European Midday Briefing : Stocks Lifted by U.S. Tech as Jobs Report Awaited

MARKET WRAPS

Stocks:

European stocks posted solid gains on Friday after some well-received earnings from U.S. megacap tech and as investors looked ahead to the release of the crucial jobs report, which could bring a March rate cut back into the picture.

The market is pricing in a roughly one-in-three chance the Federal Reserve will cut interest rates in March.

"The market is front-running the Fed," TwinFocus said. "While the Fed's comments appear hawkish, the market's reaction longer-term is dovish."

Economic Insight

Spain's tourism sector recovered fully from the Covid-19 years in 2023, with visitor numbers topping prepandemic levels as Europeans and Americans alike flocked to the country.

More than 85 million people visited Spain during the year, figures from statistics agency INE showed, slightly ahead of the tally for 2019, the last full year before the pandemic closed borders and grounded planes globally.

U.S. Markets:

Stock futures received a boost from shares of Meta Platforms and Amazon.com after the tech giants reported quarterly earnings that beat Wall Street expectations. However, the jobs report wlll be the main focus of attention.

Economists polled by The Wall Street Journal forecast that 185,000 jobs were added in January, down from 216,000 in December, and that the unemployment rate crept higher to 3.8%.

"Low jobless claims and warm weather in early January suggest strong payrolls," Morgan Stanley said, forecasting 215,000 payrolls growth.

Meantime, Meta's stock jumped off hours after it said it would pay a cash dividend for the first time.

Bond yields were steady, with the yield on the 10-year Treasury at 3.89%, up 1.1 basis points. The yield on the 10-year Treasury has dropped nearly 30 basis points over the last four days.

Forex:

EUR/USD is likely to keep within a relatively small range of 1.05-1.11 this year, Societe Generale Research said.

The euro has kept within this range against the dollar recently even in a market discounting slightly more European Central Bank than Fed easing, and much weaker growth in the eurozone growth than in the U.S., SocGen said.

"It will take a significant shift in expectations to really shake up the FX market."

SocGen also said the dollar should weaken moderately as investors anticipate interest-rate cuts by the Fed, though any falls will be limited because there isn't sufficient reason to buy alternative currencies, Societe Generale Research said.

"The dollar fell too fast in 4Q and has bounced in January but as Fed easing comes closer, we expect modest weakness ahead."

The dollar remains highly valued in real terms, though few currencies look attractive to buy against it, SocGen said.

Morgan Stanley Research said European currencies are most vulnerable to a faster-and-deeper easing cycle.

Markets are currently pricing in a pace of cuts for Europe roughly similar to that of the U.S. along with terminal rates above neutral, but this trend could change.

According to Oanda, GBP/USD is poised for a potential bullish breakout, based on technical charts.

The pair has traded above its upward-sloping 50-day moving average since Nov. 14, and its movements have formed a bullish candlestick that has managed to engulf previous small candlesticks in place since Jan. 18,

Bonds:

German 10-year Bund yields have limited scope to stay sustainably below 2% as markets have to a large extent already priced in ECB rate cuts that can be expected in a soft-landing scenario for the economy, SEB Research said.

"With long rates already low and the ECB reducing its bond holdings, we doubt that the German 10-year yield has any staying power below 2% unless markets move to discount the policy rate bottoming out at 1.50%."

For the near term, SEB sees "just volatility, no direction" for bond yields.

Societe Generale Research expects better entry points in 10-year Bunds , recommending investors buy when yields are above 2.30%. "We still expect better buy on dip opportunities in 1Q."

Energy:

Oil prices edged up in Europe after an OPEC+ monitoring committee made no changes to the group's output cut plans.

The committee reviewed production data for November and December and noted high levels of conformity by members that adhered to production adjustments.

"We expect those countries that joined in on the cuts to decide on whether to continue in early March," UBS said.

"What has been already made clear last year is that the reversal of those cuts will be gradual."

Metals:

Gold nudged higher on a weaker dollar and lower Treasury yields, while base metals remained broadly mixed.

"Gold seems too jittery in our view," RBC said.

Buffeted by macroeconomic pressures both positive and negative, it is unsurprising that gold can't quite pull consistent investor flows in, given its expectations-based pricing, RBC said.

