MARKET WRAPS
Stocks:
European stocks were lower on Wednesday after U.K. inflation picked up speed and as central bankers kept pushing back against expectations of big interest-rate cuts this year.
The market pricing of the first interest-rate cut by the European Central Bank in April looks premature, potentially overlooking risks of commodity-driven inflation, Natixis Research said.
It expects the ECB to mark a pause until June before embarking on its rate-cutting cycle.
London's FTSE 100 fell sharply, dropping 1.4% to hit a seven-week low and underperforming European indexes.
Data showing an unexpected rise in U.K. inflation dampened prospects of an early interest-rate cut by the Bank of England.
"The slight rise in the headline rate to 4% is the last move companies and households wanted to see, as it pushes the prospect of interest rate cuts further down the line," Hargreaves Lansdown said.
Stocks to Watch
Stock prices in Europe's banking sector could decline further, especially Commerzbank, according to a trader.
"The takeover speculation was probably completely exaggerated and only related to purely theoretical scenarios," he says, referring to a Bloomberg report, saying that Deutsche Bank analyzed takeover scenarios of European banks including Commerzbank.
Commerzbank shares were 10% higher since the start of the year. "For the time being, there is probably only M&A fantasy in the savings bank and Volksbank sector," the trader said.
U.S. Markets:
Stock futures fell as global central bank officials worked to cool expectations about interest-rate cuts in 2024.
Stocks to Watch
U.S.-listed shares of Alibaba were down 3.2%, JD.com slumped 5.2%, and PDD Holdings fell 4.4% after gross domestic product in China expanded 5.2% in the fourth quarter and for 2023.
Spirit Airlines fell 47% on Tuesday and was down a further 4.4% in premarket trading after a federal judge blocked the budget carrier's acquisition by JetBlue Airways, saying the deal would do harm to the airline's cost-conscious fliers. JetBlue rose 1%.
Forex:
The euro fell to its lowest level against the dollar so far in 2024 as bond markets reassessed interest-rate cut pricing, driving Treasury yields higher, Danske Bank Research said.
"EUR/USD faced renewed pressure as markets reassessed the aggressive pricing of rate cuts."
Danske Bank Research maintained its strategic case for a lower EUR/USD, and in the near term, prefering to sell on any rallies.
The euro repeatedly failed to sustain a break above $1.10 throughout 2023 and is shy of this level so far in 2024, but BNP Paribas Markets 360 believes it has the potential to rise in the longer term.
"Going forward, we think it's more likely than not that this barrier [1.10] is broken through and we forecast EUR/USD to close the year at 1.15."
Sterling rebounded after data showed U.K. CPI inflation rose , dulling chances of an early interest-rate cut.
The data prompted some to slash bets on the currency falling below $1.26 against the dollar, Swissquote Bank said.
Bonds:
Eurozone government bond yields traded higher after U.K. consumer prices accelerated.
Ten-year eurozone government bond yields traded by up to 7 basis points higher, driven by peripheral bond yields, while the 10-year German Bund yield rose 4.5 basis points.
Natixis Research said eurozone sovereign spreads are expected to widen in the first quarter of 2024 .
It expects the 10-year Italian BTP-German Bund yield to peak by March at 190 basis points, before tightening to 175 bps come December, supported by the bull market and rate cuts.
Commerzbank Research said markets seem to be shifting focus to the upcoming central bank meetings, given the notable drop in intra-day volatility in eurozone rates and eurozone government bond [EGB] spreads over the latest sessions.
Front-end yields continue to oscillate, while markets remain sensitive to the newsflow, Commerzbank said.
"That being said, intra-day ranges are much more confined of late even as long-end Bund yields test the highs for the year while EGB-spreads as captured by [Italian government bonds] BTPs are also cooling down."
Energy:
Oil prices traded lower on a stronger dollar as investors scaled back expectations of imminent interest-rate cuts following comments from a Fed official.
"Oil markets continue to trade in a fairly rangebound manner despite developments in the Middle East," ING said.
"Comments from a Fed official and a surge in the USD yesterday held large parts of the commodity complex back."
Meanwhile, tensions in the Middle East were escalating amid fresh Houthi attacks on ships transiting the Red Sea and retaliation strikes from the U.S. and its all
Metals:
Metals prices were falling as the latest figures from top consumer China weighed on market sentiment, revealing the country's economy grew at one of its slowest rates in decades last year.
