MARKET WRAPS
Stocks:
European stocks posted solid gains on Wednesday after China's central bank said it would soon loosen monetary policy to support the ailing economy and as the U.S. earnings season picked up steam, propelling the S&P 500 to a third consecutive record.
"Robust U.S. economic growth, strong earnings and prospects of lower Fed rates remain supportive of equity valuations, although the [all time high] levels and near-overbought market conditions in the S&P500 call for--at least--a minor correction in the short run," Swissquote Bank said.
Stocks to Watch
Volkswagen looks set to defy the expected industry trend of lower earnings this year, according to Jefferies.
The carmaker's conference call with analysts ahead of its 2023 earnings report inspires confidence, with 1.1 million vehicle sales booked so far this year compared with a typical total of about 800,000, Jefferies said.
It expects momentum from good pricing power and sales diversity--at least through 1H--that is buoyed by tailwinds from raw material prices, new model ramp-ups, a higher electric-vehicle mix and wage increases in Germany.
Deutsche Bank said Volkswagen executives sent a rather strong message on the analysts call, suggesting a decent fourth quarter might bleed into the new year.
Apart from its best European quarter in terms of volumes, average sale prices remain stable at around EUR35,000 with a better mix than the previous reporting period, Deutsche Bank said.
Economic Insight
Europe must prepare for a second Donald Trump presidency, Commerzbank said, after the former president won the Republican party primary in the state of New Hampshire, putting him ever closer to his party's nomination.
In the case he then goes on to defeat incumbent Joe Biden in November's elections, Europe must prepare itself for developments including a cutting off of U.S. military aid to Ukraine, which would entail stepping up defense spending by European nations.
Trump's tariff-based trade policy could also lead to more disputes between Europe and America. These trends may be accelerated rather than new, but Europe would no longer be able to ignore them, Commerzbank said.
U.S. Markets:
Index futures rose slightly, while ten-year Treasury yields held steady at about 4.1%.
Stocks to Watch
Netflix jumped in premarket trading after posting strong subscriber growth, while AT&T, Kimberly-Clark and Abbott Laboratories are among the blue-chip stocks due to report before the opening bell.
Tesla, one of the so-called Magnificent Seven that has powered the market higher, is due to update investors on its finances after markets close.
Forex:
Wednesday's flash estimate purchasing managers data are likely to be important for the euro ahead of the European Central Bank's meeting on Thursday, J.P. Morgan said.
The ECB is expected to reiterate vigilance on inflation and push back against interest-rate cuts priced in by markets, but the stance will need to be backed up by solid data to lift the euro, JPM added.
"This is unlikely to move the needle on the outlook for the euro without an accompanying shift in the data corroborating the ECB stance."
JPM said EUR/USD was undershooting fair-value of 1.10 based on elevated real-rate differentials, improving terms of trade and tighter peripheral spreads.
ING said the dollar has already dropped during Asian trade and has scope to fall back further as its jump higher late on Tuesday was "quite surprising" and lacked a clear catalyst.
"The rise in U.S. rates did not look large enough to justify the rotation from European FX back into the dollar. We...therefore see room for the dollar correction initiated overnight to extend today."
Bonds:
Eurozone government bond curves remain vulnerable as services PMI data are likely to stabilize, while the market awaits the ECB's policy decision, Commerzbank Research said.
"The modest stabilisation in services PMIs which our economists project in line with the consensus combined with pre-ECB hesitance leaves euro-curves vulnerable."
This holds in particular given the continuing duration-intensive supply, Commerzbank said.
MFS Investment Management said it was hard to see catalysts that could drive eurozone government bond yield spreads wider in the near term as supply has been well absorbed and the European Central Bank's quantitative tightening is coming predictably.
"QT policy has come out predictably and transparently and despite heavy supply, EGB spreads have actually been grinding tighter," MFS said. "There has been no 'QT shock' and with this in mind, we struggle to see a negative catalyst for spreads to widen in the near term."
TD Securities said ten-year government bond yields could fall by 3 basis points and EUR/USD ease 0.15% if the ECB holds interest rates again and signals interest-rate cuts will start in the summer, adding that this is its base-case scenario.
Energy:
Crude futures edged higher as traders navigated between risks to supply due to geopolitical tensions and rebounding output in the U.S. along with the restart of production at a major Libyan oil field.
Growing geopolitical tensions across the Middle East continue to support the market, but the upward trend looks limited as oil production and supply haven't been directly affected, according to analysts.
