MARKET WRAPS

Stocks:

Most European stock indexes struggled for momentum on Wednesday, despite renewed optimism that interest rates could be cut early next year, after data showed weaker-than expected consumer inflation in the U.K. and lower producer prices in Germany.

"As worries regarding the implications of developments in the Red Sea mount, the latest inflation numbers from Europe and Britain give some respite," Swissquote Bank said.

Stocks to Watch

The diversified metals and mining sector will likely see improving commodity prices and a macro environment conducive for commodity exposure due to loosening monetary policy and resilient economic growth, RBC Capital Markets said.

"Coming off of a year of relative underperformance, we are constructive on the sector."

Base-metals exposed names like Glencore and Anglo American are favored picks. The latter has had a difficult year, falling 42% to date, but "considering Anglo American's balance sheet is ok and we remain positive on its relative commodity suite, perhaps the worst is over," RBC said.

European integrated oil-and-gas companies will face the decision to either cut buybacks or increase leverage ahead of 4Q results, Jefferies said.

Expectations are on the rise again that BP will keep its buyback flat on quarter at $1.5 billion. Conversely, market sentiment around Shell's buyback have moderated.

However, Jefferies sees BP cutting its buyback to $1 billion or less, and Shell surprising by keeping its buyback stable on quarter at $3.5 billion.

"In an uncertain macro environment, Shell remains our favorite sector pick."

U.S. Markets:

Stock futures dipped but the S&P 500 remained just shy of its record high set two nearly years ago. The Dow Jones Industrial Average closed Tuesday at a record for a fifth-straight session.

Bonds are rallying anew, with the 10-year yield on pace for a seventh decline in eight sessions.

Investors remained big believers in a March rate cut. Even after the recent Fed pushback, futures traders see a roughly 80% chance of lower rates by March.

U.S. economic updates set for release on Wednesday include the current account for the third quarter, followed by November existing home sales and December consumer confidence.

Forex:

Sterling declined as markets price in Bank of England rate cuts in early 2024 after weaker-than-expected U.K. November inflation data.

"There's growing confidence cuts to the base rate could begin as early as March and that by this time next year the economic landscape will look very different," AJ Bell said.

Bonds:

The 10-year German Bund yield slipped below 2% for the first time since late March, reflecting money markets' expectations of robust interest-rate cuts by the European Central Bank next year as inflation is slowing and the economy is likely weakening.

Markets currently price in 157 basis points of ECB rate cuts for 2024, with the first 25 basis point cut priced in for April.

DZ Bank Research said Bund yields are likely to rise in the coming weeks as markets might have to slow their expectations of interest-rate cuts by the ECB.

DZ Bank Research is significantly more cautious about ECB rate cuts than the money market because it doesn't envisage inflation to continue falling at its current pace.

"We are therefore forecasting a rebound in 10-year Bund yields in the coming weeks," DZ said, expecting the Bund yield around 2.5% on a three-month horizon. Toward the end of 2024, DZ forecasts the yield at 2.2%.

Mizuho said the rally in risk assets, the ECB's announcement on the future of reinvestments under the PEPP and the eurozone's macro deceleration "are all powerful tailwinds for BTP-Bund tighteners."

"We see no strong headwinds against further tightening towards the year-to-date lows in the near term."

Mizuho said the next potential drivers of the BTP-Bund spread are negotiation of the EU's new fiscal rules and Italy's 2024 funding plans.

Investors surveyed in BofA's global fund manager survey in December remain bullish on bonds with allocation up one percentage point on the month to net 20% overweight, the biggest overweight since March 2009.

Regarding which asset class fund managers expect to perform best in 2024, 45% said bonds.

Short-term rates will be lower over the next 12 months, according to 89% of respondents in the survey, the most on record. Also, a record 62% of investors in December expect bond yields to be lower in 12 months time.

Energy:

Oil prices edged higher on concerns about global trade disruptions after major companies paused transit through the Red Sea due to recent attacks by Yemen's Houthi forces.

"The attacks in the Red Sea are the third major disruption to maritime transport this year, alongside low water levels in the Panama Canal and collapse of the Black Sea grain deal," Capital Economics said.

"Higher transport costs will boost the prices of intermediate goods and may rekindle some inflationary pressure."

