MARKET WRAPS
Stocks:
European stocks pushed higher on Friday as investors continued to cheer the latest in-line U.S. inflation reading.
The PCE report, considered the Federal Reserve’s favored inflation gauge, followed this month’s hotter-than-expected readings on U.S. consumer and producer prices for January, but failed to move the needle on traders’ expectations for rate cuts this year.
“Inflation continues to fall gradually, while economic growth is strong and the consumer is healthy. Higher-for-longer rates will likely stay with us until summer,” Federated Hermes said.
U.S. Markets:
Stock futures were rising, a day after the S&P 500 and Nasdaq closed at record highs following the in-line U.S. inflation data. It was Nasdaq’s first all-time high since 2021.
With earnings season nearly complete, S&P 500 companies have reported an aggregate 3.9% growth in quarterly profit. Much of that boost has come from a handful of companies.
A trickle of earnings are due this morning, including from Plug Power and fuboTV.
Forex:
The U.S. ISM business manufacturing PMI index, due at 1500 GMT, is expected to show a small increase which could help lift the dollar and push the euro below $1.08, DZ Bank Research said.
Meantime, SEB Research said the dollar is expected to stay strong during spring as expectations for a soft landing-where inflation slows without economic recession-fuel a narrative of U.S. economic outperformance.
Should core service inflation stop subsiding, we will quickly move into a no-landing state, which should also favor the dollar.”
Risks include potential equity market downturns and tariff increases, which in turn could also support the dollar, SEB said.
MUFG said the pound continues to track the performance of the euro with little evidence of any market view on any divergence on the horizon that would prompt sterling to break out of recent narrow trading ranges.
The three-month implied volatility of EUR/GBP has fallen sharply this year, close to the 4% level which was last seen prior to the global financial crisis in 2007, MUFG said. However, these levels are hard to justify.
“It appears there’s a level of complacency over the outlook that indicates attractively cheap levels for FX hedgers in current market conditions.”
Bonds:
Bond investors should consider buying into dips [in prices] ahead of the European Central Bank’s March 7 monetary policy meeting, Commerzbank Research said.
“Modestly falling inflation rates should not mask that underlying inflation is heading in the wrong direction,” Commerzbank Research said, with the release of eurozone flash estimate February inflation data due at 1000 GMT.
With 10-year Bunds being again rejected at a yield of 2.5%, and with a June interest-rate cut by the ECB no longer fully priced in, “we switch to buying Bund dips ahead of the ECB.”
Two- and 10-year eurozone bond yields are currently trading at the top of the trading range that SEB Research forecast for 2024, implying the next move will be lower rather than any higher.
“The repricing of European Central Bank [rate cut] expectations has pushed EUR rates sharply higher, and if we are correct, the next move will be lower within the range,” SEB said.
It expects the two-year German yield to decline to 2.3% by the end of 2024 and the 10-year Bund yield to fluctuate mostly between 2% and 2.4% throughout the year.
Green bond issuance started the year strongly in Europe, especially for sovereigns, and total issuance in 2024 is expected to beat volumes in 2023, Societe Generale Research said.
Energy:
Oil futures were little changed following different demand indicators as China’s latest data pointed to a fifth straight month of contraction in the manufacturing sector, while the U.S. PCE index showed inflation in line with economists’ expectations.
“Brent crude prices continued to trade sideways this week,” BMI said.
“However, timespreads for Brent futures contracts have widened. The move to stronger backwardation will be supportive of a more bullish stance for prices as markets are pricing in tightening in the months ahead.”
Meanwhile, uncertainty over a potential ceasefire in Gaza and expectations that OPEC+ will extend its production cuts into the second quarter continue to weigh on sentiment.
Metals:
Base metals and gold fell slightly in early trading after U.S. inflationary readings came in-line with expectations, providing little incentive for prices to break out of their current ranges.
Industrial metals continue to underperform, with most experiencing losses after an expected demand rebound from mainland China following the Lunar New Year holidays failed to materialize, BMI said.
“Overall, in 2024, we expect to see only a slight improvement in industrial metal prices as weak Chinese demand and a subdued outlook across major markets continue to place a cap on metal prices.”
