European Midday Briefing : Investors Await Important U.S. CPI Data

MARKET WRAPS

Stocks:

European stocks were rising on Tuesday as investor focus was on U.S. inflation data.

Economists forecast the inflation rate held steady in February at 3.1% from a year earlier.

"Today's outcome will be very important: our view is that the upturn in inflation was temporary and that core inflation will resume its downward trend, but the strong start to 2024 increases uncertainty about the underlying trend," SEB said.

Shares on the Move

CVS Group face higher risks after the U.K.'s Competition and Markets Authority proposed a formal investigation into the veterinary market, RBC said. Shares fell 19%.

Stocks to Watch

British American Tobacco 's potential disposal of a small part of its shareholding in Indian conglomerate ITC could mean buybacks sooner rather than later, Jefferies said.

U.S. Markets:

Stock futures mostly rose ahead of the inflation data.

Investors will be scrutinizing the figures, hoping they provide hints on the path for monetary policy from the Federal Reserve.

Stocks to Watch

New York Community Bancorp gained about 2% premarket after sliding Monday.

Oracle rose about 13% premarket after the company's earnings trumped analysts' expectations, driven in part by AI demand.

Forex:

Sterling fell after U.K. jobs data painted a marginally softer-than-expected picture of the labor market, Pepperstone said.

Selling of sterling was modest, however, as the jobs figures were "far from a game-changer," it said.

Inflation figures due on Wednesday next week will be more important, due a day prior to the Bank of England's next policy decision.

There is a risk that the U.S. CPI data come in higher than expected, dampening the likelihood of an earlier interest-rate cut by the Fed and causing the dollar and Treasury yields to rise, Swissquote Bank said.

It cited a jump in gasoline prices in February, a change in the CPI calculation and the third is the rising inflation expectations.

"I think that there is a chance that we have a bad surprise [higher-than-expected inflation]."

Bonds:

For 10-year Treasury yields to break below 4% at this juncture, it needs a 0.2% month-on-month inflation outcome, ING said.

Factors preventing yields from tumbling include a labor market that is not laying down, latest month-on-month inflation readings that are a tad too hot for comfort, and supply pressure remaining intense, ING said.

"Tuesday sees another supply test, but first a key inflation test," it said, adding that "passing both will be tough."

The 10-year Portuguese-German government bond yield spread has remained resilient despite Sunday's election delivering a hung parliament and far-right Chega quadrupling their seat count, Citi Research said.

That said, centre-right Democratic Alliance looks likely to lead the next government, it added.

However, "past reforms should ensure continued strong growth, and the broad political consensus should result in fiscal prudence, in our view, keeping us constructive on Portuguese government bonds versus core/semi-core in the medium-term despite the politics."

Energy:

Oil prices were rising ahead of the inflation data and OPEC's monthly oil-market report.

"The macro vibe is bullish ahead of today's important CPI inflation data, " Peak Trading Research said. "The dollar is at eight-week lows, the Chinese yuan is rallying, and global stock markets are at all-time highs."

Meanwhile, analysts said they don't expect any major changes in estimates from OPEC, the Energy Information Administration or the International Energy Agency this week, but that any surprise to the upside would ease concerns around the global demand outlook.

Metals:

Base metals prices edged up while gold inched lower as investors' nerves weighed ahead of the CPI data.

Gold was consolidating gains near record high, Swissquote Bank said.

"Any rebound in yields on a potential CPI disappointment could trigger profit taking and a pullback at the current overbought market levels, but softer yields on a soothing CPI could encourage another test of the $2,200 level," Swissquote added.

Gold's one-day implied volatility band suggests a $15/oz move in either direction, based on daily charts, FOREX.com said.

However, a $15/oz move may be on the low end with the looming U.S. inflation report, which is arguably more important than the Fed's meeting later this month, it said.

