MARKET WRAPS
Stocks:
European stocks remained under pressure on Wednesday in another cautious session amid rising bond yields and concerns that recent bets on interest-rate cuts in 2024 may have been overdone.
Heavyweight mining and oil-linked stocks were weaker due to lower crude and commodity prices.
Stocks to Watch
Eurozone banks' profitability, asset quality and capital structures are expected to decline modestly in 2024, CreditSights said.
This is due to the impact of inflationary pressures and "high, although probably declining, interest rates."
However, banks' overall fundamentals are likely to remain resilient in that period. "We are not expecting any material [regulatory] developments in 2024."
Banks' credit losses are likely to rise gently while operating expenses are seen staying flat or increasing modestly, CreditSights said.
GSK is expected to guide for at least low single-digit EPS growth for 2024 and settle the Zantac litigation case within the coming months, Jefferies said, raising its rating on the stock to buy from hold and lifting its target price to 1,900 pence from 1,550 pence.
It estimates GSK will pay $3-$4 billion to settle the case. The company's growth profile is under appreciated and the current share price offers attractive risk reward, Jefferies said.
Economic Insight
U.K. business sentiment ended 2023 stuck in a weak position , according to a survey of company directors.
The Institute of Directors Economic Confidence Index, which gauges prospects for the country's economy, dipped to minus 28 in December from minus 21 in November, nearing its recent low in June of minus 30.
"Although aspects of the business environment have improved in the last couple of months, particularly with regard to inflation, this is not yet exerting a meaningful impact on business decisionmaking," the IoD said.
U.S. Markets:
Stock-index futures were lower after the previous session saw technology stocks suffer a sell-off on concerns the recent rally has come too far too fast.
And investors remain wary of a move higher in Treasury yields, which continued on Wednesday, with the 10-year note up to 3.985% having traded around 3.80% just last week.
With the Fed's policy trajectory in mind, investors will be keen to see the minutes from its December meeting, due to be released after the European close. Richmond Fed President Tom Barkin is due to speak earlier, before the opening bell.
Economic updates set for release on Wednesday include the job openings survey for November, alongside the December ISM manufacturing report.
Forex:
EUR/USD's pullback from its late-December high of 1.1139 may extend further, based on technical charts.
Despite EUR/USD reaching 1.1139, there's no clear increase in upward momentum and the pullback from 1.1139 was accompanied by bearish divergence on daily moving average convergence divergence indicator, UOB Global Economics & Markets Research said.
Downward momentum is also starting to build, which suggests 1.1139 may be a peak for the next 1-2 months. The rising trendline that connects lows of November and December and the 55-day exponential moving average, both around 1.0860, should offer strong support, UOB said.
Bank of America Global Research expects the recent strength in the Swiss franc to fade and recommends investors buy a three-month EUR/CHF 1x1.5 ratio call spread option.
The Swiss franc was a G10 outperformer in 2023, particularly in December, which BofA attributes to end-of-month rebalancing flows rather than a directional play for lower EUR/CHF. The Swiss National Bank's messages in December suggest it could favor a weaker currency, BofA said.
"Whilst the symmetrical language on FX raises the chances of intervention to weaken CHF, more likely is that FX sales to taper the balance sheet...is likely to be the path of least resistance."
Bonds:
The 20 basis point rise in 10-year German Bund yields over the last three trading sessions took place in the absence of any fundamental impulses, Commerzbank Research said.
"This is likely to change in the coming days with key U.S. activity and eurozone inflation data due as central bankers return from their holidays."
Austria, Belgium, Ireland, Italy, Portugal and Spain are all expected to launch syndicated transactions , mostly in the 10-year maturity segment, in the coming weeks, UniCredit Research said, with January often the busiest month of the year in terms of government bond issuance.
Energy:
Oil futures were weaker, pressured by a broader fall in risk assets and despite a rise in Middle East tensions.
"While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries," ING said.
Metals:
Base metals and gold edged lower as a stronger dollar added pressure to risk assets.
ING said gold investors will be eyeing this week's U.S. jobs data, with Federal Reserve policy likely to be led by key economic data releases.
"We believe that the Fed policy will remain key to the outlook for gold prices in the months ahead."
