European Midday Briefing: Rate Signals Eyed as Powell Takes Stage Again

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European stocks made a solid start on Friday ahead of comments from Jerome Powell, with investors eagerly watching for signals the Federal Reserve is ready to call an end to interest-rate increases.

Stocks to Watch

Marks & Spencer’s first-half performance was robust, leading Barclays to upgrade its current fiscal year profit expectations for the retailer and raising its price target on the stock to 300 pence from 275 pence.

Barclays’s FY 2024 pretax profit forecast has increased by 15.5% to GBP670 million, while expectations for the following two years are lifted 14% to GBP715 and 12% to GBP765 million, respectively.

These forecasts are supported by M&S’s encouraging trading momentum and its board’s optimism ahead of Christmas, Barclays said, adding that M&S’s track record suggests that it has scope for additional upgrades

Pearson’s recent change of CEO raises near-term uncertainty around the group’s strategic priorities and medium-term targets, Deutsche Bank said, as it changed its rating to hold from buy and cut its target price to 1050 pence from 1100 pence.

It added that despite Pearson’s improved profitability and consistent strong performance, strategic uncertainty remains.

U.S. Markets:

Stock futures were mixed, while bond yields ticked down.

Before the Powell speech, the key Institute for Supply Management’s manufacturing report is due, as automakers release their monthly sales statistics throughout the day.

Stocks to Watch

Dell Technologies fell more than 6% before the bell. Quarterly earnings at the computing company declined 18% from a year before, and revenue fell 10%.

Forex:

Weaker-than-expected inflation data from both the eurozone and individual countries in the bloc this week have caused the euro to reverse a clear upward trend over the past month, DZ Bank Research said.

“To the detriment of the euro, this [the weaker inflation data] has reinforced the market’s expectations of key interest rate cuts,” it said.

Money market forwards are pricing a first eurozone interest-rate cut in April, according to Refinitiv data.

The U.S. ISM business manufacturing purchasing manager index due at 1500 GMT will be the next key data to watch, DZ Bank Research said.

Bonds:

The European Central Bank is expected to lag the Fed in cutting interest rates, which could limit the downside potential in German Bund yields, Societe Generale Research said.

“Bund yields should be slow to decline, and we cannot rule out that they revisit highs in the near term.”

This is particularly true for long rates, which are expected to be driven by a rebuilding of term premiums, SocGen said.

SEB Research said the ECB is expected to cease full reinvestments under the PEPP in the first quarter of 2024 or early second quarter.

This would imply an acceleration compared with the ECB’s current plan to continue reinvestments until at least the end of 2024.

Commerzbank Research said a one-notch upgrade by Fitch [from BB+/stable outlook] would tip the balance for Greece to rejoin bond indices in January.

However, a change in the outlook to positive wouldn’t be sufficient, delaying re-entry until at least spring next year, Commerzbank Research said.

Fitch is due to review Greece’s credit rating later on Friday.

Energy:

Oil prices edged lower in the wake of OPEC+’s decision to deepen production cuts and ING said the market reaction indicates concerns that the announced cuts were voluntary, suggesting it’s becoming increasingly difficult for member states to agree on group-wide action.

New additional cuts of around 900,000 barrels a day are expected in the first quarter of next year, but “these will be brought back gradually to the market after 1Q depending on market conditions,” ING added.

Rystad Energy said the result of OPEC’s meeting marked a “bittersweet victory” for group leader Saudi Arabia, and the subsequent drop in oil prices suggests the market was disappointed with the outcome, one because the cuts are short-term and also because the group had to rely on voluntary cuts.

WTI oil’s two-month corrective decline has begun to ease, based on technical charts, Oanda said.

Over the past two weeks, WTI oil formed two consecutive weekly “long-legged doji” candlestick patterns, which suggest that bearish sentiment has started to show “hesitation and indecisiveness” regarding a potential further fall, Oanda said.

