European Midday Briefing: Investors Hold Back Ahead of Key Inflation Print

MARKET WRAPS

Stocks:

European stocks made little progress on Tuesday in cautious trading, as investors looked ahead to some key U.S. inflation data at the end of the week.

The release on Friday of the personal consumption expenditure price data for February, the Federal Reserve's favored inflation measure has the power to shift the market's thinking on when the Federal Reserve may feel able to start reducing interest rates.

Many markets will be closed for the Easter break on that day, so traders are perhaps extra wary of taking bold positions lest they get caught out by the PCE report, according to analysts.

Economic Insight

The world's path back to lower interest rates could be unpredictable, HSBC said.

Switzerland and Mexico became the first major economies to begin cutting rates last week after a period of sustained rate hikes aimed at curbing rapid inflation. But most of the world's largest central banks--including the Federal Reserve, European Central Bank and Bank of England--are keeping rates on hold for the moment, HSBC noted, as they wait for further data to confirm a cooling of price rises.

"With growth in many economies proving more resilient than feared, they seemingly have time on their side. The easing cycle...could be just as unusual as the economic expansion and tightening cycle that preceded it."

U.S. Markets:

Stock futures edged higher in early trading and bond yields were mixed.

Meantime, earnings have slowed to a trickle. McCormick and day-trader favorite GameStop are scheduled to report later.

Ahead

Durable goods orders for February; S&P house-price index for January; consumer confidence for March. Donald Trump's Truth Social to begin trading on Nasdaq.

Forex:

The dollar edged lower and Danske Bank Research said declining global real rates, fewer economic surprises from the U.S. and a sharp increase in aggregate long dollar positioning all point to a weaker currency, potentially lifting EUR/USD towards 1.10 in the next 1-2 months.

MUFG said the Federal Reserve, European Central Bank and the Bank of England are currently expected to start cutting interest rates around the same time, but there's a risk the Fed could delay rate cuts for longer and this would lift the dollar.

"Current market expectations for a synchronized start to rate cut cycles from major central banks appear reasonable and favor further consolidation for the major FX pairs of EUR/USD, GBP/USD and EUR/GBP in the near-term."

Bonds:

Eurozone government bond yields were slightly lower in early trading, with investors awaiting fresh drivers in a week when market liquidity is likely to be light ahead of the Easter holidays.

"There is little impetus to give the market a new direction today," Commerzbank Research said.

Spanish inflation data on Wednesday could be "more intriguing," which will be the icebreaker for the trend in March, it said, adding that uncertainty is higher than usual due to the impact of the early Easter.

S elloffs on a number of rates markets globally has led Candriam to upgrade its view of rates generally, and is now overweight on most major markets except Japan.

In the eurozone, Candriam decided to move to a positive view on EUR duration overall, implemented via the 10-year tenor.

"We also see positive signals for our fair value models, as inflation trends continue to decelerate together with a stagnating eurozone economy."

Energy:

Oil prices inched lower after the United Nations passed a resolution calling for an immediate ceasefire in Gaza and OPEC+ delegates reportedly said they see no need to change supply policy at a review meeting next week.

Market watchers are now awaiting the release of U.S. inflation data later this week for more clues on the timing of rate cuts.

Metals:

Base metals and gold traded in narrow ranges as investors shifted their attention to the next release of U.S. inflation data.

Aluminum edged up after China's Yunnan province cut electrolytic aluminum output, ING said.

Outlook

Lower interest rates in Europe and the U.S. should drive global demand for commodities higher this year as industrial and consumer activity is expected to pick up, according to Goldman Sachs.

"With the trough in global manufacturing PMIs behind us and our economists' strong conviction of rate cuts in the U.S. and Europe from June this year, we expect further support to commodities demand and prices, particularly across copper, aluminium and oil products."

Goldman Sachs forecasts total commodity returns of 15% by year-end, buoyed by lower borrowing costs and firmer manufacturing activity, as well as the asset class's hedging role against geopolitical risks.

