MARKET WRAPS
Stocks:
European shares were little changed on Tuesday as investors looked ahead to the key U.S. CPI report later in the day, with confirmation of firm underlying inflation likely to complicate the prospect for Federal Reserve rate cuts.
"The expectations of a 0.1% drop in headline inflation could cause concern for some over the pace of disinflation going forward, but there is hope the sharp declines in energy markets could provide a drag on headline CPI given the -0.5% slump in eurozone inflation for November," Scope Markets said.
Stocks to Watch
European carmakers' individual stories will be more important next year than whether they produce cars for the mass-market or premium segments, Bernstein said.
In 2024, equity stories will be shaped by performance in China, electric-vehicle focus, and whether they are a good turnaround story or a safety play, Bernstein added.
This year, the premium versus mass-market distinction shaped margins, with analysts concluding that Mercedes-Benz and BMW were better protected from price wars than competitors with lower-priced cars. But all EU carmakers face disappointing margins in 2024.
"Our current list of key catalysts for 2024 is mostly negative," Bernstein says. "These include recessions, rate cuts, trade tensions, model/platform launches, and U.S. elections."
Economic Insight
Central banks are likely to be less aggressive in monetary easing next year than currently priced in by markets, Jefferies said.
"We think that the market has run a bit ahead of itself," Jefferies said.
According to Jefferies, for the Federal Reserve and the European Central Bank to cut interest rates aggressively "we need to see either the economy falling off a cliff or inflation falling sharply lower."
Jefferies, however, doesn't see the economy falling off the cliff and think that inflation, particularly core inflation, remains elevated. Accordingly, it has forecast the first rate cut from both the Fed and the ECB in June.
Interactive Investors said the market has for long priced in unchanged rates at the Fed's meeting on Wednesday, therefore the accompanying comments will be of more interest.
"It seems unlikely that any radical change of direction will be forthcoming, with the Fed increasingly erring on the side of caution in ensuring that inflation is finally tamed, while ideally also avoiding a technical recession given the pace of rate hikes so far."
U.S. Markets:
Stock futures were muted, as investors awaited the November consumer-price index.
Stocks to Watch
Google lost an antitrust case over the market power of its app store brought by the videogame maker Epic Games. Shares in Alphabet, Google's parent company, fell about 1% in premarket trading.
Hasbro will cut nearly 20% of its workforce as it faces weak sales in the critical holiday shopping period. Shares slipped in offhours trading.
Forex:
The euro was mildly stronger against the dollar after the currency pair was fairly range-bound around the 1.0750 mark on Monday, Danske Bank Research said.
The range-bound trade was "in anticipation of the release of U.S. CPI later today" as well as Wednesday's Fed meeting, Danske said.
Headline U.S. inflation is expected to have eased to 3.1% in November from 3.2% in October, while core inflation is forecast unchanged at 4%, according to economists' consensus in The Wall Street Journal's poll. The data are due at 1330 GMT.
Sterling edged lower after data showed U.K. wage growth slowed slightly more than expected to 7.3% in the three months to October, but the currency benefited from expectations that the Bank of England will cut interest rates later than the Fed or ECB, MUFG said.
The BOE, which announces its latest decision on Thursday, will be encouraged by the data but wages remain elevated, MUFG said.
"The higher starting point for inflation in the U.K. and less evidence so far of a slowdown in core and service inflation gives the BOE's pushback against rate cut expectations more credibility amongst market participants."
AJ Bell said the U.K. labor data had nothing to trouble BOE rate setters when they meet this week, with another no-change decision almost nailed on.
Bonds:
Jefferies expects 2024 to be the year of fixed income and sees rates and credit outperforming equities.
"With the economy slowing and central banks embarking on a rate cutting cycle, we would favour an overweight position in sovereign and credit bonds."
Jefferies said valuation also favors fixed income assets over equities. One big caveat, though, is that there is a wall of issuance, particularly from the U.S., which hits the market next year, hence long positions should be concentrated toward the front end of the curve.
It said gross issuance in the U.S. will be close to $4 trillion "which is unprecedented," adding that Europe will also see higher gross issuance, "though the scale is nowhere close to that of the U.S."
Investor concerns stem from who would buy this debt, and the direct implications of increased issuance will be steeper curves.