A modest cyclical revival in China's growth in the first half of 2024 should help support most commodity prices, Capital Economics said, adding that its in-house proxy of China's economic growth points to a pick-up in activity and reckons recent PMI surverys "are not reflecting economic reality.
Activity and import data all point to resilient commodity demand," it said.
HSBC expects commodity prices to rise an average 2% in 2024 , before falling 4% in 2025. That follows a sharper-than-expected fall in 2023.
Despite the pullback, commodity prices remain at elevated levels and "squeezed supply, better Chinese demand and the energy transition are all set to support commodity prices in 2024," HSBC said.
EMEA HEADLINES
Airbus In Talks to Buy Atos Cybersecurity Unit for Up to $2 Billion
Airbus is in talks to buy Atos's cybersecurity unit, with an indicative offer that values the business at up to 1.8 billion euros ($1.97 billion) including debt.
Facing fresh financial constraints, French IT group Atos is revisiting its asset-sale plans nearly a year after the European plane maker's failed bid to take a minority stake in the Atos division that houses the cybersecurity unit.
GLOBAL NEWS
Tech's AI Hangover Might Just Be Getting Started
One thing already seems certain about 2024: AI is going to need to start showing the money. Whether it can is a whole other question.
Excitement for generative artificial intelligence sparked by OpenAI's chatbot was the dominant theme for investors in 2023. The Nasdaq Composite jumped 43% for the year-its second-best annual performance in 15 years. Meanwhile, technology and e-commerce companies on the S&P 500 averaged a gain of 57%, more than double the broad index's overall performance for the year. Indexes tracking subsectors such as chips and software recorded their best annual gains since 2009, when the market was bouncing back from the global financial crisis.
How Serious Is the Fed About Cutting Rates? Watch Today's Fed Minutes for Clues.
Federal Reserve officials signaled at last month's meeting that the central bank will implement three quarter-point rate cuts this year. Investors will get a better idea of what conditions prompted the Federal Open Market Committee to make this call when the minutes of that meeting are released today.
The minutes from the FOMC's Dec. 12-13 meeting will be released at 2 p.m. and should provide some additional insight into how Fed officials' views of the economy have shifted in recent months and what economic data policy makers are prioritizing to make their economic projections.
Top Wall Street bull warns of a pause in stock rally but sees S&P 500 grinding higher in 2024
U.S. stocks are likely to start 2024 with a breather and to remain data-dependent until the start of fourth-quarter earnings season, as a bull run that saw the three major indexes post double-digit growth last year may lose steam in early January, according to strategists at Oppenheimer Asset Management.
"Considering the powerful rally that stocks stateside have had from a low since October 27, it should come as no surprise that traders and investors needed to take the opportunity to assess a move from the October low through last Friday," said strategists led by John Stoltzfus, chief investment strategist and managing director at Oppenheimer.
Donald Trump Asks Maine Court to Reverse State's Ballot Ban
Donald Trump's campaign on Tuesday asked a Maine court to reverse last week's decision by the state's top election official to remove the Republican front-runner from the presidential ballot.
Trump's legal team filed a suit in Kennebec County Superior Court defending his eligibility for office and challenging the authority of Maine's secretary of state to disqualify him from its primary contest.
Top Hamas Leader Killed in Suspected Israeli Strike in Beirut
A suspected Israeli attack targeted a Hamas gathering in Beirut on Tuesday, killing at least seven members of the Palestinian militant group, including one of its most influential founding members, according to Lebanese and Palestinian security officials, sending shock waves through the Middle East and bringing weekslong hostage negotiations to a halt.
Powerful blasts rocked a Beirut neighborhood early Tuesday evening, killing Saleh al-Arouri, a founder of the Hamas military wing, deputy head of its political bureau and, according to the group, an architect of the group's Oct. 7 attacks in southern Israel that killed 1,200 people, most of them civilians. The explosions sent shattered glass and car parts flying through the streets near one of the city's famed sweet shops.
Israel Remains Divided Despite Show of Wartime Unity, Court Ruling Underscores
(MORE TO FOLLOW) Dow Jones Newswires
01-03-24 0525ET
