MARKET WRAPS
Watch For:
ECB interest rate decision; Germany manufacturing orders; trading updates from Vivendi, Hugo Boss, Prada, Deutsche Lufthansa, Allianz, Melrose Industries, ITV, Darktrace, Admiral Group, Aviva, Entain, Spirax-Sarco Engineering, Harbour Energy, Rentokil Initial, SAS, ING, Finnair
Opening Call:
European stock futures were little moved early Thursday ahead of the European Central Bank rate decision. Asian stock benchmarks were lower; the dollar weakened; Treasury yields were little changed; while oil futures fell and gold advanced.
Equities:
European stock futures were treading water as investors parse Fed officials' comments and brace for the ECB rate decision.
The European Central Bank is widely expected to keep interest rates unchanged on Thursday. Like the Fed, the ECB raised borrowing costs aggressively from 2022 to 2023 and has been on hold for about half a year.
U.S. stocks gained Wednesday after Fed chairman Jerome Powell told Congress he won't rush to raise rates.
Minneapolis Fed President Neel Kashkari said he had penciled in two interest-rate cuts in 2024 during the last forecasting round in December, but may reduce the number of cuts he expects at the Fed's next meeting in two weeks.
Scott Pike, senior portfolio manager at Income Research + Management, said Powell's remarks echoed earlier comments from him and other Fed officials about waiting for confirmation from inflation and labor market data before cutting rates.
"Market participants are very eager for any sort of marginal change from that message."
Forex:
The U.S. dollar slipped to the lowest in a month after Fed chairman Powell said he expected rate cuts this year and that the number of cuts will depend on the economy, ANZ Research analysts said.
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The yen strengthened against other G-10 and Asian currencies boosted by prospects of a possible BOJ rate increase, analysts said.
Provisional data from Japan's Ministry of Health, Labour and Welfare released earlier Thursday showed cash earnings rose a more-than-expected 2.0% in January, which has helped push USD/JPY down, RBC Capital Markets said.
Bonds:
U.S. Treasury yields were little changed as traders digest congressional testimony from Fed Chair Powell and assess the latest collapse in the shares of New York Community Bancorp, which has reignited concerns about the health of regional lenders.
Powell's opening statement to the House of Representatives provided "little new insight" into how much more confidence the Fed will need that inflation is durably back to its target before it will begin cutting rates, Bill Adams, chief economist at Comerica Bank, said.
Focus is on the next batch of economic data as Thursday brings the weekly initial jobless claims data, and the set is rounded off with the February nonfarm-payrolls report on Friday.
Energy:
Oil futures were lower in Asia following Wednesday's gains after Saudi Arabia raised prices for crude sold in Asia, its largest market, and after official data showed U.S. crude inventories rose less than expected last week.
A potential cease-fire between Israel and Hamas could diminish the war premium, restraining prices from moving much beyond the $80 level, Peter Cardillo, chief market economist at Spartan Capital, said.
Metals:
Gold advanced early Thursday, but analysts said more U.S. economic data was likely needed to extend the current rally.
Market participants will likely watch February and March data before another move higher by the precious metal, with Friday's U.S. nonfarm payrolls data being the next focus, TD Securities said.
However, HSBC reckoned that gold's upward trajectory may be slowing. Chair Jerome Powell's remarks to Congress "were not especially gold friendly" and record-high prices may cool physical demand for the metal, particularly from central banks, it said.
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Copper edged lower in a likely technical correction after gaining overnight amid a broader risk-on tone across markets and a weaker dollar which makes copper cheaper for foreign buyers.
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Iron-ore futures gained. Prices have shown signs of stabilizing after the China Iron and Steel Association said that iron-ore stockpiles at Chinese steel mills had dropped in late February, Westpac analysts said.
TODAY'S TOP HEADLINES
Jerome Powell Says Fed on Track to Cut Rates This Year
Brisk inflation and hiring data in January haven't altered the Federal Reserve's expectation that it will be appropriate to cut interest rates later this year, but Chair Jerome Powell said officials want more evidence that inflation is slowing.
Rate cuts won't be warranted until officials have "gained greater confidence that inflation is moving sustainably" toward the central bank's 2% goal, Powell told the House Financial Services Committee on Wednesday during the start of two days of testimony on Capitol Hill.
