MARKET WRAPS

Watch For:

Germany labor cost index; U.K. CBI economic forecast, Manpower UK employment outlook survey; trading updates from Siemens Energy, RWE

Opening Call:

Stock futures were little changed at the start of the week. Asian stock benchmarks were lower, weighed by Chinese equities following data over the weekend showing a deepening in deflation. The dollar and Treasury yields steadied; while oil futures rose and gold edged lower.

Equities:

European stock futures were muted at the start of a busy week of economic events, including central bank decisions from the Federal Reserve, the ECB and the Bank of England.

Friday's U.S. jobs data added to optimism that the U.S. economy is gliding toward a soft landing. Traders are pricing in rate cuts from the Fed next year, with the first coming as soon as March.

Meanwhile, euro-area inflation is falling rapidly, opening the door to ECB interest rate cuts by early 2024, said Brian Martin, head of global economics at ANZ. By early next year, interest rates will have been held sufficiently high for sufficiently long for the ECB to feel that inflation will return to target in a timely manner, he added.

ANZ expects the cuts will start in March, by which time the effects of monetary tightening will be weighing on demand, and monetary and credit aggregates are already contracting. The data is confirming an accelerating and sustained improvement in inflation.

Forex:

U.S. CPI and retail sales data due out this week are likely to be softer than consensus expectations, and may weigh on the greenback, Commonwealth Bank of Australia said.

Given this week's FOMC meeting, market participants will probably be interested in how many additional rate cuts the FOMC includes in its "dot plot" for 2024 from the current 50 bps, CBA noted.

Bonds:

Treasury yields were little changed after posting the biggest one-day jump in months on Friday on a stronger-than-expected U.S. jobs report for November.

"The employment market continues to support the idea of positive economic growth as we move into 2024," said Steve Wyett, chief investment strategist at BOK Financial. Friday's job report indicates "U.S. consumers are still supported by a healthy job market," he said.

"We think this adds to the idea of the Fed being slower to cut rates than current market pricing would indicate," Wyett said. "Overall, this is a good number for the economy ... and the Fed."

Energy:

Oil futures rose early Monday amid possible position adjustments. Some stability has emerged as Russia and Saudi Arabia recently provided verbal support, emphasizing continued efforts to stabilize global oil markets via active supply management, said Saxo Bank.

Also, the risk of an emergency OPEC+ meeting being called should crude oil prices fall further has helped to underpin markets, Saxo added.

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European oil-company investors should take advantage of oil-price volatility in 2024, JPMorgan said. While non-OPEC supply momentum looks set to balance the oil market in the first half, resilient global demand and lower inventories indicate tightening thereafter, JPM said.

"We see $70/bbl Brent as the lower end of the price range during periods of heightened volatility," the bank said, adding that OPEC unity remains intact and that more volatile periods in 2024 offer long-term investors a buying opportunity.

Metals:

Gold edged lower in Asia, with focus on U.S. CPI data and the FOMC meeting this week. The precious metal is still holding above $2,000/oz, a key short-term support level, said Fawad Razaqzada, market analyst at City Index and forex.com.

Gold has to hold this level in order to sustain its recent bullish bias, Razaqzada said. Otherwise, there could be a deeper retracement, with subsequent major support in the $1,950/oz area, which includes the 200-day average, he added.

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After a steady first nine months of the year for copper supply, miners of the industrial metal have been recently grappling with increased disruptions and production misses, Jefferies said. "Forecasted market surpluses for 2024 have been wiped out, and a deficit market is now the most likely scenario as long as the U.S. economy avoids a nasty downturn."

Since the start of the year, combined 2023 copper production guidance from miners Teck, Rio Tinto, Vale, Anglo American, First Quantum and Antofagasta has been cut by 8.0%, Jefferies said. That is based on the midpoint of guidance ranges and doesn't include the recent suspension of output guidance for First Quantum's Cobre Panama.

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Low stockpiles of iron ore at key Chinese ports appears to be a key driver of strong prices for the steel ingredient, CBA said. While stocks have rebounded 8% after recording a nadir around 105 million tons at the end of October, port inventories are at the lowest they've been at this time of year since 2016, the bank said.

"It is unusual for China's iron ore port stockpiles to have trended this low given China's iron ore imports have outpaced China's steel output growth," CBA noted.


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12-11-23 0016ET