MARKET WRAPS
Watch For:
U.K. unemployment; Germany CPI; trading updates from Ocado Group, Experian, BMW, Vinci
Opening Call:
European shares look set to track lower at the open on Tuesday. Asian stock benchmarks were lower; the dollar and Treasury yields edged higher; oil futures were mixed and gold gained.
Equities:
Stock futures were tracking lower early Tuesday on a weak lead from Asian equity markets.
Stock benchmarks in two of Asia's largest economies had climbed to historic highs on Monday while U.S. equity and bond markets were shut for Martin Luther King Day.
Fourth-quarter earnings season will pick up speed this week, Goldman Sachs, Morgan Stanley, and PNC Financial Services are due to file results on Tuesday.
This week, the main event on the economic front is likely to be retail sales data on Wednesday, said Deutsche Bank strategist Jim Reid.
After data last week showed slower-than-expected growth in producer prices, investors have piled into bets that the Fed would cut interest rates as soon as March.
Forex:
The U.S. dollar advanced in Asia amid geopolitical risks which could spur safe-haven demand for the greenback.
The dollar is overvalued versus most G-10 currencies and risks weakening if the Federal Reserve starts cutting rates, analysts at BofA Global Research said.
"Fed cuts and risk appetite should pave the way for dollar downside," the analysts said, and expect the dollar to depreciate broadly, beyond the market's consensus by the year-end.
For now, BofA's proprietary flow data suggests that investors are positioned roughly neutral on the dollar and short on emerging market FX.
Bonds:
U.S. Treasury yields were broadly higher early Tuesday.
Bank bonds are expected to perform better than sovereign bonds and non-financial bonds in 2024 as central banks start to cut interest rates, Bank of America credit strategists Ioannis Angelakis and Barnaby Martin said.
Central bank rate cuts are likely to result in fund inflows into higher-yielding bank bonds, and outflows from sovereign bonds due to falling yields, BofA said.
"In a lower yield environment bank spreads should outperform non-financial spreads."
Energy:
Oil futures were mixed amid risk-off sentiment spurred partly by losses in U.S. stock-index futures.
A softer tone across broader markets appears to offset geopolitical risks and concerns of a U.S. cold snap lowering production, UOB Global Economics & Markets Research said.
The current oil price doesn't reflect the contagion risk for oil as well as Iran's well-demonstrated disruptive capabilities and willingness to internationalize the costs of a confrontation, RBC Capital Markets said.
"Iran remains the biggest wild card in this war, and should it get directly involved in this conflict it could have a material impact on the oil price," it said.
Metals:
Gold edged higher but may be weighed by higher Treasury yields and a stronger dollar.
Higher U.S. bond yields are usually negative for the non-interest-bearing precious metal, while the dollar typically has an inverse correlation with gold.
The downside risks for gold are that Fed Gov. Christopher Waller pushes back on market pricing for a March rate cut and shows a lack of urgency to normalize policy, said Pepperstone.
Brookings Institution will host a discussion with Waller later today.
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Copper declined amid risk-off sentiment toward base metals, ANZ Research analysts said.
Though copper traded near a one-month low after China's central bank surprised the market on Monday by keeping its policy rate unchanged, the analysts reckoned the move could ultimately bode well for metals as it raises the chance of a cut to banks' reserve requirement ratios next month.
A cut could boost financing for industrial activity, supporting base-metal prices.
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Iron-ore prices were lower amid concerns about China's economic outlook as deflation risks persist.
Baosteel, China's largest steelmaker, has warned of sluggish demand, ANZ Research analysts said.
Meanwhile, iron-ore inventory levels from Chinese steel mills have increased more than 16% to 14.4 million tons in early January, according to the China Iron and Steel Association.
Iron-ore prices will likely continue to be weighed down in the absence of favorable policies, Nanhua Futures analysts said.
TODAY'S TOP HEADLINES
These Four Questions Are Top of Mind for Investors in 2024
The blockbuster stock market rally stalled once the calendar flipped to 2024.
Some of the big tech stocks that drove the market's advance last year appear to have run out of gas, government-bond yields have risen and inflation might not be cooling as quickly as some investors had hoped. After a rocky start to the month, the S&P is clinging to a 0.3% advance in January.