Fed's Kashkari says it's possible he pencils in only one interest-rate cut this year
Minneapolis Fed President Neel Kashkari said Wednesday that he had penciled in two interest-rate cuts in 2024 during the central bank's last forecasting round in December, but added he may reduce the number of cuts he expects at the Fed's next meeting in two weeks.
The median forecast of Fed officials, released in December, was for three rate cuts, and Kashkari's support for only two puts him on the hawkish end of the spectrum of Fed officials.
ECB Expected to Hold Rates. Like the Fed, a June Cut Is Possible.
The European Central Bank is widely expected to keep interest rates unchanged on Thursday. As with the U.S. Federal Reserve, the question for ECB President Christine Lagarde is how soon rates can start going lower.
Like the Fed, the ECB raised borrowing costs aggressively from 2022 to 2023 and has been on hold for about half a year now. Also similar to the U.S., inflation in Europe has continued to slow-the last reading was 2.8% in January. That's still higher than the ECB's target of 2%, but it has come down dramatically from a peak of more than 10% in October 2022.
The Shift That Explains Lofty Markets: The Economy Got More Productive
Stocks have proved remarkably resilient to rising bond yields this year. Many think this is because a bubble is inflating, especially in stocks linked to artificial intelligence. Here's the alternative, in one word: productivity.
Productivity gains-that is, more output for the same amount of work-allow more growth without inflation, helping explain the market's switcheroo from treating a strong economy as bad for shares to treating it as good (although stock prices still look optimistic to me). The risk is that the market is treating the undeniable short-term productivity gains of the past year as evidence that long-term gains are on the way.
How Apple Stands to Lose From Europe's New Tech Law
In the battle for smartphone dominance, Google could soon gain an advantage over Apple from an unlikely source: a new European law.
Starting this week, the world's largest technology companies have to comply with the European Union's Digital Markets Act, a sweeping new law aimed at boosting competition from smaller companies in the realms of digital advertising, online search and app ecosystems.
DHL Owner Deutsche Post Expects Limited Earnings Growth This Year
DHL owner Deutsche Post cautioned that earnings could remain relatively flat this year as economic headwinds weigh on volumes through the first half.
The gloomier outlook disappointed investors, sending shares down 6.3% to close at $39.07 euros Wednesday.
Houthi Attack on Ship Off Yemen Kills Three
Three people on board a Barbados-flagged ship died after it was struck in an attack claimed by Yemen's Houthis on Wednesday, according to the U.S. military, the first known loss of life since the rebel group began attacking ships in the Red Sea region in late November.
The bulk carrier True Confidence caught fire after being hit early Wednesday local time by a missile as it sailed 50 nautical miles southwest of Aden, forcing the crew to abandon the ship, the vessel's managers and owners said in a joint statement.
Temu's Push Into America Pays Off Big Time for Meta and Google
Meta Platforms' top advertiser by revenue in 2023 was the e-commerce company Temu, an upstart discounter founded in China that has emerged as an increasingly potent force in American business.
PDD Holdings, the parent company of Temu, spent nearly $2 billion on advertisements last year at Meta, according to people familiar with the matter, surprising executives at the parent company of Facebook and Instagram. Temu also became one of Google's top five advertisers by spending last year, according to people familiar with the business.
New York Community Bancorp to Get More Than $1 Billion Investment
New York Community Bancorp is raising more than $1 billion from a group of investors including former Treasury Secretary Steven Mnuchin, in a bid to shore up confidence in the troubled regional lender.
A group led by Mnuchin's Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners and including Citadel and some of the bank's management agreed to buy common and convertible-preferred stock, NYCB said Wednesday.
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Expected Major Events for Thursday
06:45/SWI: Feb Unemployment
07:00/GER: Jan Manufacturing orders
07:00/GER: Jan Manufacturing turnover
07:00/UK: Feb Halifax House Price Index
07:00/DEN: Jan Industrial production & new orders
07:00/NOR: Jan Industrial Production Index
07:00/FIN: Jan Foreign trade
08:00/AUT: Feb Wholesale Price Index
08:00/SWI: Feb SNB foreign currency reserves
08:00/SVK: 4Q GDP
08:00/SPN: 4Q Housing Price Index
09:00/ICE: Feb External trade, preliminary figures
10:00/CYP: Feb CPI
10:00/CRO: Jan Industrial Production Volume Index
13:15/EU: ECB interest rate announcement
15:59/GRE: 4Q Provisional GDP
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03-07-24 0015ET