Meanwhile, the impact of shipping disruptions in the Red Sea seems to be having only a marginal impact on commodities, but further escalation of the conflict could be supportive for prices.
"While the conflict at the Red Sea is not directly translating into higher base metals prices, the indirect impacts are mounting, possibly delaying shipments and increasing freight costs," Sucden Financial said.
Copper
Copper prices are likely to trough around $8,000 a metric ton in 3Q , Macquarie said, who raised its expected copper-price nadir from a previous forecast of $7,600/ton.
"We have taken a more constructive view" following supply disruptions that suggest a smaller-than-anticipated surplus of the metal in 2024, it said.
EMEA HEADLINES
Maersk, Hapag-Lloyd Form Shipping Alliance
Danish shipping giant A.P. Moeller-Maersk and Germany's Hapag-Lloyd are teaming up to form a new vessel-sharing agreement from next year, shaking up the global lineup of shipping alliances.
Following the end to the pandemic-fueled cargo boom, when freight demand outstripped the supply of ships, the industry has been left with a surplus of vessels and sharply lower freight rates, while the recent escalation of hostilities in the Middle East has forced shippers to divert their vessels by thousands of miles.
Lagarde, with a caveat, says ECB will likely cut interest rates this summer
It was toward the end of an interview European Central Bank President Christine Lagarde gave in Davos, a clear sign she wasn't setting out to deliver this message. And she said it in a roundabout way.
But, Lagarde appeared to cement expectations that the ECB will cut interest rates this summer, in an interview with Bloomberg News on Wednesday. She was responding to a comment that a majority of governing council members have been saying there will be a rate cut by the summer if not in the summer.
BP Veteran Named as CEO, Signaling Commitment to Green Shift
BP appointed Murray Auchincloss as chief executive, turning to a company veteran to continue the oil giant's shift toward renewable energy.
Auchincloss has run the London-based company on an interim basis since September following the abrupt resignation of Bernard Looney over his failure to disclose details about past relationships with colleagues.
GLOBAL NEWS
Markets Expect Rate Cuts Soon. Central Banks Say Not So Fast.
There may be a middle ground between blindly trusting central bankers' interest-rate guidance and disregarding it completely.
On Tuesday, stocks fell, Treasury yields jumped and the U.S. dollar rose against other currencies after Federal Reserve Gov. Christopher Waller warned that any lowering of interest rates this year will need to be "carefully calibrated and not rushed." Though he is a well-known hawk, many other officials have also recently suggested that investors may be expecting borrowing costs to come down too far and too fast. European Central Bank rate setters made the same point at the World Economic Forum in Davos this week, including chief economist Philip Lane.
China's Economy Limps Into 2024
China's economy grew 5.2% last year, after expanding just 3% in 2022. For investors used to prepandemic rates of 6% or more, that is a remarkably weak performance. Barring a big policy shift, though, 2024 will probably bring more of the same.
There were a few bright spots in the monthly data for December, released Wednesday. Year-over-year growth in investment, after eight straight months of deceleration, leveled off in November and ticked up modestly last month. That fits with somewhat easier monetary conditions since November, too: Growth in outstanding debt and equity finance rose to 9.5% from a year earlier last month, the fastest pace since May.
Europe Braces for Trade Hit as Global Commerce Slows
Europe's trade relationships are set to suffer as global conflicts and protectionism open a chillier chapter in international commerce, hitting growth on the continent.
Trade is now growing at a slower pace than the world economy, marking a fundamental shift away from the trade-centric globalism prevalent since the end of the Cold War, Boston Consulting Group said in a report published this month. The slowdown is due to rising protectionism, including in China, and increased disruptions from conflict, BCG said.
How Quickly Donald Trump Could Clinch the Republican Nomination
Florida Gov. Ron DeSantis muscled out a second-place finish in Iowa, but he trailed Donald Trump by roughly 30 points. Polls have shown Nikki Haley on the rise in New Hampshire, in some cases closing the gap with Trump to single digits. But beyond that, there is little to suggest anyone is positioned to damp the air of inevitability around Trump's campaign. If Trump continues winning by margins similar to his dominant performance in Iowa, he is on a path to securing the delegates needed to clinch the nomination in a matter of weeks.
Here's a look at how the delegate math might add up through Super Tuesday.
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01-17-24 0604ET