EMEA HEADLINES
Kuehne + Nagel Shares Tumble After Earnings Fall Short of Expectations
Kuehne + Nagel International shares fell sharply Friday after the Swiss logistics company reported fourth-quarter results that missed consensus expectations.
At 0844 GMT, shares in Kuehne + Nagel fell 11% to CHF266, erasing gains the stock logged earlier in the year and leading to a loss of 8.3% since the beginning of 2024.
Daimler Truck Expects 2024 Adjusted Earnings in Line With Previous Year; Raises Dividend
Daimler Truck said it expects 2024 earnings to remain in line with the previous year, and raised its dividend as revenue improved in the fourth quarter.
The German trucks and buses manufacturer posted on Friday fourth-quarter adjusted earnings before interest and taxes of 1.56 billion euros ($1.69 billion), compared with EUR1.03 billion he previous year. Revenue rose to EUR14.95 billion in the quarter from EUR14.78 billion the year prior.
Pearson’s Pretax Profit Rises; Extends Share Buyback Plan by GBP200 Mln
Pearson reported a higher pretax profit for 2023 despite lower sales and said that it is extending its share buyback program by a further 200 million pounds ($252.5 million).
The FTSE 100 education company said that for the year ended Dec. 31 pretax profit was GBP493 million compared with GBP323 million for the prior year.
Ryanair to Cut Summer Schedules on Boeing Aircraft Delivery Delays
Ryanair Holdings said it will have to make schedule cuts for the summer season after confirming it now expects Boeing to deliver only 40 of the 57 aircraft it has ordered and which were due for delivery before the end of June.
The Irish low-cost carrier said the delays, combined with the grounding of up to 20% of its competitors’ Airbus fleets due to the Pratt & Whitney engine issues, will lead to higher air fares in summer as capacity constrains.
ITV Sells BritBox International Stake for $322 Mln; Launches Buyback
ITV said it has sold its entire 50% stake of the digital subscription streaming service BritBox International to its joint venture partner BBC Studios for 255 million pounds ($322 million).
The British broadcaster on Friday said it will continue to receive a revenue stream from BritBox International, similar to current levels for the use of ITV content, under new extended licensing agreements.
LVMH Doesn’t Have the Luxury of Pulling Back From China
PARIS-Over the past year, Bernard Arnault has made a habit of convening his inner circle at the headquarters of his luxury empire on the Avenue Montaigne for detailed briefings on a key topic: China.
A former economic adviser to Beijing warned Arnault and his team that China’s aging demographics presented a serious problem for LVMH, his luxury conglomerate, according to people at the meeting. The tendency of Chinese consumers to save, as opposed to splurging on luxury goods, was likely to harden as they got older, the adviser said. Another expert explored scenarios that could lead China to invade Taiwan-an event that would tear apart international trade and cause a global crisis.
GLOBAL NEWS
Inflation in Services Is Picking Up Again. That Could Delay Rate Cuts.
Progress in cooling inflation reversed last month, with two key inflation measures showing a pop in price growth rather than further deceleration toward the Federal Reserve’s 2% annual target.
Sticky inflation in the services sector, particularly in housing, drove much of the gain. Services prices increased 0.6% monthly in January, according to Thursday’s release of the latest personal-consumption expenditures index data, twice the 0.3% increase reported for December. January marked the fourth consecutive month that service inflation ticked higher monthly. On an annual basis, prices for services increased 3.9% last month.
China’s Factory Activity Slows Again, Highlighting Limits of Government Measures
BEIJING-China’s vast manufacturing sector remained in contraction for a fifth consecutive month in February, underscoring the difficulties facing the country’s leadership as it seeks to support a faltering economy, and raising hopes for bolder policy moves when top officials gather for annual legislative meetings next week.
An official gauge of China’s factory activities edged down to 49.1 from January’s 49.2, the country’s National Bureau of Statistics said Friday. A reading below 50 indicates a contraction in activity while a reading above that mark suggests an expansion.
Biden and Trump Make Dueling Border Visits Amid Migrant Crisis
President Biden and former President Donald Trump made dueling visits to the U.S.-Mexico border Thursday, as the two likely 2024 opponents used Texas towns 300 miles apart to push for tougher border policies while blaming the other’s party for failing to fix the migrant crisis.
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March 01, 2024 05:23 ET (10:23 GMT)
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