EMEA Morning Briefing : Stocks Could Waver Amid Interest-Rate Uncertainty

MARKET WRAPS

Watch For:

France monthly business survey (goods-producing industries); U.K. public sector finances; trading updates from Carnival

Opening Call:

Shares could be off to a shaky start in Europe on Thursday in the wake of the U.S. Federal Reserve's more dovish pivot. In Asia, stock benchmarks mostly lost ground; Treasury yields were steady; the dollar slightly weakened; while oil slipped and gold was flat.

Equities:

European stocks could tread water on Thursday amid continued uncertainty about the outlook for global interest rates.

"Fed officials have been downplaying the extent of dovishness in last week's decision, with Chicago Fed President Austan Goolsbee becoming the latest to suggest the market was getting ahead of itself and pricing in too many Fed cuts next year," LMAX Group said.

A revision of the third-quarter GDP print is expected Thursday, followed by Friday's personal-consumption expenditures inflation report, which is the Fed's preferred inflation gauge.

Forex:

The dollar lost a bit of strength in Asia, following previous gains.

Recent data suggest the economy is slowing enough for inflation to cool, but not enough to send the U.S. into a recession. The Fed's preferred inflation gauge, the personal-consumption expenditures index, due Friday, will provide more clues for investors about the path ahead for inflation and rates.

Traders priced in an 88.6% probability that the Fed will leave interest rates unchanged at between 5.25%-5.5% on Jan. 31, according to the CME FedWatch Tool. The chance of at least a 25-basis-point rate cut by March was seen at 80.5%, up from 27.5% a month ago.

Bonds:

Government-bond yields were flat in Asia after finishing lower overnight in the U.S. and the U.K.

The latest U.K. inflation report reinforced investors' hopes that price pressures can continue to wane in developed economies and that central banks can swiftly cut borrowing costs next year, despite protests to the contrary by several U.S. Fed officials.

"We think it will take until June for the Fed to have clear and convincing evidence inflation will return to the 2% target, and therefore begin cutting rates," Morgan Stanley said.

Energy:

Crude oil prices were lower, under pressure after the U.S. reported an inventory increase of 2.9 million barrels last week, CMC Markets said.

The dollar's strength is adding to the pressure, as the currency often has an inverse correlation with crude prices.

In focus are potential trade disruptions from attacks on ships in the Red Sea. CMC Markets said that could offer a bullish driver for oil prices in the short term.

Metals:

Gold prices were barely changed in Asia as the market continued to price in a succession of rate cuts in 2024, Saxo said.

Prices of the non-interest bearing asset typically move inversely to rates.

As the yellow metal's prices have been in consolidation mode since the Fed's meeting last week, gold bulls may be wondering how much further the price can go, Oanda said, adding that a lot will depend on economic data this week, including U.S. inflation figures.

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Copper prices edged lower amid weakening Chinese consumption in December.

The recent rebound in copper prices has been driven by expectations of U.S. Fed rate cuts in 2024, Xinhu Futures said.

However, the high prices have suppressed downstream consumption, noting that the operating rates of China's refined and recycled copper rod enterprises--a gauge of production--have both fallen and inventories are piling up.

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Iron ore prices were higher in anticipation of winter restocking.

The iron-ore trading logic at the end of the year tends to focus on macro expectations, and there has been a lack of new policies recently after China's Central Economic Conference earlier this month, Xinhu Futures said.

But, it added that the recent rebound in iron-ore prices is likely supported by the prospect of steel mills' winter replenishment needs for consumption during the Chinese New Year holiday.

TODAY'S TOP HEADLINES

EU Strikes Deal to Curb Public Debt

European Union governments have agreed on new rules to curb budget deficits and debt, drawing a line under years of freewheeling spending during the Covid-19 pandemic and the Ukraine war.

The agreement reached on Wednesday comes as rich nations face both rising borrowing costs due to higher interest rates and increased spending needs on items ranging from defense to the green transition and an aging population.

U.S. Makes a New Attempt to Stifle Russian Oil Trade

The U.S. stepped up enforcement of sanctions on Russian energy, targeting upstart trading companies that have kept a gusher of oil income flowing to the Kremlin.

The Treasury Department imposed blocking sanctions Wednesday on three trading firms that have emerged as players in the Russian petroleum market since the 2022 invasion of Ukraine. Treasury also sanctioned a tanker company owned by Moscow and tightened the requirements on Western companies involved in the Russian oil market.

U.S. Crude Oil, Gasoline Stocks Rise as Refineries Ramp Up Runs

U.S. crude oil and gasoline inventories rose last week as refineries increased their capacity use and U.S. crude output reached a record level, according to data released Wednesday by the U.S. Energy Information Administration.

Commercial crude-oil stockpiles excluding the Strategic Petroleum Reserve rose by 2.9 million barrels, to 443.7 million barrels, in the week ended Dec. 15, and were about 1% below the five-year average for the time of year, the EIA said. Analysts surveyed by The Wall Street Journal had predicted crude stockpiles would decrease by 2.5 million barrels.

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Expected Major Events for Thursday

05:30/NED: Nov Unemployment

07:00/UK: Nov Public sector finances

07:00/NOR: Oct Labour force survey SA, incl unemployment

07:00/DEN: Dec Business tendency survey

07:45/FRA: Dec Monthly business survey (goods-producing industries)

08:00/SVK: Nov PPI

08:00/SWE: Dec Consumer Tendency Survey

08:00/SWE: Nov Monthly Business Tendency Survey

09:00/POL: Nov Retail Sales

09:00/ITA: Nov PPI

09:00/ICE: Dec CPI

10:00/MLT: Nov RPI

10:00/MLT: Nov PPI

10:00/LUX: 3Q Balance of Payments

11:00/UK: Dec CBI Distributive Trades Survey

11:00/TUR: Turkish interest rate decision

13:30/CZE: Czech interest rate decision

15:59/GRE: Oct Balance of Payments

17:59/POR: Sep ICSG Copper Report

23:00/NED: Nov House Price Index

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

12-21-23 0017ET