MARKET WRAPS
Stocks:
European stocks moved slightly higher on Wednesday but gains were capped ahead of closely watched remarks by Jerome Powell in Washington, with investors listening for clues on the pace, timing and extent of any interest-rate cuts for the rest of 2024.
Morningstar said Powell's inflation expectations, his view on the economy and "any commentary on the soundness of regional banks" in light of their commercial real-estate exposure would be areas it would like to hear more details on during the testimony.
Trading has taken on a cautious tone so far this week ahead of some key market moving events including Powell's testimony, the European Central Bank meeting and the monthly U.S. jobs report.
Stocks to Watch
Antofagasta's shares have over-performed thanks to the copper market slipping into deficit, but as this now looks priced in, the miner might have run ahead of its fundamentals, RBC Capital Markets said, cutting its rating on the stock to sector perform from outperform, and lowering the price target to 1,650 pence from 1,800 pence.
With copper prices largely flat in the year to date, Antofagasta risk-reward profile seem to be more balanced now, RBC said.
"Copper continues to be our preferred commodity exposure and while Antofagasta offers a sector leading volume growth in the medium term, we view the copper upside as fairly priced in."
Barclays said Antofagasta's stock price now fully reflects recent catalysts, but given elevated short interest, there are upside risks from potential short covering if the copper price moves higher."
Barclays downgraded its rating to underweight from equal weight and its price target to 1,295 pence from 1,375 pence.
U.S. Markets:
Stock futures were higher, after indexes closed down Tuesday, extending recent declines.
Coming up on Wednesday:
Jerome Powell is set to testify before Congress; the job openings and labor turnover survey, is due; earnings expected from Abercrombie & Fitch, Brown-Forman, Campbell Soup, Foot Locker.
Forex:
The euro is expected to firm against the dollar on a three-month to 18-month horizon, as the eurozone economy gradually recovers while the U.S. economy-so far very buoyant-shows signs of deteriorating, Natixis Research said.
It expects EUR/USD to rise to 1.105 in three months, to 1.125 by the end of the year, and to 1.140 in 18 months.
Jerome Powell's testimony before Congress should boost the dollar if he sticks to a cautious tone, stressing there is no hurry to cut interest rates due to strong economic data and still-elevated inflation, UniCredit said.
"We expect Powell to strike a cautious tone again with regard to the timing of a first Fed rate cut, and such a prospect might be positive for the dollar across the board."
Although the DXY dollar index remains below 104, "there is a lack of heavy selling pressure," UniCredit said.
The Swiss franc hit its weakest in over three months against the euro and is likely to continue to depreciate given that it acts as a borrowing currency for carry-trade strategies where investors buy riskier higher-yielding assets, Natixis Research said.
The franc weakened in February in anticipation of a premature rate cut by the Swiss National Bank in March, although Natixis expects the SNB is more likely to wait until June before lowering rates.
Natixis forecasts EUR/CHF at 0.9600 in six months, rising to 0.9800 in 12 months.
Bonds:
The ECB meeting on Thursday is expected to be mostly uneventful for euro duration-a measure of a bond's sensitivity to changes in interest rates-with markets mostly focusing on the discussion around new staff forecasts, J.P. Morgan said.
"The growth and inflation projections will be an indicator of the direction of the upcoming monetary policy decisions," JPM said.
Recent choppy moves in developed market rates suggests low investor conviction around the timing and scale of the upcoming central bank easing as they wait for clearer catalysts, JPM added.
The Treasury yield curve should continue to steepen, regardless of what the Fed announces regarding scaling back quantitative tightening, Saxo said.
The Fed could decide on this as early as its next meeting on March 20, opting either to taper quantitative tightening or for a reverse 'Operation Twist'-a previous policy of selling short-term bonds to purchase long-term Treasurys-or a mixture of the two, Saxo said.
"Regardless of the chosen option, the yield curve will continue to steepen."
This should benefit short-dated Treasurys, sending yields lower, while longer-dated Treasurys "remain vulnerable to pandemic-like U.S. Treasury issuance, the pace of disinflation and term premium considerations."
ING said weaker U.S. economic data helped push yields lower on Tuesday, taking the 10-year yield close to 4.10%, adding that it "is not convinced that rates can only go down from here."
Energy:
Oil prices were firmer on signs of supply tightness and OPEC+'s cuts slowly making their way through the market.
