MARKET WRAPS
Stocks:
European shares traded in tight ranges on Monday as investors continued to rethink their bets on monetary loosening by central banks.
"One thing seems certain, rate cuts are coming, with the key question being around the timing, and it is here that the market may be getting ahead of itself," CMC Markets UK said.
Oil and gas stocks suffered losses after Saudi Aramco said on Sunday that it would cut February crude oil prices, with the cut having a knock-on effect on Monday's price of Brent and WTI.
Stocks to Watch
AB Foods' retailer arm Primark and H&M are expected to see a low impact from the sharp rise in freight costs due to the disruption in the Red Sea and lower water levels in the Panama Canal, RBC Capital Markets said.
Legal & General's stock is likely to benefit from an improved macroeconomic outlook into 2024, supported by more interest-rate certainty, Berenberg said, lifting its rating on the stock to buy from hold.
Big pharmaceutical companies are expected to go shopping again in 2024, and U.S. giant Merck, as well as Roche and Sanofi seem to have the biggest capacity for deals, Berenberg said.
Publicis is expected to report a robust end to a very strong 2023 when it releases a fourth-quarter update and its balance sheet could leave room for positive surprises on cash returns, Citi said, adding its dividend could exceed consensus estimates of EUR3.20 a share.
Siemens Energy is expected to see strong orders in the first quarter, leading the company to post grid orders slightly above their prior-year level, Citi said.
Economic Insight
The dominant theme for currency markets this year will be positioning for a shift to a global cycle of interest-rate cuts, NatWest Markets said.
It thinks markets have priced in too few near-term rate cuts by the European Central Bank, and too many for the Federal Reserve and the Bank of England.
"Markets grabbed this [theme of expected rate cuts] with too much enthusiasm in December and there's potential for this to continue to be unwound as the market's rallying cry becomes 'too much too soon'."
UBS Global Research said the ECB is expected to carry out the first interest-rate cut in April and reduce rates by a total of 100 basis points in 2024, followed by another 100 basis points in 2025.
U.S. Markets:
Stock futures crept lower while bond yields held above 4%.
Markets could get interesting this week, with inflation data due and earnings season kicking off.
December's consumer-price index reading is expected on Thursday, followed by producer prices on Friday. Results season will also start in earnest on Friday, with reports due from JPMorgan Chase and Bank of America, among others.
Forex:
The dollar was steady, failing to benefit much from the stronger-than-expected U.S. jobs data, and looks at risk of falling as investors "remain confident" the Fed might cut interest rates in March, UniCredit Research said.
Markets price too many interest-rate cuts for this year, but any adjustment is likely to be stronger for ECB and BOE expectations than it is for the Fed, UniCredit said.
"Such a scenario is likely to help EUR/USD and GBP/USD, although we do not see big upside potential for these two pairs much above 1.10 and 1.28, respectively."
USD/JPY's recent rebound looks more skewed toward a minor correction, based on technical charts, Oanda said.
USD/JPY, which rebounded by around 4.9% from its Dec. 28 low to a Jan. 5 high, formed a daily "long-legged Doji" candlestick by the end of Friday's U.S. session, Oanda said, adding this suggests some form of exhaustion in the upmove.
NatWest Markets said the Swiss franc is expected to be among the major losers of the currency market this year.
"The Swiss franc is richly valued, more so after its December rally. We think it is set to be one of the biggest losers in 2024."
Bonds:
Spanish short-end yields have cheapened too much, not warranted by fundamentals, and this offers a trade opportunity against Italian BTPs, Natixis Research said.
"We see this cheapening as liquidity-driven and not warranted by fundamentals and technical factors for Spain going into 2024."
It recommends a long position in Spain's October 2025 bond against Italy's November 2025 BTP at a -14.90 basis point spread, with a take-profit at -35bps during a three-month horizon and a stop loss at -4.85bps.
Gross government bond supply by the eurozone's largest 11 sovereign issuers is expected at EUR1.218 trillion in 2024, just EUR29 billion lower than that in 2023, Citi Research said.
Energy:
Oil futures fell around 1% after Saudi Arabia slashed the price for its flagship Arab Light crude to Asian customers, a barometer for how the kingdom sees the demand outlook.
