MARKET WRAPS

Stocks:

European shares struggled for momentum on Tuesday, as investors looked ahead to the latest Federal Reserve minutes, continuing to hope the central bank has finished raising interest rates this cycle.

"The Fed minutes will come as a reminder that the falling long-term yields were a major reason why the Fed decided to keep rates steady at the latest meeting," Swissquote Bank said. "Tanking yields mean that the Fed must stay alert."

Stocks to Watch

Bayer is facing challenges on multiple fronts that hasten the need to look at strategic options, Jefferies said, as it cut its recommendation on the stock to hold from buy.

The halt to a late-stage clinical trial of experimental cardiovascular drug asundexian pushes financial risk to the edge, while share-price falls increase sensitivity to rising provisions and potential trial losses in a legal battle over its Roundup weedkiller, Jefferies added.

This suggests the group might need to sell assets and scrap dividends to buy time. However, this isn't necessarily enough to enable large-scale investments needed in its pharma business, Jefferies said.

Economic Insight

The U.K.'s financial forecaster is likely to lower its expectations for economic growth and raise its estimates for inflation , Capital Economics said, ahead of fresh forecasts on Wednesday, in conjunction with Chancellor Jeremy Hunt's Autumn Statement.

The Office for Budget Responsibility's real-growth expectations should be cut to 0.3% next year and 1.7% in 2025, according to CE's estimates, down from the OBR's last forecast release in March.

U.S. Markets:

Artificial intelligence remains in the spotlight on Wall Street, with earnings due later from Nvidia. Meanwhile, investors are watching the drama unfolding at OpenAI, where hundreds of staff are threatening to quit-and contemplating the implications for Microsoft and others.

In recent market action:

Stock-index futures were little changed with markets relatively muted, with low trading volumes ahead of Thanksgiving.

Microsoft shares edged up premarket, after notching a record close Monday, fueled in part by bets that it will be a big beneficiary of the turmoil at OpenAI.

Treasurys also rose in price, pushing down yields. The benchmark 10-year yield was on pace to decline for a fourth straight session.

Forex:

The U.S. interest-rate advantage versus the eurozone's could narrow, weighing on the dollar and lifting the euro, if the Fed looks likely to begin interest-rate cuts before the ECB, Donner & Reuschel said.

Fed rate cuts could start from spring 2024 given economic slowdown and expected further decline in inflation, while a second rate cut could follow in early summer as central bankers aren't expected to implement any monetary policy measures close to elections. Meanwhile, the ECB isn't likely to follow suit until later.

"Even if the imminent run-up to the EUR/USD 1.10 mark prevents further appreciation for the time being, the common currency is expected to strengthen in the coming months."

The dollar was trading weaker as investors ponder the possibility of a first interest-rate cut by the Federal Reserve in the first half of 2024, DHF Capital said.

"The U.S. dollar began the week with a relatively weak performance, extending its selloff from last week."

Market expectations continue to lean toward no interest-rate hikes in December and a potential rate cut as early as May, and weigh on the currency, as inflation eased and Treasury yields retreated, DHF said.

USD/JPY's rally over the past several months seems likely to have ended after it formed an "outside reversal week" last Friday, UOB Global Economics & Markets Research said. The currency pair's weekly moving average convergence divergence indicator is also turning negative for the first time since April, suggesting USD/JPY is turning lower.

Bonds:

Core fixed income assets can help balance portfolios through episodes of geopolitical instability and growth volatility, given higher yields can provide a potential buffer, Goldman Sachs Asset Management said.

"And when growth concerns are in check, holding core bonds also makes sense given fixed income once again delivers income," Goldman Sachs said.

Following a reset higher in bond yields, the age of "There Is No Alternative" to equities or other risks assets has ended, it added.

"We believe we are now in the early phases of "There Are Reasonable Alternatives," such as core fixed income, including high-quality government and corporate bonds.

Commerzbank Research said ten-year Portuguese government bonds remained a solid candidate for convergence with higher-rated bonds.

"Portugal remains one of our top convergence trades, next to Ireland, and remain our favorite option to combine [yield] pick-ups with outstanding fundamental dynamics."

Energy:

Crude futures were slightly weaker, with the market eyeing Sunday's OPEC meeting in Vienna.

"Speculators will not want to go into this weekend with sizable short positions," ING said.

"Given expectations, we will likely have to see at least Saudi Arabia rolling over their additional voluntary cut into 2024." Increasing geopolitical tension further boosted prices on Monday, ING added.

Metals:

Base metals and gold gained, as a weaker dollar helped to ease the pressure on commodities backed by the greenback.

Gold prices are expected to stay firm over the next year, according to BMI, with lower interest rates expected to boost demand for the precious metal.

