European Midday Briefing : Rate Caution Drags on Stocks Again

MARKET WRAPS

Stocks:

European stocks were back in the red on Tuesday despite a tech-led rally across other global markets.

More weak German economic data added to the cautious mood.

The country's industrial production fell in November for a sixth-straight month, weaker than expectations that it would stagnate, and continuing a sluggish period for the key manufacturing base of Europe's largest economy.

Stocks to Watch

Stellantis is the best bet among EU carmakers right now in a global 2024 market expected to bring minimal production growth, falling revenues and lower margins, Bernstein said.

Worldwide, pent-up demand from the pandemic-induced lockdown era is starting to fade, which should cause companies to increase discounts to save sales volumes, it added.

U.S. Markets:

Stock futures edged lower and the 10-year Treasury yield held above 4%.

Earnings season kicks off in earnest this week, with JPMorgan Chase and Bank of America set to report numbers on Friday.

On the data front, U.S. inflation figures are ahead, with December consumer-price data due on Thursday, followed by producer prices on Friday.

Forex:

The dollar's gains at the start of 2024 have been modest due to the market's conviction the Federal Reserve will cut interest rates this year, ING said. Increasing long dollar positions is now viewed as a "counter-trend trade," it added.

January and February are typically good months for the dollar, but the currency is more likely to trade in a range for now. ING said the DXY dollar index could trade within a range between 101.90 and 103.10 this week, awaiting Friday's U.S. inflation data and U.S. bank earnings.

Bonds:

Weakening growth, slowing inflation and an uncertain political environment will create the perfect environment for bonds to outperform other assets in the first quarter of 2024, Saxo said.

"Bond investors are presented with the opportunity to lock in one of the highest yields in more than 10 years. Higher yields do not only mean higher returns, but also a lower probability of bonds posting a negative return even if yields rise slightly again."

Riskier high-yield corporate bond issuers in the eurozone real-estate sector are among the most distressed issuers, CreditSights said.

Out of 24 issuers in the sector, the debt of 14 companies--or 58.3%--trades at distressed levels. There are 349 euro high-yield bond issuers and 42, equivalent to 12% of the index, are distressed, CreditSights said.

The dollar high-yield distress ratio stood at 8.8% as of January 5, down from 10.1% at the end of November.

Energy:

Oil prices gained, with ING saying that if market weakness persisted, it would be difficult to see how OPEC+ would be able to make more meaningful output reductions, given the scale of cuts already.

"What we are more likely to see if a rollover of current voluntary cuts into 2Q24 in order to erode the surplus expected next quarter," ING said.

Metals:

Base metals were weaker as market watchers awaited this week's U.S. CPI data for more clarity and after recent LME data showed rising inventories.

"Investors are awaiting the inflation print on Thursday, which we expect will bring more volatility to the base metals complex," Sucden Financial said.

Elsewhere, gold edged up as traders kept a close eye on signals of Fed interest-rate cuts.

Uranium

Uranium prices could rise even higher on supply tightness, rising demand and thin spot markets, Berenberg said, but forecast they will likely normalize in the $70 per pound range in the long term.

EMEA HEADLINES

Novartis in Advanced Talks to Buy Cytokinetics

Novartis is close to clinching an acquisition of Cytokinetics and its promising heart drug, as big pharmaceutical companies continue to snap up fast-growing biotechs to replenish their pipelines.

A purchase by the Swiss drug company of South San Francisco-based Cytokinetics, which has a market value of more than $10 billion, could be completed as soon as this week, according to people familiar with the situation. Cytokinetics has been running a sale process, and it is possible another suitor could re-emerge; there also might be no deal at all.

GSK Expands Respiratory Pipeline With Aiolos Bio Buy

GSK is buying biopharmaceutical company Aiolos Bio for up to $1.4 billion in a deal that expands its respiratory pipeline and follows a string of pharmaceutical majors buying fast-growing biotechs to restock their pipelines.

The British pharmaceutical giant said Tuesday that the deal to buy San Francisco and London-based Aiolos Bio, which focuses on patients with respiratory and inflammatory conditions, includes a Phase 2-ready antibody called AIO-001 for the treatment of adult patients with certain respiratory and inflammatory conditions.

U.K. Festive-Season Retail Sales Fail to Revive Sluggish 2023, Report Says

Retail sales growth in the U.K. weakened in the key trading period of December as consumers continued to hold back spending due to high living costs, according to British Retail Consortium data published Tuesday.

Total retail sales for the five weeks to Dec. 30 increased by 1.7% compared with the prior month, when it saw growth of 2.7%, the BRC-KPMG Retail Sales Monitor report said. This was below the three-month average of 2.3% growth and the 6.9% in December last year.

BMW Sold More Cars Than Ever in 2023

BMW Group sold more cars in 2023 than it ever has over a one-year period, crediting close cooperation with retailers and strong performances by sales associates.

The German carmaker said Tuesday that group sales approached 2.6 million last year, a 6.5% increase over 2022, breaking its all-time record. Sales grew 10% in the fourth quarter to around 718,800, BMW said.

GLOBAL NEWS

Fed's Bowman says inflation could drop without further rate hikes

Federal Reserve governor Michelle Bowman on Monday said her hawkish stance on monetary policy has "evolved," and she now sees the chance that inflation could continue to come down without further interest-rate hikes.

In remarks to the South Carolina Bankers Association, Bowman said that if inflation continues to decline, it will eventually become appropriate to cut rates to keep policy from putting too much downward pressure on growth.

ESG Funds Underperformed in 2023. Backlash Wasn't the Problem.

Do well by doing good? Don't count on it.

Funds that invest using environmental, social, and governance, or ESG, criteria underperformed for a second consecutive year.

Blinken Meets Arab Leaders on Shape of Post-War Gaza

AL ULA, Saudi Arabia-Secretary of State Antony Blinken outlined a series of requirements for the future of the Gaza Strip after meetings Monday with leaders of key Gulf Arab states, during a diplomatic tour of the region aimed at preventing a broader war.

Blinken said any future arrangement in Gaza must take into account peace and security in Israel, after meeting with Saudi Crown Prince Mohammed bin Salman and, earlier in the day, United Arab Emirates President Sheikh Mohamed bin Zayed Al Nahyan. The top U.S. diplomat said any plan must include a unified Palestinian government for the West Bank and Gaza, work toward future integration of Israel with the region and pave the way for an independent Palestinian state.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

01-09-24 0511ET