Metals:

Metals ticked higher supported by market optimism around interest rate cuts next year and hopes of a brighter demand outlook.

The Democratic Republic of Congo, the world's top producer of cobalt, is ready to welcome more U.S. investments in its mining industry, which is dominated by Chinese miners, the country's president said.

For over a decade, Chinese companies have spent billions of dollars buying out U.S. and European miners in Congo's cobalt belt, dominating the production of a metal that has become critical to the global transition to cleaner energy.


EMEA HEADLINES

German Consumer Confidence Rises Again as Income Prospects Brighten

Consumer confidence in Germany improved for the second-straight month in data for January, as income expectations jumped, despite a still-subdued outlook for the country's economy.

Germany's forward-looking consumer-sentiment index forecasts confidence to improve to minus 25.1 in January, from minus 27.6 in December, according to data published Wednesday by market-research group GfK and the Nuremberg Institute for Market Decisions.


Telefonica stock climbs as Spanish government to match Saudi stake

Shares in Telefonica rallied on Wednesday after the Spanish government said it would buy a stake of up to 10% in the country's telecommunications giant, which would match the investment made by a Saudi Arabian company.

Telefonica shares ES:TEF TEF rose 5% in early Madrid trade and have gained 11% this year.


ProSiebenSat.1 to Boost Spending on Local Content, End Deals With Hollywood

ProSiebenSat.1 Media plans to double down on investment in local programming and shift away from U.S. licensed content, ending extensive long-term output deals with Hollywood studios.

The German media company said late Tuesday that its decision took into account viewership trends in recent months, both on its streaming platform Joyn and traditional TV.


GLOBAL NEWS

Powell's Pivot Sows Confusion Over When and How Fast Fed Will Cut

Federal Reserve Chair Jerome Powell was asked at a recent gathering what he does for fun. He paused, then grinned.

"For me, a really big party-this is as fun as it gets-is a really good inflation report," he said to laughter at Spelman College in Atlanta earlier this month.


China's Benchmark Lending Rates Held Steady

China's benchmark lending rates were kept unchanged as the market had expected, after the central bank held its key policy rates steady.

The one-year loan prime rate was left at 3.45% and the five-year rate was the same as last month at 4.2%, according to the People's Bank of China.


Pro Take: M&A Deals Take Longer, Fall Apart More Often, Straining Startups

It took 15 months between the announcement of the definitive agreement by Adobe to buy Figma and the deal's termination. Add to that the time from the start of conversations, and it is a protracted period.

Drawn-out merger processes strain private companies.


A Junk Bond Fund That Delivers High-Quality Returns

David Sherman has one guiding investment philosophy: Return of capital is more important than return on capital.

It's a more nuanced principle than simply "Don't lose money," says Sherman, 58. Instead, he avoids taking undue risks. "It adds an element of discipline," he adds.


Trump Disqualified From 2024 Presidential Primary Ballot, Colorado Supreme Court Rules

Donald Trump can't appear on the 2024 presidential primary ballot in Colorado because of his actions surrounding the Jan. 6, 2021, riot at the U.S. Capitol, the state's highest court ruled Tuesday.

The first-of-its kind decision sided with a group of Colorado voters who argued in a lawsuit that the Republican front-runner was disqualified under a clause in the 14th Amendment. Enacted after the Civil War, the provision disqualifies from public office those who swore to defend the Constitution and then "engaged in insurrection or rebellion" against the U.S.


Hamas, Palestinian Rivals Conduct Talks About Governing Postwar Gaza

DOHA, Qatar-Hamas's political leaders have been talking with their Palestinian rivals about how to govern Gaza and the West Bank after the war ends, a fraught negotiation that threatens to put them at odds with the militant wing fighting Israel.

The talks are the clearest sign that Hamas's political faction is starting to plan for what follows the conflict.


France Passes Immigration Bill That Boosts Authorities' Power to Deport Foreigners

PARIS-The French parliament on Tuesday approved an immigration bill that boosts authorities' power to deport foreigners and limits access to welfare and citizenship, cementing the rightward tilt of President Emmanuel Macron's government.

Lawmakers at the Senate and the National Assembly, France's lower house of parliament, approved the new legislation after Macron's centrist party clinched a last-minute deal with the conservative Les Républicains party following months of tense negotiations.


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12-20-23 0507ET