EMEA HEADLINES

Persimmon's Pretax Profit Falls on Market Headwinds

Persimmon narrowly missed market views for last year's pretax profit and revenue amid a persistently tough market backdrop, although it expects housing completion to rise this year.

The U.K. house builder said Tuesday that its full-year pretax profit was 351.8 million pounds ($450.8 million), significantly down from GBP730.7 million a year earlier, reflecting continuing tough U.K. housing market conditions due to increased mortgage rates and general economic uncertainty.

Italy's Leonardo Forecasts Growing Orders Amid Strong Defense Business

Leonardo said it expects new orders will continue to grow this year through to 2028, led by its core defense electronics and security business at a time of escalating geopolitical tensions.

The Italian aerospace-and-defense group said Tuesday that new orders should increase to roughly EUR22.6 billion in 2028 from EUR17.93 billion in 2023, with a total of about EUR105 billion in cumulative orders for the period.

Generali Results Beat Expectations; Raises Dividend

Assicurazioni Generali raised its dividend after 2023 results beat expectations on continuous earnings growth, but a weaker property&casualty segment dragged its fourth-quarter profit.

The Italian insurer said Tuesday that its full-year adjusted net profit stood at 3.58 billion euros ($3.92 billion), up from EUR3.13 billion in 2022, slightly beating consensus expectations that had it at EUR3.57 billion. Operating result was EUR6.88 billion for the year, up from EUR6.37 billion the year prior, also beating analysts' expectations of EUR6.83 billion.

Porsche AG Warns of Lower Margins As It Launches New EV, Hybrid Models

Porsche AG's margins will be squeezed by the launch of new electric and hybrid models this year.

The German premium sports-car maker will roll out the fully electric Macan this year, as well as the next generation of its all-electric Taycan. It will also roll out hybrid versions of the 911 and Panamera.

GLOBAL NEWS

U.S. Small Business Optimism Weakens on Inflation Worries

Confidence among U.S. small businesses weakened unexpectedly in February, as the future path of inflation returned as a top concern.

The National Federation of Independent Business said Tuesday that its small-business optimism index declined to 89.4 from 89.9 in January, flipping expectations of an increase to 90.2 in a poll compiled by The Wall Street Journal.

BOJ Likely to Move Slowly on Raising Rates Even if It Ends Negative-Rate Policy, Sources Say

TOKYO-The Bank of Japan is likely to move slowly in raising interest rates above zero even if it decides to end its negative interest-rate policy, given the nation's fragile momentum on prices, according to people familiar with the central bank's thinking.

Policymakers have grown more confident that a positive cycle of higher wages and higher prices is finally starting to kick in after decades of deflation, with many companies saying they will raise wages significantly this year. Many analysts and investors expect the BOJ to raise its key short-term interest rate from minus 0.1% in March or April.

CPI inflation is being pushed up by gas, car insurance and housing

The latest snapshot of consumer prices is likely to show a hottish inflation reading in February. Why? Blame the cost of housing, car insurance and gasoline.

Here's what to look for in the CPI report on Tuesday morning.

Biden, Trump Poised to Clinch Nominations After Tuesday Balloting

President Biden and former President Donald Trump are likely to win enough delegates in the latest round of primary voting Tuesday to become the presumptive nominees of their parties, more formally marking the start of a bitter and costly eight-month White House campaign.

The day's balloting will likely be enough to push both men beyond the delegate thresholds they need. There has been little uncertainty about their eventual selection-an elderly pairing most Americans don't want-for months.

A New Terror Threat Is Emerging in Europe Linked to Iran, Gaza War

BERLIN-Authorities in Europe say they have foiled several terror plots, some involving suspects posing as refugees, raising alarm about a growing array of threats from extremists.

In one previously unreported investigation last December, police in Austria and Bosnia arrested two separate groups of Afghan and Syrian refugees who carried arms and ammunition, including Kalashnikov assault rifles and pistols.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

03-12-24 0648ET