EMEA HEADLINES

German Consumer Confidence Improves Marginally, Defying Fragile Economy

German consumer confidence edged up slightly, as expectations for the economy and incomes improved, despite still strong unease surrounding the outlook.

The forward-looking consumer-climate index for Germany, published on Tuesday by research group GfK and the Nuremberg Institute for Market Decisions, forecasts confidence to rise slightly to minus 27.4 in April from minus 28.8 this month.

Atos Warns of Uncertainty About Ability to Stay in Business After Debt Rises

Struggling French IT company Atos warned of uncertainty about its ability to continue after its debt pile grew and its net loss widened on an impairment charge.

Weeks after talks aimed at raising funds by selling key parts of its business fell through, Atos said Tuesday that its net debt at the end of 2023 was 2.23 billion euros ($2.42 billion) compared with EUR1.45 billion a year prior.

Flutter Entertainment Pretax Loss Widens Despite Strong Growth in U.S.

Flutter Entertainment said its pretax loss widened, hit by an impairment at its PokerStars business and despite strong growth in the U.S.

The FTSE 100 gambling and betting group behind the FanDuel, PokerStars and Paddy Power brands said Tuesday that its 2023 pretax loss was $1.09 billion pounds compared with a loss of $295.0 million a year earlier.

Ocado Retail Backs Guidance After Robust Start to Year

Ocado Retail, the joint venture between Ocado and Marks & Spencer Group, backed its fiscal 2024 guidance after first-quarter sales rose, supported by improved volumes.

The online grocer on Tuesday said retail revenue for the 13 weeks ended March 3 rose to 645.3 million pounds ($815.3 million) from GBP583.7 million a year earlier.

Bertelsmann Posts Higher Profit, Adjusts 2026 Targets

Bertelsmann posted a higher profit and broadly flat revenue for 2023 and adjusted its 2026 targets due to recent sale agreements, which give it extra funds for investments and growth.

After-tax profit for 2023 was 1.33 billion euros ($1.44 billion) compared with EUR1.05 billion, the German media group said Tuesday. Revenue inched lower at EUR20.17 billion from EUR20.245 billion a year before.

This Vaccine Maker Sits on Cash Almost Equal to Its Market Value

This biotechnology company has nearly 90% of its market value in cash and investments but is being shunned by investors even as they gravitate to the sector this year.

The company is BioNTech (Ticker BNTX). It partnered with Pfizer to produce the leading Covid vaccine, Comirnaty, whose original messenger RNA technology was developed by BioNTech. It is rare to find any sizable company with so much cash relative to its market cap.

Qantas Investigating Airbus Plane After Engine Issue

SYDNEY-Qantas engineers will inspect an Airbus A330 after pilots shut down one of its engines on a flight between Melbourne and Perth on Monday night.

Local media reported passengers saying there was a loud bang on Qantas Flight 781. The airline, Australia's largest, said the aircraft landed safely and without further incident in Perth.

GLOBAL NEWS

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China Signals More Property Support, But Substance to Be Key for Turnaround

China's premier and its central bank chief have sought to calm the country's embattled property sector in recent days, but investors are waiting on something slightly more elusive: concrete steps.

People's Bank of China Gov. Pan Gongsheng on Monday offered up a mildly upbeat assessment of China's real-estate market, saying the sector is showing some "positive signals," according to a statement on the PBOC's website.

Israel Cancels Visit to Washington After U.S. Abstains on U.N. Cease-Fire Resolution

The United Nations Security Council approved a resolution calling for an immediate cease-fire in Gaza after the U.S. allowed it to pass by abstaining, prompting Israel to withdraw from coming high-level meetings with the Biden administration.

The unusual U.S. move signaled the administration's growing frustration with Israeli Prime Minister Benjamin Netanyahu, whose relations with the White House have deteriorated over their clashing political agendas and conflicting views of military tactics.

Arab Nations Balk at Funding U.N. Aid Agency Vital to Palestinians

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March 26, 2024 06:13 ET (10:13 GMT)

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