EMEA Morning Briefing: Market Awaits Fed's Favorite Inflation Gauge

MARKET WRAPS

Watch For:

France consumer confidence survey; U.K. GDP, balance of payments, monthly retail sales figures, business investment revised results; trading updates from DS Smith

Opening Call:

Shares look set to retreat in Europe on Friday, with the market's attention trained on the coming release of the U.S. Federal Reserve's favorite inflation indicator. In Asia, stock benchmarks rose; Treasury yields ticked up; the dollar was slightly flat; while oil and gold both gained.

Equities:

European shares could be off to a wobbly start on Friday, as investors await a fresh reading of the Fed's preferred inflation measure due later in the day.

The core personal-consumption-expenditures price index for November is projected to have risen 0.1% from October and 3.3% from a year ago.

A round of U.S. economic data Thursday--first-time jobless claims and third-quarter gross domestic product--weren't "earth-shattering numbers, " but they still proved that a cooling economy will keep the Fed on track to cut rates in the "not-too-distant future," said Morgan Stanley.

Forex:

The dollar was steady after earlier losses in the wake of the downward revisions in U.S. GDP.

Sterling is expected to decline in the near term on growing expectations the Bank of England will cut interest rates in the first half of 2024 as U.K. inflation eases, said MUFG.

"The faster decline in inflation poses downside risks to our near-term pound forecasts," it said.

Markets have fully priced in a BOE rate cut in May, Refinitiv data showed.

Bonds:

Treasury yields inched higher after carving out another multi-month low overnight on the slight downward revision in U.S. third-quarter GDP.

"Fedspeak has been exhausted for the year and efforts to convince investors that a March rate cut is just too soon will resume in the New Year," said BMO Capital Markets.

"Not only is there little on the immediate horizon to inspire a rethink of the prevailing macro narrative, even a modest slowing of the real economy in the beginning of 2024 would only serve to reinforce the bond-bullish price action," it said.

Energy:

Oil prices rebounded in Asia after being pressured by Angola's decision to leave the Organization of the Petroleum Exporting Countries.

The price weakness was due to concerns about how Angola's departure may affect OPEC's unity, said Saxo.

Crude oil prices have also strengthened on the recent shipping disruptions in the Red Sea due to Houthi rebel-led attacks.

Metals:

Gold prices were slightly higher on continued bets that the Fed would start lowering rates next year.

The SOFR market--a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities--has raised 2024 rate-cut expectations, said Saxo Bank.

Gold typically moves inversely to interest rates.

Continued demand for the haven asset from both central banks and retail buyers in Asia is also supporting prices, Saxo Bank added.

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Copper prices were higher amid concerns about supply constraints and better sentiment across the commodity market.

The Fed's recent dovish pivot on monetary policy and a weaker dollar have propped up copper prices, Huafu Securities said.

On the supply side, after Panama ordered First Quantum to shut down its flagship copper mine, there have been concerns about future copper supply, it said.

Amid the positive macro environment, low inventories could support copper prices in the short term, it added.

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Iron ore prices were higher amid improved sentiment across commodity markets.

Given strong domestic macroeconomic expectations, overall market sentiment is picking up, Baocheng Futures said.

However, thinning margins have forced many Chinese steel mills to halt production for more maintenance, leading to lower demand for iron ore, it said.

The weak fundamentals for iron ore have limited its gains and iron-ore prices will likely continue to fluctuate, it added.

TODAY'S TOP HEADLINES

What to Watch in Friday's Spending Report: Inflation Closing In on Fed's Target

Inflation retreated further in November and consumers picked up their spending as moods improved, forecasters said, adding to signs that price pressures can be contained without a recession.

Economy still appears headed for recession, U.S. leading index signals

The numbers: The leading economic index declined 0.5% in November, falling for the 20th month in a row, and continued to signal a recession ahead.

Economists polled by the Wall Street Journal had forecast a 0.5% drop in the leading index, a gauge of 10 indicators designed to show whether the economy is getting better or worse.

U.K. Serious Fraud Office Must Pay Mining Company After Botched Corruption Probe

The U.K.'s Serious Fraud Office must pay Eurasian Natural Resources Corp. after it began a corruption investigation based on tips improperly obtained from a senior lawyer for the company, a U.K. court said.

The SFO committed a "serious breach" of its own duties by privately communicating with a lawyer then at Dechert, a law firm hired by the company to run an internal investigation into possible bribery, Justice David Waksman of the High Court in London said Thursday in a written judgment. Without those communications, the agency wouldn't have launched its investigation, Waksman found.

Israel Signals It Could Agree to Palestinian Authority Governing Gaza After the War

Israeli Prime Minister Benjamin Netanyahu's national security adviser indicated that Israel could accept a U.S. plan for a revamped Palestinian Authority to govern the Gaza Strip after the war, a sign that the Israeli leader is easing his opposition to the idea.

"Israel is aware of the desire of the international community and the countries of the region to integrate the Palestinian Authority the day after Hamas, and we make it clear that the matter will require a fundamental reform of the Palestinian Authority," Tzachi Hanegbi, who heads Israel's National Security Council, wrote in an opinion piece published Thursday on the Arabic-language news site Elaph.

Elon Musk tells Cathie Wood he wants to create a 'giant brain' and financial platform on X

Elon Musk says he hopes to turn X into a "giant brain" and pivot it into a financial platform once it secures money-transfer licenses.

"We want to create a group mind or collective consciousness where each person is reporting information to the system, and giving their opinion. Think of it as a giant brain," Musk said in a wide-ranging, 100-minute interview with Cathie Wood, chief executive of investment-management firm ARK Invest, on X's Spaces app Thursday.

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Expected Major Events for Friday

00:01/UK: Nov Zoopla House Price Index

00:01/UK: Dec CBI Growth Indicator and Service Sector Survey

00:01/UK: Nov UK monthly automotive manufacturing figures

05:30/NED: 3Q GDP - 2nd estimate

06:00/FIN: Nov Labour force survey, incl unemployment

06:00/FIN: Nov PPI

07:00/UK: Nov UK monthly retail sales figures

07:00/UK: 3Q Balance of Payments

07:00/UK: 3Q Business investment revised results

07:00/DEN: Nov Central Government Finance & Debt

07:00/SWE: Nov Retail sales

07:00/UK: 3Q UK quarterly national accounts

07:00/DEN: Nov Retail sales index

07:00/DEN: 3Q Revised GDP

07:00/NOR: Nov Credit Indicator C2

07:00/GER: Nov Foreign trade price indices

07:45/FRA: Nov PPI

07:45/FRA: Dec Consumer confidence survey

08:00/SWE: Nov PPI

08:00/SPN: 3Q Final GDP

09:00/ICE: Nov Harmonized CPI

09:00/ICE: Nov Labour Force Survey

09:00/ICE: Nov PPI

09:00/ITA: Dec Consumer Confidence Survey

09:00/ITA: Dec Business Confidence Survey

09:00/POL: Nov Unemployment

10:00/ITA: Nov Foreign Trade non-EU

10:00/LUX: Oct Trade

10:30/BEL: Dec CPI

11:00/ITA: Oct Industrial turnover

11:00/IRL: Nov WPI

13:00/POL: Nov Broad money M3

14:00/BEL: Dec Business Confidence Survey

15:59/UKR: Nov PPI

15:59/UKR: 3Q Unemployment

16:59/HUN: 3Q Balance of Payments

16:59/SPN: Nov Budget deficit

16:59/SPN: 3Q Quarterly Balance of Payments

16:59/BEL: Nov PPI

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

(END) Dow Jones Newswires

12-22-23 0015ET