"The decrease was larger than the market was expecting," ING said. "OSPs [official selling prices] for all grades into Europe, the Med and the U.S. were also cut for February."
However, geopolitical tensions in the Middle East and Libya's National Oil Corp. declaring force majeure at the Sharara oilfield still provide support to the market due to heightened fears of supply disruptions.
Coal
Jefferies said in what has been a tough start to the year for most miners, coal has shone.
"The coal equities came flying out of the gates in what was just a continuation of the very strong performance of 2H23," Jefferies said, adding that coal's clear outperformance might not last.
"We believe the macro backdrop should be supportive of prices of other commodities as well in the near-term, especially if the U.S. economy avoids rolling over into a recession."
Metals:
Base metals mostly dipped along with gold as worries around risk assets like commodities continued to build.
BMI said it expects copper to average $8,800 a ton this year, "on the back of a decline in U.S. dollar strength and supply constraints."
However, it added that much of this depends on Chinese demand, with a limited growth outlook globally expected to cap demand. BMI also expected the Fed to start cutting interest rates from July, but said there could be a cut as soon as March-April.
Capital Economics said greater-than-expected industrial metals supply growth continues to push up stockpiles, especially for aluminum.
Still, it reckons metals supply growth will be more modest this year, while growth in demand will rebound as the energy transition gathers pace.
"Accordingly, we expect base metals prices to fare better this year," with copper prices likely to rise the most.
EMEA HEADLINES
Shell Flags Earnings Hit of Up to $4.5 Billion From Impairments
Shell said its fourth-quarter earnings took a hit of between $2.5 billion and $4.5 billion in impairments that were offset by significantly higher gas trading, while its overall production volumes are on track to meet targets.
The London-based energy giant said Monday the impairments were primarily driven by macro developments as well as portfolio choices, including its Singapore chemicals and products assets, which it has been trying to sell.
Germany Manufacturing Orders Rose Slightly in November
German manufacturing orders recovered a little in November, some bright news for the country's industrial sector at the end of a difficult year.
Orders were 0.3% higher than the previous month, German statistics office Destatis said Monday, though this was less than the 1.0% rise forecast by economists polled by The Wall Street Journal. It reverses some of the losses in orders booked the previous month, when they fell by 3.8%, according to revised figures.
Pandora Beats Guidance on Robust Christmas Sales Growth
Pandora said that full-year performance was ahead of guidance after a solid profitability in the fourth quarter following a robust performance across the key period of Black Friday and Christmas.
The Danish jeweler on Sunday said that organic growth for 2023 reached 8%, ahead of its guidance range of 5% to 6%. Earnings before interest and taxes margin for 2023 landed at 25%, in line with the company's guidance of around 25%, it added.
Saudis cut crude prices to all regions amid oil-price weakness
Saudi Aramco on Sunday said it would cut crude prices to all regions, including its largest market in Asia - a move that comes amid weaker global oil prices and increased production by producers outside the Organization of the Petroleum Exporting Countries.
In a notice, state producer Aramco SA:2222 said February prices for various grades of Saudi crude, including its flagship Arab light, in Asia would fall $2 a barrel versus the Oman/Dubai regional benchmark from their January levels.
GLOBAL NEWS
Wall Street Doubles Down on Bonds
There are no sure things in markets, but many investors believe high-quality U.S. bonds are currently pretty close.
Consensus on Wall Street is that interest rates have peaked for this economic cycle, and the pain bondholders experienced in 2022 and 2023 has likely ended. That should make further investments in Treasurys and highly rated corporate bonds a good bet, analysts and portfolio managers said, even if this year brings significant volatility across markets.
Congressional Negotiators Reach Agreement on $1.6 Trillion Government Spending Level for 2024
WASHINGTON-Congressional leaders reached a bipartisan deal on Sunday setting a roughly $1.6 trillion federal spending level for the year, but the pact drew quick criticism from some conservatives and it remained unclear whether lawmakers would be able to quickly pass legislation averting a government shutdown.
The House and Senate now have less than two weeks to craft underlying bills funding the government, with several federal agencies set to run out of money later this month and the rest to follow in February, a tall order in a Congress that has struggled to pass major legislation on time.
Lawmakers Push to Defuse China's Dominance of Older-Generation Chips
(MORE TO FOLLOW) Dow Jones Newswires
01-08-24 0525ET
