European Midday Briefing: Stocks Lower as Investors Await ECB Decision

MARKET WRAPS

Stocks:

European stocks slipped ahead of the European Central Bank's interest-rate decision.

The ECB will probably keep interest rates unchanged and like the Federal Reserve, the big question is when it will consider cuts.

The eurozone's growth outlook isn't great, but also not bleak enough to force near-term monetary easing, Mizuho said.

"Financial conditions have also eased notably in the last few months and we think the ECB will not risk easing them further by engaging in any way of early rate cut talk," it said.

Stocks to Watch

Tesla's warning about notably slower growth will trickle down to Europe's automotive and electric-car suppliers, but some companies look better-positioned than others, Citi said.

Forvia's direct exposure to Tesla is a key growth driver for the company, and it's still a positive relationship overall, but the news implies a 1.2% decline in top-line growth, Citi said.

Valeo isn't directly exposed to Tesla, but expectations of an organic growth rebound could be clouded by persistently slowing EV volume growth, Citi added.

On the other hand, Continental is significantly less exposed while Michelin is relatively less vulnerable to any slowdown, it said.

U.S. Markets:

Stock futures suggested a modestly higher start ahead of a report on economic growth in the fourth quarter.

Economists expect gross domestic product rose by 1.5% in the last three months of 2023.

Stocks to Watch

Boeing was falling 2.1% after regulators put limits on its production of 737 MAX jets, but cleared the way for grounded planes to resume flying.

Tesla fell more than 7% in offhours trading after the company said growth would slow in 2024.

Forex:

The euro showed little reaction to weaker-than-expected German Ifo business sentiment index , and remained slightly higher on the day.

It edged higher against the dollar, however, any rise will be limited ahead of the ECB decision and press conference later.

If ECB's Lagarde reiterates her recent message that interest-rate cuts aren't a topic for the near term then EUR/USD gains are likely to stay capped below 1.10, UniCredit Research said.

The Norwegian krone rose after Norway's central bank left interest rates on hold at 4.5% as expected and said the rate would likely be kept at that level for some time ahead.

EUR/NOK fell to a one-week low of 11.3502 after the announcement.

Bonds:

Eurozone government bond yields traded a nod higher ahead of the ECB's meeting where market participants are looking for guidance on the timing of expected interest-rate cuts, Commerzbank Research said.

"Combined with solid U.S. growth figures, we expect further pressure on the front-end."

Strong demand for new government bonds in the eurozone so far this year is based on valuations and spread markets, DZ Bank Research said.

"Investors are still looking at comparatively high yields in a stable spread environment," it said.

This is enough reason for investors to make strong purchases during the syndication season with new issue premiums almost at previous year's level."

Additionally, DZ Bank Research said government bond issuance so far this year has been quite positive for the national treasuries.

"The high volume [of issuance] has already catapulted the funding progress of many [eurozone] states significantly forward."

The volume-weighted new issuance premiums in January 2024 are slightly lower than in the same period of 2023, at 3.6 basis points versus 5.3bps in January 2023, DZ Bank said.

Demand measures are significantly higher than in previous years, and issuance shows that the crowding-in process of private investors has been successful so far, it added.

Energy:

Oil prices traded higher after U.S. data showed a significant drop in crude stockpiles last week and China cut reserve requirements for banks in order to spur growth, bolstering sentiment around the country's economic recovery.

Meanwhile, Middle East tensions keep supporting prices, but analysts don't expect to see strong gains unless oil supply gets materially disrupted.

Metals:

Base metals and gold were little changed as investors weighed broad market concerns over supply disruptions and China's move to boost liquidity in the banking sector in an effort to prop up economic growth.

"While these announcements might offer some short-term incentives for base metals, we maintain the view that with a lack of sustainable improvements across the nation's [China's] performance, prices will come back to their averages in due course," Sucden Financial said.

EMEA HEADLINES

Nokia Starts to See Green Shoots Despite Continuing Challenges

Nokia expects the challenging network industry environment to continue through the first half of 2024 as operator spending remains muted, but the situation should improve later in the year, it said.

The Finnish telecommunications company said Thursday that it is now starting to see some "green shoots on the horizon," with improving order intake in its network infrastructure business.

STMicroelectronics Revenue, Gross Margin Slightly Miss 4Q Target

STMicroelectronics' said that fourth-quarter revenue and gross margin came in slightly below its expectations, with gains in personal electronics offset by slower growth in the automotive business.

The European chip maker said Thursday that net revenue fell 3.2% to $4.28 billion compared to the same quarter a year ago, slightly below its target of $4.30 billion. Analysts had also expected $4.30 billion in sales, according to Factset.

Publicis Organic Growth Picks Up, Beating Expectations

Publicis Groupe said organic revenue growth picked up in the fourth quarter from the third, beating analysts' expectations.

The French advertising group's organic revenue growth accelerated to 5.7% in the fourth quarter following a 5.3% rise in the previous quarter, according to preliminary figures released Thursday. This beat analysts' expectations of a 4.2% increase, according to consensus estimates provided by Visible Alpha.

GLOBAL NEWS

Chinese Investors Are Pouring Into the U.S., Japan

Chinese individual investors are desperate to shift their money out of the country-and they are willing to pay a big premium to do so.

The best example of their desperation: Some this week have been buying funds that offer exposure to Japanese stocks at a 20% premium to what those stocks are worth.

The Fed Risks Getting Caught Up in Politics, Whatever It Does

The problem with being independent of politics is that appearances matter. You don't have to just be independent, you must also appear to be independent-even if that changes what you might otherwise do.

Many investors think the Federal Reserve might be pushed to do exactly that, lowering interest rates in March to get the rate-cutting cycle started before the election campaigns really get going.

China's RRR Cut Doesn't Solve Long-Term Economic Concerns

The timing and scale of the People's Bank of China's policy easing this week may have surprised investors and given stock markets a much-needed lift, but the move does little to resolve long-term economic concerns.

The fact that the China central bank governor announced the cut in banks' reserve requirement ratio at a press conference for the first time indicates that authorities "are very serious about easing monetary policy," said Raymond Yeung, chief economist of Greater China at ANZ Research.

Trump Rivals Were Hoping for a Courtroom Knockout. Time Is Running Out.

WASHINGTON-Donald Trump's political opponents had hoped his legal difficulties would torpedo his third run for the presidency. But a knockout blow before the election is looking increasingly unlikely.

The former president, who looks poised to sew up the Republican presidential nomination after his win Tuesday in New Hampshire, is proving less vulnerable on the legal front than many of his critics predicted.

Nikki Haley Pushes Forward With Longshot Effort to Dethrone Trump in GOP Race

CONCORD, N.H.-Nikki Haley isn't standing down in her longshot bid to halt Donald Trump's fast-building momentum toward the Republican nomination.

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

(END) Dow Jones Newswires

January 25, 2024 06:03 ET (11:03 GMT)

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