BMI maintained its price forecast at $1,950 a troy ounce for 2023 and 2024, saying rate cuts, geopolitical tensions and a weaker dollar were all supporting bullion.

   
 
 

EMEA HEADLINES

Bonds Could Be the Star Asset Class of 2024 - Talking Markets

Bond investors are increasingly optimistic that 2024 will be a good year for fixed-income assets as interest-rate hikes finally look to have come to an end.

With inflation dropping back and economies faltering, investors are now looking to the prospect of rate cuts as early as in the first half of next year.

   
 
 

UK Public-Sector Borrowing Climbs on Year, Narrowing Room for Tax Breaks

U.K. public-sector borrowing grew on year in October, an indication that finance chief Jeremy Hunt will find little fiscal headroom to pass tax cuts in Wednesday's autumn budget statement.

Public-sector net borrowing, excluding banks, was 14.9 billion pounds ($16.30 billion) in October, a jump of GBP4.5 billion from the GBP10.5 billion in the same month of last year, according to data from the Office of National Statistics published Tuesday.

   
 
 

IAG Says It Remains Committed to Dividends, Sets out Medium-Term Targets

International Consolidated Airlines Group said that it will start paying dividends again once its balance sheet and investment plans are secure, as it set out its medium-term targets.

The London and Madrid-listed airline group-which operates British Airways and Iberia among others-said its was targeting medium-term operating margins in the 12% to 15% range. It added it was targeting a return on invested capital between 13% and 16%.

   
 
 

Rheinmetall Targets Beat Expectations as Wars Drive Military Spending

Rheinmetall set higher-than-expected 2026 sales and profitability targets Tuesday, driven by demand for military equipment due to continuing international warfare.

The German weapons maker said it expects between 13 billion and 14 billion euros in revenue ($14.22 billion-$15.32 billion) in 2026. It is targeting an operating profit margin of more than 15%.

   
 
 

CRH to Buy Texas Cement, Concrete Portfolio for $2.1 Bln

CRH said it will purchase a portfolio of cement and ready-mixed concrete assets in Texas from Martin Marietta Materials for $2.1 billion.

The Irish building-materials supplier said the assets comprise a cement plant, a network of terminals located on the Gulf of Mexico, as well as a portfolio of 20 ready-mixed concrete plants.

   
 
 

Stellantis, CATL in Talks for EV Battery Supply Deal With JV Potential

Stellantis has signed a memorandum of understanding with CATL for the supply of electric-vehicle batteries in the European market.

The Netherlands-based maker of Jeep and Dodge said Tuesday that the nonbinding agreement with the Chinese battery maker outlines a long-term agreement for the supply of lithium iron phosphate batteries. The deal could lead to a joint venture with equivalent contributions, Stellantis said.

   
 
 

EU New Car Sales Rose in October With Help From Electric Vehicles

New car registrations in Europe rose in October, driven by demand in France, Italy and Spain, and a jump in fully-electric vehicle sales.

Registrations, which reflect sales, rose 15% to 855,484 in October compared with a year ago, the European Automobile Manufacturers' Association, known as ACEA, said Tuesday. France, Italy and Spain posted double-digit increases, while Germany registrations rose just 4.9%, reflecting the country's slowing economy. New car sales rose 17% to about 8.8 million units for the period of January through October, the industry group said.

   
 
 
   
 
 

GLOBAL NEWS

Global platinum market on track to post largest supply deficit on record

The global supply of platinum is expected to significantly fall short of demand this year, with the World Platinum Investment Council forecasting a record deficit, along with a rise in industrial demand to an all-time high.

The global platinum market is expected to post a deficit of 1.071 million ounces for 2023, with total year-on-year demand growth of 26% to 8.150 million ounces, while supply is seen down by 3% year-over-year to 7.079 million ounces, according to a quarterly report the World Platinum Investment Council (WPIC) released Tuesday.

   
 
 

Israeli Military, Border Residents Press Netanyahu to Eliminate Hezbollah Threat

LEHAVOT HABASHAN, Israel-In the days after the Oct. 7 Hamas attacks in southern Israel, Orna Rayn searched frantically for someone to build a wooden barricade to secure the door of a safe room in her house about 6 miles from the Lebanon border.

Rayn's sister, Einat Rothem-Nechushtan, moved into the safe room on Oct. 10, even before the Israeli government ordered the evacuation of her own small farming community in northern Israel because of fears of all-out war with Hezbollah, the Iran-backed army in Lebanon.

   
 
 

Write to paul.larkins@dowjones.com

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

 

(END) Dow Jones Newswires

November 21, 2023 05:31 ET (10:31 GMT)

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