European Midday Briefing : Stocks Drop as Sentiment Sours

MARKET WRAPS

Stocks:

European stocks were lower on Thursday as equities reacted to a sharp drop in U.S. stocks late in the previous session.

"We start feeling the cracks in market optimism," Swissquote said.

"Overbought market conditions in major global stock indices and the awareness that a further fall in bond yields weaken the idea of soft landing triggered a much-needed retreat in equity valuations."

Today's focus will center on U.S. GDP figures and initial jobless claims figures as uncertainty continues over the outlook for interest rates.

U.S. Markets:

Stock futures were rising after Wall Street's recent rally was halted in the previous session.

Stocks to Watch

Nike reports earnings later.

Investors will also be scrutinizing Warner Bros. Discovery and Paramount, following news of merger talks . Warner Bros. shares rose 2.1%, while Paramount gained 0.1%.

Forex:

The euro could extend its gains against the dollar toward $1.10 if U.S. PCE price data on Friday come in on the weak side and keep the bond rally intact, Swissquote said.

"The current cup and handle formation in the EUR/USD is a bullish technical formation and could be interesting for entering fresh long positions."

Traders should be wary, however, that euro strength against the dollar isn't fundamentally deserved, with a strong U.S. economy contrasting with weak eurozone growth and falling inflation, it said.

Bonds:

The inverted yield curve should normalize again next year, J.P. Morgan Asset Management said.

Central banks will respond to the expected slowdown in economic demand and in inflation with sharp interest rate cuts, it added.

"Yields at the short end of the curve are therefore likely to fall below yields at the long end over the course of the [next] year."

J.P. Morgan Asset Management also said investors aiming to protect their investments against weak economic growth or even a recession next year should consider relying on the safety of long-term bonds with a high credit rating.

"Investors who have secured the currently attractive interest rates for their portfolio, benefit from bond yields falling in a disinflationary recession scenario."

Energy:

Oil prices were higher after falling earlier in the trading session on concerns over weak demand after the U.S. reported an unexpected increase in crude inventories.

Data from the EIA showed U.S. oil and gasoline inventories rose last week as refineries increased their capacity use and crude output reached a record level.

Prices were higher for three consecutive sessions this week, boosted by fears of global trade disruptions as more companies paused shipments through the Red Sea due to escalating attacks from Yemen's Houthi forces.

Metals:

Copper prices fell on signs of weakening consumption in China this month, while aluminum was down and gold broadly flat as the market continued to price in interest-rate cuts and geopolitical risks.

The lithium market is likely to remain oversupplied for several years, before falling back into deficit from 2027 as demand growth again outpaces production, Macquarie said.

"This translates to lower near-term prices offset by improve price outlook over the longer term."

Macquarie cut its spodumene price forecasts by 61%-74% in 2024-2026 and by 2%-37% in 2027-2028, but raised them by 9%-19% for 2029-2030.

The bank is now projecting a spodumene price of $1,416/metric ton in 2024, down from roughly $3,744/ton in 2023. By 2028, the price should return to around $3,469/ton.

EMEA HEADLINES

French Industry Outlook Brightens in December

Confidence among French industry improved this month, when business displayed a more upbeat mood on production, offering hope for a boost to the eurozone's second-largest economy at the end of the year.

Sentiment rose to 100 in December from 99 in November in a survey conducted by national statistics agency Insee, set out Thursday. The reading marks a return to the long-term average, and beats economists' expectations for a slight downtick to 98, according to a poll carried out by The Wall Street Journal ahead of the release.

Hipgnosis Songs Fund Operating Pretax Loss Widens on Fall in Revenue, Portfolio Value

Hipgnosis Songs Fund, which owns rights to tracks by Shakira, Blondie, Neil Young and others, said its operating pretax loss for the first half of its fiscal year widened on a fall in its portfolio value and revenue.

The London-listed song catalog fund said Thursday that its operating pretax loss for the six months ended Sept. 30 was $63.7 million compared with a loss $17.1 million for the same period a year earlier.

Tesla Probed by Norwegian Roads Agency Over Suspension Failures

Tesla faces another potential recall after Norway's traffic-safety regulator launched an inquiry into suspension failures, the latest blow to hit the EV maker after it recalled 2 million vehicles earlier this month over problems with its driver-assistance system.

The Norwegian Public Roads Administration said it has opened an investigation into Tesla's Model S and X vehicles.

EU Strikes Deal to Curb Public Debt

European Union governments have agreed on new rules to curb budget deficits and debt, drawing a line under years of freewheeling spending during the Covid-19 pandemic and the Ukraine war.

The agreement reached on Wednesday comes as rich nations face both rising borrowing costs due to higher interest rates and increased spending needs on items ranging from defense to the green transition and an aging population.

GLOBAL NEWS

Biden Administration Explores Raising Tariffs on Chinese EVs

WASHINGTON-The Biden administration is discussing raising tariffs on some Chinese goods, including electric vehicles, in an attempt to bolster the U.S. clean-energy industry against cheaper Chinese exports, people familiar with the matter said.

Biden administration officials, long divided over trade policy, have left in place Trump-era tariffs on roughly $300 billion of Chinese goods. But officials at the White House and other agencies are debating the levies again, the people said, with an eye on wrapping up a long-running review of the tariffs early next year.

What Is Insurrection? Trump Puts Once Obscure Questions Before Courts

Donald Trump's efforts to stay in power after losing the White House are forcing judges all the way up to the Supreme Court to confront obscure legal questions that long seemed largely academic but now carry big consequences.

For one, what counts as insurrection against the U.S.?

President Sticks to 'Bidenomics' Message Despite 2024 Campaign Worries

WASHINGTON-President Biden is sticking to his core economic message as the third year of his term ends despite anxiety among Democrats about the party's prospects heading into the 2024 election.

Biden visited Milwaukee in the heart of campaign battleground Wisconsin on Wednesday in his last major event of the year to tout how legislation he passed into law has boosted small business creation by Black and Latino owners. The president has been traveling the country to explain to voters "Bidenomics," the slogan that he has adopted as shorthand for his economic record as he has struggled to make gains in polling.

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

(END) Dow Jones Newswires

12-21-23 0544ET