ETFs Make Bitcoin's Problems Even Worse
The new wave of U.S. bitcoin ETFs risk being doubly bad for investors.
As holders of bitcoin they undermine the very purpose, and so the long-term value, of a cryptocurrency. And as ETFs launched at a moment of popularity they might be repeating the mistake of many past thematic funds by buying at a peak.
Fed Tiptoes Toward Dialing Back Key Channel of Monetary Tightening
Though the Federal Reserve stopped raising interest rates last summer, it is quietly tightening monetary policy through another channel: shrinking its $7.7 trillion holdings of bonds and other assets by around $80 billion a month.
Now that, too, may change. Fed officials are to start deliberations on slowing, though not ending, that so-called quantitative tightening as soon as their policy meeting this month. It could have important implications for financial markets.
Three-quarters of chief economists expect 'weak' or 'very weak' growth in Europe this year, Davos poll finds
A poll conducted of chief economists found three-quarters expecting weak to very weak growth in Europe this year, the most pessimistic outlook of any region.
The chief economist survey, released in conjunction with the World Economic Forum in Davos but conducted in November and December, found a big geographic split, with 93% expecting moderate to strong growth in South Asia and 86% expecting that for East Asia.
Rio Tinto Annual Iron Ore, Aluminum Output Rises
Rio Tinto on Tuesday said it produced more iron ore, aluminum and copper last year than the year before, reaching annual targets as it ramped up new mining operations in Australia and Mongolia.
The world's second-biggest miner by market value said it produced 331.5 million metric tons of iron ore at its network of mines in Australia in 2023, up 2% versus 2022, and shipped 331.8 million tons, up 3%. Rio Tinto, a top exporter of the steel ingredient, previously told investors it expected shipments in the upper half of a 320-million to 335-million ton range.
Ukraine Says It Downed Russian Surveillance Plane
KYIV, Ukraine-Ukrainian forces are struggling to hold back Russian troops on the ground, but they are proving adept at hitting high-value Russian targets, with the downing of a surveillance plane adding to string of recent blows to Moscow's air force.
Valeriy Zaluzhniy, the commander of the Ukrainian armed forces, said Monday on Telegram that Ukraine's air force shot down an A-50 long-range radar detection aircraft, as well as a IL-22 bomber jet, over the Sea of Azov. He offered no details about how the planes had been brought down.
Israeli Military Near End of Most Intense Phase of Gaza Fighting, Defense Minister Says
The Israeli military is close to completing its most intensive phase of fighting against Hamas in the Gaza Strip, Israel's defense minister said Monday, warning that the lack of a plan for postwar Gaza could hurt the military campaign.
In northern Gaza, the most intensive phase of fighting is complete, while the military is close to completing intense fighting in the south, around the city of Khan Younis, Defense Minister Yoav Gallant said Monday.
Apple to Remove Blood-Oxygen Sensor From Watch to Avoid U.S. Ban
Apple is removing a blood-oxygen sensor from some of its smartwatches to get around a patent dispute related to the technology, a step likely to avoid further sales disruptions but one that may raise questions about the company's push into health.
The company halted sales of some watch models briefly last month after a U.S. import ban went into effect stemming from an October ruling by the U.S. International Trade Commission. The trade agency found Apple had violated the patents of medical-technology company Masimo related to the blood-oxygen tool. Sales resumed temporarily in recent weeks pending a legal review.
Chip Wars Boost Europe's Top Tech Company-for Now
The more the U.S. government worries about China's ambitions in the chip industry, the more equipment for making chips that China seems to buy.
When ASML, the Dutch company that makes the world's most advanced lithography machines for manufacturing microchips, reports fourth-quarter results next week, one of the most eye-catching numbers will be the share of sales it made in China. This reached an extraordinary 46% in the third quarter, up from just 8% in the first three months of the year.
Write to singaporeeditors@dowjones.com
Expected Major Events for Tuesday
07:00/NOR: Nov Monthly GDP
07:00/UK: Dec UK monthly unemployment figures
07:00/GER: Dec CPI
08:00/SVK: Nov New orders in industry
09:00/ITA: Dec CPI
10:00/CRO: Dec CPI
10:00/GER: Jan ZEW Indicator of Economic Sentiment
11:00/IRL: Dec CPI
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This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
01-16-24 0015ET
