fed and inflation, only in the opposite direction.
What to Watch in the Jobs Report: Slower Hiring Adds to Case for
Soft Landing
The December employment report will show the labor market
continued to cool but still added jobs at a solid pace as
unemployment remained low, analysts estimate.
North Korea Fires Artillery Barrage Toward Border Islands in the
South
SEOUL-North Korea fired more than 200 artillery shells near the
western border islands of South Korea on Friday, prompting Seoul to
issue an emergency-shelter order for residents at a time when
tensions between the two countries have escalated.
No residents were injured at the Yeonpyeong and Baengnyeong
islands, which are located just miles from North Korea's coastline,
Seoul's military said. The barrage of shells, launched from roughly
9 a.m. to 11 a.m. local time, landed in North Korean waters shy of
the Northern Limit Line, a disputed inter-Korean maritime
border.
U.S. Seeks Drone Bases in Coastal West Africa to Stem Islamist
Advance
NAIROBI-The U.S. is seeking to base military drones along the
West African coast in an urgent effort to stop the spread of al
Qaeda and Islamic State in the region, according to American and
African officials.
The U.S. is holding preliminary talks to allow American unarmed
reconnaissance drones to use airfields in Ghana, Ivory Coast and
Benin, countries on the Atlantic Ocean. Relatively stable and
prosperous, the three coastal countries, along with Togo, now find
themselves threatened by Islamist militants surging south from
Mali, Burkina Faso and Niger-three beleaguered nations in the
Sahel, the semidesert band south of the Sahara.
Write to paul.larkins@dowjones.com
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This article is a text version of a Wall Street Journal
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(END) Dow Jones Newswires
January 05, 2024 05:09 ET (10:09 GMT)
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