Metals:
Copper prices rose almost 1.5% on supply concerns and hopes for a new stimulus package in top consumer, China.
"The copper market this year is set to be in its tightest state since 2021," Goldman Sachs said.
"The market has suffered a supply shock over the past quarter from a series of mine supply downgrades, reducing expected growth this year by 60% from expectations in mid-2023."
Meanwhile, aluminum was around 1.1% higher, supported by a Politico report saying the EU is considering an embargo on Russian aluminum.
EMEA HEADLINES
Eurozone Downturn Slows As Year Begins, PMIs Show
Economic activity improved in the eurozone at the start of the year, falling at its slowest rate in half a year, according to a purchasing managers' survey published Wednesday.
The HCOB Flash Eurozone Composite PMI Output Index-a gauge of activity in the manufacturing and services sectors-rose to 47.9 in January from 47.6 in December. The reading was just a little below the level of 48.0 expected by economists, according to a poll carried out by The Wall Street Journal.
SAP to Launch Restructuring Program Affecting 8,000 Jobs in AI Push
SAP plans to undertake a restructuring program this year that will affect some 8,000 jobs, ratcheting up its focus on artificial intelligence.
The German business-software company said late Tuesday that most of the roughly 8,000 positions affected should be covered by voluntary leave programs and internal re-skilling, when workers are trained to fill other roles within the group. SAP expects to end 2024 with a headcount similar to current levels. The company had a workforce of 107,602 at the end of 2023.
Siemens Energy Reports Rise in Orders, 1Q Profit Swing
Siemens Energy reported an increase in orders and swung to a profit for the first quarter of fiscal 2024, which it said exceeded market expectations.
The German energy company, citing preliminary figures, said late on Tuesday that it made 1.89 billion euros ($2.05 billion) in profit for the period including book gains from disposals, compared with a EUR384 million loss a year prior, on revenue that grew 13% on a comparable basis to EUR7.65 billion.
Puma Shares Drop on Lower Sales, Argentine Peso Effects
Puma shares fell Wednesday after the company said sales fell in the fourth quarter and that its performance suffered from the devaluation of the Argentine peso.
At 0924 GMT, shares in the German apparel company were down 5.6% at EUR40.56 after falling as low as EUR39.37.
ASML Net Profit Rises; Maintains Conservative Guidance for 2024
The Dutch manufacturer of lithography systems for the semiconductor industry said Wednesday that net profit for the fourth quarter was 2.05 billion euros ($2.23 billion) compared with EUR1.8 billion for the same period a year earlier. An analysts' consensus taken from FactSet expected EUR1.86 billion.
Net sales for the period were EUR7.24 billion compared with EUR6.4 billion, and a forecast of between EUR6.7 billion and EUR7.1 billion. Net bookings were EUR9.19 billion compared with EUR6.3 billion
Alstom Confirms Targets After 3Q Orders, Sales Rose
Alstom reported a rise in third-quarter sales and orders and confirmed its outlook for fiscal 2024.
The French trainmaker said Wednesday that it made 4.33 billion euros ($4.70 billion) in sales in the period, compared with EUR4.22 billion a year prior. The result is a 2.6% on-year increase, and a 4.6% organic increase.
easyJet Expects Narrowed Loss Despite Hit From Middle East Conflict
EasyJet expects to report a smaller loss in the fiscal first half despite a 40 million pounds ($50.7 million) hit from the conflict in the Middle East.
The London-listed budget airline said Wednesday that it would be able to mitigate the earnings hit from pausing flights to the region thanks to disciplined capacity growth where demand is strongest, alongside productivity benefits. It added it expects cost-per-seat excluding fuel to remain broadly flat in the first half, with fuel costs around 7% higher.
Swedbank Lifts Dividend After Net Profit Beat Forecasts
Swedbank raised its dividend after reporting a forecast-beating increase in fourth-quarter net profit as higher interest rates continued to lift net interest income.
The Swedish lender said on Wednesday that net profit rose to 8.32 billion Swedish kronor ($793.3 million) compared with SEK6.79 billion in the prior-year period, as net interest income rose 22% to SEK13.33 billion.
Bill Ackman, Neri Oxman Buy Stake in Tel Aviv Stock Exchange
Hedge-fund billionaire Bill Ackman and designer wife Neri Oxman have taken a stake of about 4.9% in the Tel Aviv Stock Exchange.
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01-24-24 0543ET
