MARKET WRAPS
Stocks:
European shares were struggling on Thursday ahead of the European Central Bank's latest policy decision.
The ECB is widely expected to keep interest rates unchanged, but as with the Federal Reserve, the question for Christine Lagarde is how soon rates can start going lower.
"With inflation dropping further and the eurozone economy remaining weak, the debate on rate cuts will be more heated than ever," ING said.
"The subtle changes in the official communication should continue, sending more precise signals for a June rate cut."
Stocks to Watch
Glencore shares now provide an excellent entry point following the sharp year-to-date pullback in value, as the copper-market upside seems to be coming sooner than expected, Jefferies said.
Glencore's investment case "is improving sooner than we had expected as the copper price breakout to the upside is approaching, in our view, and thermal coal markets appear to be stabilizing/recovering," Jefferies said.
Additionally, the benefits of its Elk Valley Resources acquisition are still underappreciated and not fully reflected in the share price.
U.S. Markets:
Stock futures were lower and Treasury yields were up above 4.11%, ahead of more testimony from Jerome Powell, plus earnings from Broadcom and Costco.
New York Community Bancorp remains in focus following the news that it is raising more than $1 billion from a group of investors including former Treasury Secretary Steven Mnuchin.
Forex:
EUR/USD continues to track short-term rate differentials closely, but is unlikely to fall as far as 1.05 nor rise to 1.15 in the next year, Societe Generale Research said. It expects both the ECB and the Fed to cut interest rates by 75 basis points this year.
EUR/USD is unlikely to fall as far as 1.05 nor rise to 1.15 in the next year, although "further out, the likelihood is that the Fed will stop easing before the ECB and start tightening first too," Societe Generale said.
Morgan Stanley Research continues to forecast dollar strength against G10 currencies by the end of 2024, although in the near term the greenback is less certain to rise given current high levels of risk appetite. Near-term risks are more balanced for the dollar, leaving Morgan Stanley Research tactically neutral on the currency.
"Continued U.S. growth outperformance could be a tailwind for the dollar but an improving growth outlook in Europe is a headwind."
Bonds:
Eurozone government bond yields have barely moved ahead of the ECB, with interest rates expected to be left unchanged, while updated macroeconomic forecasts will be key for the medium-term inflation outlook, UniCredit Research said.
"The ECB will likely leave its monetary policy unchanged today, refraining from sending any signals that could point to a rate cut in April."
UniCredit Research continues to see the first ECB rate cut in June, with risks tilted towards a later start to the easing cycle.
Morgan Stanley Research is tactically neutral on U.S. duration for now, adding that yields have settled into a higher range that is too high versus its base case for the Fed path. Meanwhile, front-end repricing continues to diverge from economic fundamentals, cheapening euro duration.
Morgan Stanley believes the sell-off at the front end of the curve is mostly done, leaving German Bunds an attractive vehicle to be long duration.
It has forecast the 10-year Treasury yield to decline to 3.95% in the fourth quarter and expects the 10-year Bund yield at 1.80%.
Morgan Stanley said global fixed income gross supply is set to rise 12% this year versus last year, driven by $3.96 trillion in Treasurys and $1.59 trillion in U.S. investment-grade and high-yield credit issuance.
Demand should meet these high levels of supply, it added.
New issue premium for developed-market and emerging-market credit is compressed, reflecting good demand, while rest-of-the-world investors have continued to buy Treasurys.
Energy:
Oil prices were lower in Europe despite upbeat Chinese trade data and heightened tensions in the Middle East after the first fatal attack on Red Sea shipping.
A jump in China's exports at the start of the year sent encouraging signals on global demand, but Jerome Powell's remarks that continued progress on lowering inflation "is not assured" were weighing on sentiment, according to some analysts.
Meanwhile, "the macro vibe is bullish," according to Peak Trading Research, with all eyes on the ECB policy decision later in the day and U.S. employment data on Friday.
Metals:
Base metals and gold gained in early European trading, and MUFG said the case for further, patient advances for bullion looks intact.
Gold is MUFG's most bullish call this year, with a year-end forecast of $2,350 an ounce, backed up by a trifecta of Fed cuts, supportive central bank demand and bullion's role as the geopolitical hedge of last resort.
The base metal market focus remains fixated on China, and investors are watching for further stimulus measures to alleviate some uncertainty over the country's economic prospects, MUFG added.