Also, the daily relative strength index momentum indicator has continued to edge higher recently. On the hourly chart, WTI oil has formed a possible minor “inverse head and shoulders” bullish reversal pattern, Oanda added, pegging support at $74.30/bbl and resistance at $79.80/bbl.

Metals:

Copper prices were set to end the week higher on supply concerns, while a weaker dollar was also providing support for gold.

Copper’s strength has come from supply concerns, with the Panama government looking to shut First Quantum’s copper mine in the country while strikes are affecting production in Peru, according to ANZ.

“The decision by Panama’s government to shut the First Quantum’s Cobre mine brings back into focus supply side issues that have plagued the sector over the past couple of years,” ANZ said.

EMEA HEADLINES

Swiss Re Discloses New Targets Ahead of Accounting Method Transition

Swiss Re released a new guidance for next year as it will start reporting under IFRS as of 2024.

For the upcoming year and under the IFRS method, the Swiss reinsurer aims to reach net profit of more than $3.6 billion, of which the life and health business is expected to contribute $1.5 billion.

Big Tech Wants to Control AI. EU Regulation Could Help.

The European Union is seeking a consensus on regulating artificial intelligence, and for once it might be good news for big U.S. technology companies.

A draft of the EU’s proposed AI Act has been making the rounds since 2021. After much back and forth, the EU’s representatives face a key Dec. 6 deadline to reach an agreement. If the act remains in its current state, tech investors should be encouraged, with Microsoft, Alphabet’s Google, and Amazon.com set to be the big winners. The legislation won’t halt AI development, but it imposes a regulatory burden that could ultimately cement their dominance.

GLOBAL NEWS

China’s Manufacturing Activity Expanded in November, Caixin PMI Shows

A private gauge of China’s factory activity unexpectedly swung to expansion in November, contrasting with the official index that signaled a contraction.

The Caixin manufacturing purchasing managers index rose to 50.7 in November from 49.5 in October, according to data released Friday by Caixin Media Co. and S&P Global.

The Big Risk Causing Investors to Shun China

HONG KONG-Investing in China has never been this perilous.

When global investors flocked to the country during its economic boom in the past decade, geopolitical risks were at the back of their minds. Such risks are now a top consideration for buyers of Chinese stocks, bonds and stakes in private companies-and are turning many people off investing in China.

Big Tech Wants to Control AI. EU Regulation Could Help.

The European Union is seeking a consensus on regulating artificial intelligence, and for once it might be good news for big U.S. technology companies.

A draft of the EU’s proposed AI Act has been making the rounds since 2021. After much back and forth, the EU’s representatives face a key Dec. 6 deadline to reach an agreement. If the act remains in its current state, tech investors should be encouraged, with Microsoft, Alphabet’s Google, and Amazon.com set to be the big winners. The legislation won’t halt AI development, but it imposes a regulatory burden that could ultimately cement their dominance.

Don’t Mind the Geopolitics. The Case for International Investing Is Strong.

About the author: Alexander Torrens is the head of Walter Scott North America, a global equity portfolio manager and an investment firm of BNY Mellon Investment Management.

Rift Over Fossil Fuels to Dominate COP28

DUBAI-World leaders gathered for climate talks in this oil-rich corner of the globe amid sharp divisions over how quickly governments need to wean their economies off fossil fuels to prevent the planet from blowing past the Paris accord’s temperature targets.

Vice President Kamala Harris was expected to join Brazilian President Luiz Inácio Lula da Silva, French President Emmanuel Macron and a host of leaders from across the Gulf region Friday at the start of a two-day summit to kick off the United Nations’ annual climate talks, known as COP28.

Israel Resumes Combat Operations in Gaza as Cease-Fire Stalls

TEL AVIV-Israel said that it had renewed combat operations in Gaza and that Hamas had fired toward Israeli territory, as a weeklong truce expired early Friday morning.

The resumption of fighting came as mediators engaged in intense negotiations with the two sides in which Hamas didn’t provide a list of hostage names needed for the cease-fire extension, Egyptian officials said.

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

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