EMEA HEADLINES

Electrolux Earnings Unlikely to Improve in 1Q

Electrolux expects demand in its major markets to stabilize this year but underlying earnings aren't likely to improve sequentially in the first quarter as it will take time for its cost-saving plan to have an impact.

The company had cautioned that fourth-quarter earnings would be weighed by a SEK1.4 billion loss in its North America business, driven by price pressure, lower volumes and elevated cost levels related to its cooking-manufacturing transition. The overall net negative impact from one-off items in the quarter was SEK2.49 billion.

Danske Bank Launches $802 Mln Share Buyback

Danske Bank launched a new 5.5 billion Danish kroner ($802.1 million) share buyback after reporting in-line fourth-quarter earnings amid strong credit quality and negligible impairments.

The Copenhagen-based bank posted on Friday a net profit of DKK5.77 billion and net interest income of DKK9.13 billion. A company-compiled consensus had seen net profit at DKK5.77 billion with net interest income of DKK9.3 billion.

Mercedes-Benz's Industrial Cash Flow Beats Expectations

Mercedes-Benz Group said that last year's cash-flow from industrial operations exceeded both its guidance and market expectations, thanks to lower capital requirements and a favorable cash generation.

The German luxury carmaker said late Thursday that free-cash-flow from its industrial business for the full year amounted to 11.3 billion euros ($12.28 billion), beating consensus expectations of EUR9.9 billion.

CaixaBank Raises Profitability Target

Spain's CaixaBank raised its 2024 profitability target after fourth-quarter net profit rose on higher net interest income.

The Spanish bank said Friday that it now expects its return on tangible equity-a key profitability metric for banks-to be above 15% in 2024, up from its previous target of above 12%.

Vodacom Group's Performance Boosted by Vodafone Egypt Acquisition

Vodacom Group reported an increase in third-quarter revenue, driven by the acquisition of Vodafone Egypt along with strong customer growth.

The South Africa-based telecommunications company said Friday that for the quarter ended Dec. 31, revenue rose 27% on year to 38.92 billion South African rand ($2.09 billion), compared with ZAR30.705 billion for the same period a year earlier.

EU Leaders Agree to $54 Billion Ukraine Aid Package as Hungary's Orban Backs Down

BRUSSELS-European Union leaders agreed to a $54 billion budget-aid package for Ukraine on Thursday, locking in their financing for Kyiv for the next four years and overcoming weeks of opposition from Hungarian Prime Minister Viktor Orban.

The decision is a major boost for Ukraine, which could have started to run short of funds in coming weeks to pay for salaries, pensions and other basic services. However, Ukraine is relying on still-blocked U.S. assistance to cover its full budget gap for 2024 and maintain military supplies.

GLOBAL NEWS

Stocks for the Looong Run: Could Japan's Lost Decades Happen in America?

America's stocks are making new highs and the U.S. economy looks poised to stick a rarely seen soft landing. What could go wrong?

A lot, actually.

Senate Moves Ahead With Vote on Border-Ukraine Package

WASHINGTON-Senate Majority Leader Chuck Schumer (D., N.Y.) said that legislative text for a revised package containing aid for war-torn Ukraine as well as border-security measures would be released publicly as soon as Friday, with an initial vote set up for next week as he aims to press through growing Republican opposition.

"These challenges at the border and in Ukraine and the Middle East are just too great," Schumer said Thursday on the Senate floor. "We will need to be here working." He said that discussions are going well on revisions to a $110.5 billion package for Ukraine, Israel, Taiwan and the border, and that "we plan to post the full text" as soon as Friday and no later than Sunday. He said an initial vote would occur by Wednesday.

Shadow War With Iran Risks Turning Into a Direct Conflict

WASHINGTON-For decades, the U.S. and Iran have waged a shadow war across the Middle East following a rule understood by both sides: If you hit us, we will hit back, at least as hard.

But as the Biden administration prepares to retaliate for a drone strike by Iranian-backed militias that killed three American soldiers last weekend, the calculations of the two longstanding adversaries has changed. Neither Washington nor Tehran appears eager for a direct military confrontation.

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

(END) Dow Jones Newswires

02-02-24 0526ET