EMEA Morning Briefing : Shares Set to Retreat Ahead of BOE Rate Decision, PMI Data

MARKET WRAPS

Watch For:

Manufacturing PMI from eurozone, Germany, France, Italy, U.K.; E.U. unemployment, euro area inflation; Italy CPI; UK Bank of England rate decision; trading updates from Shell, ING, Glencore, BT Group, Ryanair, Deutsche Bank, BNP Paribas, Ferrari, ABB, Julius Baer, Roche, Sanofi, Siemens Healthineers

Opening Call:

Shares could falter in Europe on Thursday ahead of the Bank of England's policy announcement and a raft of economic indicators, including purchasing managers index (PMI) data. In Asia, stock benchmarks were mixed; Treasury yields were consolidating; the dollar was mixed; while oil rose and gold fell.

Equities:

European shares may tread water on Thursday as the market waits for the BOE's rate decision in the wake of the U.S. Federal Reserve's move to hold rates steady.

The BOE is expected to keep the bank rate unchanged at 5.25% at its monetary policy meeting, with focus centering on clues regarding the potential timing of future interest-rate cuts. The BOE is broadly expected to signal that rate cuts won't come any time soon, even as it cuts inflation forecasts significantly.

The Fed stood pat and said it wouldn't commit to cuts until it is confident that inflation is headed down to its 2% target.

Markets will also be watching out for a round of eurozone manufacturing activity also due later in the day.

Forex:

The dollar is mixed in Asia, likely weighed by fading near-term Fed rate-cut hopes.

Fed Chair Powell's pushback on March rate-cut prospects is proving to be a vital takeaway from Wednesday's FOMC meeting, Westpac Strategy Group said.

FOMC members have long said that they want to see more evidence that disinflation is entrenched, it said.

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The BOE is unlikely to signal an imminent pivot toward interest-rate cuts, which should help lift sterling against the euro, said Rabobank.

Thursday's BOE's policy announcement is "more likely to disappoint market doves than encourage them," Rabobank said in a note.

Rabobank doesn't expect the BOE to cut rates until September, whereas U.K. money markets are pricing in around 41 basis points of rate cuts within six months.

Bonds:

Treasury yields consolidated in Asia after finishing at their lowest levels in at least two weeks on Wednesday.

"Wednesday's Federal Reserve statement showed no surprises, with the central bank keeping interest rates unchanged," said Bellwether Wealth.

"The main question for investors is just how long will it take for inflation to move back to the Fed's 2% target. We believe the Fed will refrain from cutting interest rates until inflation reaches 2%. Inflation is close to the Fed's target but not quite there yet, and the Fed wants to be sure that inflation has truly been eliminated."

Energy:

Oil rose amid demand hopes.

Sentiment looks supported, ANZ Research said, citing comments from IEA Executive Director Fatih Birol saying that global oil demand will likely increase by 2 million barrels a day in 2024, similar to the growth achieved in 2023.

The recent drone attacks on Russia's oil refineries have led to a sharp drop in oil exports, ANZ Research said.

The OPEC+ Joint Ministerial Monitoring Committee is expected to hold a meeting via video conference Thursday to review the oil markets, according to news reports. The committee isn't expected to make changes to existing policy during its meeting, according to Reuters, which cited five OPEC+ sources.

Metals:

Gold weakened after earlier gains amid lingering hopes for Fed interest-rate cuts, which would increase the appeal of the non-interest-bearing precious metal.

The Fed signaled overnight that it was considering when to lower rates, though it also hinted that a rate reduction wasn't imminent.

The precious metal appears to be holding above the 21-day exponential moving average around $2,030/oz, said Fawad Razaqzada, market analyst at City Index and FOREX.com, in an email.

Any closing level above key resistance in the $2,050/oz-$2,055/oz area would tip the balance in favor of gold bulls, the analyst added.

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Copper prices were lower as sentiment over China's economic activity continued to be clouded.

China's official PMI data on Wednesday showed factory activity contracted, the fourth straight month of contraction.

The lack of clear signs of a turning point for China's economic growth has disappointed investors, ANZ Research said.

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Iron ore prices were mixed amid weak supply and demand in the offseason.

The value of new home sales from the 100 biggest Chinese real-estate companies slid 34.2% on year to CNY235 billion in January, ANZ research said, citing preliminary data from China Real Estate Information Corp.

As winter stocking comes to an end, demand for iron ore may ease gradually, Xinhu Futures said.