"The announcement over the weekend that the OPEC+ alliance announced it would extend its voluntary production cuts of roughly 2 million barrels a day until the end of the June quarter will likely see impact only get greater," ANZ said.
Meanwhile, Arabia raised the April official selling price for its flagship Arab Light crude to Asia to $1.70 a barrel, more than the Oman/Dubai average of $1.50 a barrel in the previous month, Reuters reported, citing trade sources.
Metals:
Gold slipped back after hitting a record on Tuesday, but bullion's performance will likely be capped until there is a clear sign of Fed monetary easing, Sucden Financial said.
Investors will turn their eyes to Jay Powell's testimony to Congress later today, searching for hints on the timing of rate cuts.
EMEA HEADLINES
Germany's Trade Surplus Widened in January
Germany's trade surplus widened in January, with exports and imports both rising, indicating that demand for German goods could be recovering.
The country booked an adjusted trade surplus-representing the difference between exports and imports of goods-of 27.5 billion euros ($29.86 billion), from EUR23.3 billion in December, according to figures published Wednesday by federal statistics agency Destatis.
U.K. weighs plans to cut its record tax burden. Here's how Britain's taxes compare.
The U.K.'s finance minister Jeremy Hunt has signaled he intends to cut national insurance in his upcoming Spring Budget this Wednesday in reductions that would lower the tax on workers' wages - which is used to fund Britain's welfare state.
Hunt's plans are expected to see him seek out GBP9 billion worth of savings elsewhere to balance the books, in a push that could see the Chancellor hike taxes on North Sea oil and gas companies, remove tax breaks for second homeowners, and scrap the non-dom system.
DHL Owner Deutsche Post Extends Buyback Despite Expecting Limited Earnings Growth
DHL owner Deutsche Post increased its share buyback program despite cautioning that earnings could remain relatively flat this year.
The German logistics group, also known as DHL Group, said it expects earnings before interest and taxes in 2024 of between 6 billion and 6.6 billion euros ($6.52 billion-$7.17 billion), before rising to EUR7.5 billion-EUR8.5 billion in 2026.
Dassault Aviation Expects Higher Sales Despite Persisting Supply-Chain Snags
Dassault Aviation posted revenue and earnings below analysts' forecasts, but said it expects higher sales this year as it aims to deliver more jets despite supply-chain hurdles that will continue to weigh on aircraft production.
The French aircraft manufacturer said Wednesday that it is targeting 20 deliveries of its Rafale fighter jets and 35 of its Falcon business jets in 2024. The group said in January that it had delivered 13 Rafales and 26 Falcons last year, below guidance of 15 and 35, respectively.
Legal & General 2023 Operating Profit Misses Views; Backs Targets
Legal & General Group is on track to meet its midterm goals, the financial services provider said as it posted operating profit for 2023 short of expectations.
The London-listed provider of life insurance, pensions, retirement and investment services reported an operating profit of 1.67 billion pounds ($2.12 billion) for the 12 months ended Dec. 31, missing the GBP1.75 billion expected by a company-compiled consensus and slightly below the previous year's GBP1.66 billion.
Tullow Oil Profit Plunges on Lower Oil Prices, Impairment
Tullow Oil said its pretax profit slumped on lower oil prices and impairments, while it backed its guidance for the year ahead.
The London-listed oil-and-gas explorer said Wednesday that pretax profit dropped 78% to $95.9 million, dragged by impairments and write-offs totaling $435 million.
GLOBAL NEWS
Why Gold and Bitcoin Are Hitting Record Highs-but Won't Stay There Long
Bitcoin fans often refer to the world's most valuable cryptocurrency as "digital gold, " a new store of value for the modern age. And with bitcoin rallying this year back near its all-time high of just under $69,000, crypto enthusiasts have a point. But actual, good, old-fashioned gold hasn't been a slouch of late either. The yellow metal is now trading above $2,100 an ounce and is also at a record high. Why are both the new and old gold moving higher at the same time?
It's a bit curious. For one, inflation pressures are starting to recede, so there shouldn't be a compelling case to buy them as a hedge against rising prices. Gold and bitcoin also tend to get a boost during times of significant dollar weakness, but the U.S. Dollar Index is up more than 2% this year, though it's relatively safe to call it trendless.
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