HSBC said gold's upward trajectory may be slowing.
Jerome Powell's remarks to Congress "were not especially gold friendly" and record-high prices may cool physical demand for the metal, particularly from central banks, HSBC said.
Based on technical charts. gold may extend its rally in the coming months, UOB said.
UOB said gold's upward momentum has surged and its weekly moving average convergence divergence indicator has crossed into positive territory.
With the nearest major resistance at $2,163/oz on the weekly chart, an upside break wouldn't be surprising but it's unclear at this stage whether gold can sustain its foothold above that level due to the swift pace of its gains.
EMEA HEADLINES
German Manufacturing Orders Fell More Than Expected in January
German manufacturing orders sank in January, and by more than expected, offsetting much of the uptick in December.
Orders were 11.3% lower than the prior month, German statistics office Destatis said Thursday, considerably more than the 6.0% fall expected by a consensus of economists polled by The Wall Street Journal.
Lufthansa Restores Dividend After Profit More Than Doubles
Deutsche Lufthansa is planning its first dividend payout since the pandemic after profit more than doubled last year despite lower-than-expected earnings in the fourth quarter, and said it expects air-travel demand will continue to grow as passengers rush to book tickets for the Easter and summer vacations.
The German carrier group on Thursday posted a net profit of 1.67 billion euros ($1.82 billion) for 2023 compared with EUR791 million the year earlier. Lufthansa said it would propose a dividend of EUR0.30 a share at its annual general meeting on May 7, in line with its long-standing policy of distributing between 20% and 40% of profit, adjusted for non-recurring gains and losses.
Continental Hikes Dividend After Net Profit Soars
Continental said it would hike its dividend after net profit soared as production efficiency improved and supply-chains stabilized.
The German car-parts manufacturer said Thursday that net profit for 2023 jumped to 1.16 billion euros ($1.26 billion) from EUR66.6 million a year earlier. Analysts had expected net profit of EUR1.35 billion, according to a poll from Visible Alpha.
Hugo Boss Expects Growth This Year But Warns it Could Miss 2025 Sales Target
Hugo Boss said that it expects sales and earnings to grow this year, but warned that it might not meet its 2025 sales guidance amid weak consumer sentiment.
The German premium-fashion firm said Thursday that it expects sales to grow between 3% and 6% to around 4.30 billion to 4.45 billion euros ($4.69 billion-$4.85 billion) in 2024.
Telecom Italia Aims for Earnings, Revenue Growth, Lower Debt Through 2026
Telecom Italia said it aims to deliver growth in earnings and revenue over the next three years as well as a reduction in net debt, helped by a planned sale of its fixed-network assets.
The Italian telecommunications company late Wednesday outlined its targets for the 2024-26 period and reported a narrowed net loss for 2023.
Rentokil Initial Misses Profit Expectations, Lifts Terminix Synergies Views
Rentokil Initial raised its synergies expectations from the Terminix acquisition after missing profit expectations and laid out new plans for North America.
The pest-control, hygiene and work-wear services provider said on Thursday that it expects annual pretax synergies from the integration of the pest-control business to rise by a further $50 million to around $225 million net.
Merck KGaA Expects Organic Sales, Earnings Growth This Year
Germany's Merck KGaA expects to gradually return to organic growth this year after reporting a slump in earnings during 2023, which it called a "transitional" year.
The life-sciences and electronics company said profit after tax last year fell to 2.83 billion euros ($3.09 billion) from EUR3.34 billion in 2022 as sales slipped 5.6% to EUR20.99 billion.
Aviva Upgrades Targets After Operating Profit Beat
Aviva expects its operating profit to keep growing, and has upgraded its targets for other metrics as it reported a better-than-expected figure for 2023 and launched a 300 million pound ($382 million) share buyback.
The British insurer and asset manager on Thursday said that it now targets an operating profit of around GBP2 billion by 2026. It expects its Solvency II own funds generation to reach GBP1.8 billion by 2026, compared with a previous view of GBP1.5 billion by 2024, and targets over GBP5.8 billion in cash remittances cumulatively over the 2024 to 2026 period, up from over GBP5.4 billion for 2022 to 2024.
AstraZeneca Announed Further GBP200 Million Investment Announced to Expand Presence in Cambridge
AstraZeneca plans to spend GBP650 million ($828.8 million) on vaccine programs and various other initiatives in the U.K.
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03-07-24 0520ET