The U.S. Fed's decision to keep interest rates steady and the possibility of delayed rate cuts are in line with market expectations and will likely have little impact on the iron ore market, Xinhu Futures said.

TODAY'S TOP HEADLINES

China Caixin PMI Signals Steady Manufacturing Sector Growth

A private gauge of China's factory activity showed steady expansion in the sector in January, contrasting with the official index, which remained mired in contractionary territory.

The China Caixin manufacturing purchasing managers index remained at 50.8 in January, the same rate as in December, according to data released Thursday by Caixin Media Co. and S&P Global. That marks the first time since May 2021 that the gauge has remained in the expansion zone for three straight months.

Powell Navigates 'Toxic' Politics of Rate Cuts as Election Nears

For Federal Reserve Chair Jerome Powell, deciding when to cut interest rates is hard enough: Too soon, and inflation could rise again. Too late, and unemployment might shoot higher.

The challenge is doubly difficult this year because he is doing it in the glare of election-year politics.

Fed Signals Cuts Are Possible but Not Imminent as It Holds Rates Steady

The Federal Reserve signaled it was thinking about when to lower interest rates but hinted a cut wasn't imminent when it held rates steady at its first policy meeting of the year on Wednesday.

The central bank held its benchmark federal-funds rate steady in a range between 5.25% and 5.5%, the highest level in more than two decades, as it awaits more convincing evidence that a sharp downturn in inflation at the end of last year will endure.

On the High Seas, a Pillar of Global Trade Is Under Attack

The modern economy rests on a rule so old that hardly anybody alive can remember a time before it: Ships of any nation may sail the high seas.

Suddenly, that pillar of the international order shows signs of buckling.

Europe Warns Hungary to Back Ukraine Aid or Face Consequences

BRUSSELS-European Union leaders are threatening to punish Hungary if it blocks a $54 billion aid package for Ukraine this week, a sign of growing anxiety across the continent about the dangers of a Russian victory in Ukraine.

The bloc's leaders are set to return to Brussels on Wednesday evening and will seek to agree Thursday on the 50 billion euro package that would provide to Kyiv critical budget support in paying for basic services over the next four years. Without EU approval, Ukraine could start running out of funds to cover salaries and pensions as early as the coming weeks, just as its military forces have been pushed onto the defensive by Russia.

Adidas Earnings Beat Guidance After Decision Not to Write Off Most Yeezy Inventory

Adidas said its revenue and operating profit last year exceeded company guidance after a better-than-expected performance in the fourth quarter and the group's decision not to write off most of its Yeezy inventory.

The German sporting-goods company said Wednesday that sales on a currency neutral basis were flat last year compared with 2022, better than Adidas's most recent forecast of a low-single-digit rate contraction despite the drag from the devaluation of the Argentine peso in the fourth quarter. In reported terms, annual sales slipped 5% to 21.43 billion euros ($23.24 billion).

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Expected Major Events for Thursday

01:01/IRL: Jan Ireland Manufacturing PMI

05:30/NED: Jan Flash Estimate CPI

06:00/NED: Jan Netherlands Manufacturing PMI

07:00/TUR: Jan Turkey Manufacturing PMI

08:00/POL: Jan Poland Manufacturing PMI

08:15/SPN: Jan Spain Manufacturing PMI

08:30/CZE: Jan Czech Republic Manufacturing PMI

08:30/SWI: Jan procure.ch Purchasing Managers' Index

08:30/SWE: Swedish repo rate announcement

08:45/ITA: Jan Italy Manufacturing PMI

08:50/FRA: Jan France Manufacturing PMI

08:55/GER: Jan Germany Manufacturing PMI

09:00/GRE: Jan Greece Manufacturing PMI

09:00/EU: Jan Eurozone Manufacturing PMI

09:30/UK: Jan S&P Global UK Manufacturing PMI

10:00/CYP: Dec Retail trade

10:00/EU: Dec Unemployment

10:00/EU: Jan Flash Estimate euro area inflation

10:00/ITA: Jan Cities CPI

10:00/ITA: Jan Provisional CPI

10:00/GRE: Dec Labour Force Survey

10:00/CYP: Jan CPI

11:00/POR: Dec Industrial production index

12:00/UK: Bank of England Monetary Policy Report

12:00/UK: UK interest rate decision

16:59/AUT: Jan Unemployment figures

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

(END) Dow Jones Newswires

02-01-24 0017ET