Energy:
Oil prices edged higher after a Norwegian tanker in the Red Sea off the coast of Yemen was struck by a missile fired by Houthi rebels, raising concerns over shipping disruptions in the Middle East.
The U.S. Central Command said the tanker was attacked on Monday by an anti-ship cruise missile launched from a Houthi-controlled area of Yemen while passing through the Bab-el-Mandeb Strait.
For the last seven weeks, crude prices have fallen on lingering oversupply concerns and skepticism around OPEC+ supply cuts. This week, traders will watch out for OPEC and the IEA's monthly reports as well as rate decisions from major central banks.
Metals:
Base metals and gold rose ahead of Tuesday's U.S. consumer price inflation print, with investors seeing it as key for informing monetary policy.
Commonwealth Bank of Australia said a weaker inflation print would lead to the market expecting earlier rate cuts from the Fed, weighing on the dollar.
EMEA HEADLINES
Unilever Faces UK Probe into Environmental Claims About Household Products
The U.K. Competition and Markets Authority said it has launched an investigation into environmental claims made by Unilever regarding some of its household products.
The CMA said Tuesday that it will investigate whether the Anglo-Dutch retailer-which owns consumer brands such as Ben & Jerry's ice cream and Dove soap-overstates how "green" certain products are through the use of vague and broad claims, unclear statements, and "natural" looking images and logos.
Nokia Cuts Operating Margin Guidance Amid Challenging Market
Nokia cut its operating margin guidance, with market conditions in its mobile networks business remaining challenging due to falling operator spending and the Indian market normalizing after a period of rapid 5G roll-outs.
The Finnish telecom equipment maker said Tuesday that it now targets a comparable operating margin target of at least 13% by 2026, from at least 14% previously.
AstraZeneca to Buy Icosavax for Up to $1.1 Bln
AstraZeneca said it would buy U.S.-based clinical-stage biopharmaceutical company Icosavax for up to $1.1 billion in a deal that expands its vaccines and immune therapies late-stage pipeline.
The pharmaceutical giant is offering $15 for each Icosavax share held, a 43% premium to its closing market price of $10.49 on Monday.
Nissan to Buy Back $824 Mln Stake From Renault
Renault plans to sell a 5% stake in Nissan Motor back to the Japanese carmaker for up to 765 million euros ($823.6 million).
The French company said Tuesday that the sale of the Nissan shares could result in a capital loss of up to EUR1.5 billion which would hit net profit in its own accounts. This is the maximum amount and could be adjusted at year-end, Renault said.
BP Asks U.S. Regulator to Intervene in Escalating Natural-Gas Feud
British oil giant BP asked U.S. energy regulators to intervene in an escalating dispute with a startup U.S. natural-gas exporter whose feud with customers has become one of the industry's nastiest battles in years.
BP in a Monday filing with the U.S. Federal Energy Regulatory Commission accused Venture Global LNG of skirting FERC disclosure rules while maintaining "a veil of secrecy around its operations" to the detriment of long-term customers.
GLOBAL NEWS
What to Watch in CPI Report: Firm Underlying Inflation Could Complicate Prospect for Interest-Rate Cuts
Lower prices for gasoline, cars and furniture likely cooled inflation last month, but underlying price pressures have remained more stubborn, analysts estimate.
U.S. Companies Are Finding It Hard to Avoid China
HONG KONG-American companies, under heavy pressure to reduce their exposure to China, are increasingly turning to factories in places such as Vietnam, Indonesia and Mexico.
Many are finding it hard to avoid China, however.
High-Yield Bonds Are Worth a Look as Stocks Get More Expensive
The stock market is looking increasingly risky, but that doesn't mean the only alternative is to buy Treasury bonds. Corporate debt, especially high-yield securities, looks particularly appealing.
It isn't the best time to buy the S&P 500, which is up about 20% in 2023 and trading far more expensively than at the start of the year relative to the profits its component companies are expected to produce. Stocks could drop because the current high interest rates are likely to slow the economy, potentially prompting analysts to lower their forecasts for profits.
Zelensky's Plea for Ukraine Aid Finds a Tough Audience in Washington
WASHINGTON-Ukrainian President Volodymyr Zelensky enjoyed a hero's welcome when he came to Washington almost a year ago, a dramatic 10-hour visit that included an address to Congress complete with several standing ovations.
(MORE TO FOLLOW) Dow Jones Newswires
12-12-23 0548ET
