European Midday Briefing : Stocks Move Higher on Last Trading Day of 2023

MARKET WRAPS

Stocks:

European shares moved higher on Friday in quiet trade on the final trading day of the year.

Traders are turning cautious after strong gains for equities in recent weeks due to growing expectations that central banks will cut interest rates next year.

"There will still be a hangover and a correction period after a relentless two-month rally triggered a broad-based risk euphoria among investors," Swissquote said.

For rate cuts to boost stocks, they will need to be accompanied by a strong economy and solid earnings expectations, it added.

London's FTSE100 looks set to end the year only 3% higher, far below its European rivals, with the Stoxx Europe 600 up 11.5%, Germany's DAX index up 19% and France's CAC-40 up 15%, according to FactSet.

Concerns about a weak U.K. economy and persistent inflation have hampered the U.K. blue chip index, Hargreaves Lansdown said.

"It looks as though the FTSE 100 will have moved largely sideways for the year, thanks in large part to extreme uncertainty and the upwards march of interest rates."

Inflation is at risk of remaining "stubbornly" above the Bank of England's 2% target, limiting scope for interest-rate cuts, Hargreaves Lansdown added.

Economic Insight

Once 2024 gets underway, focus for U.K. equity traders will soon turn to how retailers fared over Christmas when they report on this crucial period in a couple of weeks' time, but the signs aren't good, Hargreaves Lansdown said.

"Short sellers are circling some areas of the [retail] sector in the expectation of bad news," it said.

A combination of higher prices and a higher cost of living eating into consumers' disposable incomes, plus competition from online options, means momentum for these companies "has become even harder to harness."

U.S. Markets:

Stock futures were higher, as markets are ending 2023 on a hot streak.

All three indexes are on pace for a ninth consecutive weekly gain. For the S&P 500, that would mark the longest streak since January 2004. The index is now within 0.3% of its all-time high, set in January 2022.

Forex:

The dollar recovered after falling to a five-month low against a basket of currencies this week, helped by a rebound in Treasury yields following a weak sale of 7-year Treasury bonds, and could rise further in early 2024, Swissquote said.

"I wouldn't be surprised to see the dollar recover against most majors in the first weeks of next year."

Either European Central Bank officials talking of possible interest-rate cuts and/or the Federal Reserve retreating from rate-cut talk could see EUR/USD ease, Swissquote added.

Energy:

Oil prices moved higher, but were still set for a weekly decline as demand concerns hit key benchmarks.

Despite the move higher, prices over the week were still set to fall 1.4% and 1.8% for Brent and WTI, respectively.

Brent and WTI were both also set to end the year roughly 10% lower, as slow economic growth slashes demand for oil.

Metals:

Base metals prices were higher while gold edged lower, with thin trading during the festive period not sending a signal one way or the other.

Metals have had a volatile year, with gold hitting a new record high, while shifts in demand have pushed and pulled base metals both sharply up and down.

Overall, copper is set to end the year just over 3% higher, while aluminum is roughly flat. Gold is up 14%, reflecting the stellar run the precious metal has had this year.

EMEA HEADLINES

Spanish Inflation Holds Steady in December

The rate of annual inflation in Spain held steady in December, keeping price rises stable but above the wider eurozone average.

The country's consumer-price index rose by 3.3% on a yearly basis, the same rate as a month earlier, according to figures set out Friday by national statistics agency INE. The rate is harmonized to European Union standards and was in line with the expectations of economists polled by FactSet.

Why Europe's Oil Majors Beat Exxon and Chevron in 2023

For the first time in five years, big European oil companies outperformed their U.S. counterparts in 2023.

That doesn't signal a changing of the guard-the U.S. firms are still more richly valued by investors. Instead, it appears the Europeans have been taking some cues from the American oil playbook, turning more attention to their core oil businesses, and emphasizing shareholder returns.

Biden Struggles to Push Trade Deals With Allies as Election Approaches

WASHINGTON-The Biden administration on Thursday extended for two years a temporary measure to suspend Trump-era tariffs on European steel and aluminum, the latest sign that the president is finding it difficult to resolve trade frictions as an election year approaches.

Washington and Brussels have failed to find a permanent solution to eliminate the levies more than two years after the negotiations began. With the announcement, the administration will keep in place a temporary import quota system that replaced Trump-era tariffs while talks continue. The EU has criticized the temporary fix, which could be undone if Biden isn't re-elected.

GLOBAL NEWS

What Did Wall Street Get Right About Markets This Year? Not Much

Almost no one thought 2023 would be a blockbuster year for stocks. They could hardly have been more wrong.

The Federal Reserve raised interest rates at the fastest clip since the 1980s, a regional banking crisis felled Silicon Valley Bank, and war broke out in the Middle East. Yet stocks kept climbing.

China Central Bank to Help Boost Consumer Prices Amid Deflation Risks

China's central bank has vowed to boost consumer prices as the world's second-largest economy is battered by tepid demand and weakening confidence.

The People's Bank of China said it would "promote price recovery from low levels and keep prices at reasonable levels," according to a statement released late Thursday summarizing the central bank's fourth-quarter monetary policy meeting.

Civil War Gaffe Undercuts Nikki Haley's 2024 Pitch

Republican Nikki Haley, who until this week had run a disciplined and largely error-free presidential campaign, has been forced into an uncomfortable and unexpected new chore: doing cleanup on a blunder related to the Civil War and slavery.

The former South Carolina governor and United Nations ambassador was forced into defensive mode after she omitted slavery from an answer she gave at a New Hampshire campaign event where she was asked what prompted the Civil War. Her long-winded response avoided giving the answer to a basic question most learned in grade school, teeing up a barrage of criticism from political foes.

Maine Becomes Second State to Bar Trump From 2024 Primary Ballot

Maine's top election official Thursday barred Donald Trump from appearing on the state's primary ballot, the second time a state knocked the Republican former president off its ballot and escalating a national legal effort to disqualify him from office.

In a 34-page written decision, Maine Secretary of State Shenna Bellows, a Democrat, said the Constitution bars a second Trump term because of his actions surrounding the Jan. 6, 2021, attack on the U.S. Capitol following his loss in the 2020 presidential election.

The New Star on the Political Scene: The Chip Industry

Semiconductors have played the starring role in state visits. Nvidia's chief executive was feted by heads of state like a visiting dignitary. Government delegations have shuttled around the globe hobnobbing with chip makers.

For an industry that suddenly finds itself as a geopolitical showpiece, the attention is a mixed bag.

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

(END) Dow Jones Newswires

12-29-23 0600ET