MARKET WRAPS
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U.K. GDP, industrial production, trade; France consumer spending; trading updates from Wood Group (John), Dechra Pharmaceuticals
Opening Call:
European shares look set to open higher Friday as market focus turns to tensions in the Middle East. Asian stock benchmarks were mixed; the dollar weakened slightly; Treasury yields edged higher; oil futures gained on fresh Middle East tensions and gold also advanced.
Equities:
European stock futures were tracking higher despite a weak lead from U.S. stock futures as investors track developments in the Middle East and parse December’s hotter-than-expected U.S. consumer prices.
A U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen late Thursday, officials said, two days after the Yemeni rebel force defied an ultimatum to halt its attacks on ships transiting the Red Sea.
Early Friday, official data showed that China’s consumer prices fell 0.3% in December from a year earlier, declining for a third straight month, suggesting continued weak domestic demand.
U.S. stock markets ended roughly flat Thursday after the consumer-price index showed inflation rose more than expected in December.
Also, Cleveland Fed President Loretta Mester on Thursday threw cold water on market expectations of an interest rate cut as soon as March saying the December CPI showed that the Fed “has more work to do” to put inflation on a sustainable downward path to 2%.
“There’s this continuing battle between market expectations and the Fed’s projections,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“On a daily basis we’re just seeing that tug of war play out here in the markets.”
On Friday, investors will get another reading on inflation when the U.S. producer-price index is released. The earnings season also kicks off with bank results.
Forex:
The U.S. dollar weakened in Asia but may rise on geopolitical risks which could spur safe-haven demand.
A U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen late Thursday, which could be a factor, said Robert Carnell, regional head of Research for Asia-Pacific at ING.
The U.S. dollar has the potential to rise further in the near term after Thursday’s stronger-than-expected U.S. inflation data if Fed policymakers continue to cast doubt over the chances of a first U.S. rate cut in March, said Matthew Ryan, head of market strategy at financial services firm Ebury.
Ryan said the inflation report had made him increasingly confident that calls for a first Fed rate cut in March were premature.
Bonds:
Treasury yields edged higher as traders looked past a hotter-than-expected U.S. inflation report for December and focused on the likelihood of easing price gains going forward.
“In my view, this uptick in CPI is a critical reminder of the unpredictable nature of economic recovery and the murkiness of the macroeconomic data,” said Jon Maier, chief investment officer at Global X.
“Markets may need to brace for potential volatility, as the Fed could maintain or potentially intensify its restrictive monetary policy stance in response to these inflationary pressures.”
The CPI report did little to budge the market’s narrative about Fed’s timing and extent of interest rate cuts as fed funds futures traders boosted the likelihood of a quarter-of-a-percentage-point rate cut by March to 68.1% from 64.7% a day earlier, according to the CME FedWatch Tool.
Energy:
Oil futures gained after a U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen.
Risk of escalation could unnerve markets and further prop up crude oil prices, Saxo Markets analysts said.
“If Iran is drawn more directly into the conflict, it could again target tankers in the Strait of Hormuz and sabotage regional energy facilities in order to internationalize the cost of the war,” Helima Croft, head of global commodity strategy at RBC Capital Markets said.
Metals:
Gold advanced in Asia amid an escalation of geopolitical tensions in the Middle East.
A U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen. The sudden escalation of the conflict could enhance gold’s role as a safe-haven asset.
The much-anticipated U.S. December inflation report, although higher-than-expected, doesn’t change investors’ rate-cut expectations, Oanda analyst Craig Erlam said.
The yellow metal has been trading around $2,030/oz over the last couple of months, he added.
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Copper prices gained in Asia on continued optimism over potential U.S. Fed rate cuts, which could boost economic activity.
Markets remain hopeful for rate cuts even after inflation data came in slightly higher than expected in December, Nanhua Futures analysts said.
Demand for copper may rise slightly ahead of the Lunar New Year as buyers stock up, the analysts added.
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Iron-ore futures were mixed on possible position adjustments.
While potential normalizing of supply-demand fundamentals could push the iron-ore market toward surplus by end-2024, elevated demand in China could continue in the near term and keep iron-ore prices higher for longer, RBC Capital Markets said.
RBC has lifted its iron-ore estimate for 2024 to $112.50 per ton from $83.00 per ton previously, it added.
TODAY’S TOP HEADLINES
U.S.-Led Coalition Launches Strikes on Multiple Houthi Rebel Targets in Yemen
A U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen, officials said late Thursday, two days after the Yemeni rebel force defied an ultimatum to halt its attacks on ships transiting the Red Sea with a barrage of missiles and drones.
The strikes, conducted by U.S. and British forces and supported by Australia, Bahrain, Canada and the Netherlands, were intended to reduce the Houthis’ campaign, which the Iran-backed rebel group said it launched in response to Israel’s war on the Hamas militant group in Gaza.
Deflation Worries Deepen in China
HONG KONG-China’s consumer prices fell for a third straight month in December, underscoring the challenges Beijing faces in reviving its economy as deflationary pressures persist.
An index of prices charged by Chinese manufacturers, meanwhile, contracted for a 15th straight month. That is a source of growing concern for U.S. and European officials, as some Chinese business owners look to unload more low-cost goods on the rest of the world, competing with Western brands.
Hunt for Critical Minerals Draws World Powers to Saudi Arabia
RIYADH, Saudi Arabia-The U.S., China and Russia are racing to secure critical metals needed to power the energy transition away from fossil fuels. Their latest battleground: oil-rich Saudi Arabia.
Government officials and top mining executives descended on Riyadh this week to tap in to the gusher of cash the Saudis are pouring into mining investments. The kingdom is positioning itself at the center of a “super region” extending from Central Asia to the Middle East and Africa, which it says holds at least a third of the world’s natural resources, including critical minerals.
Fed’s Mester says March is probably too early for rate cut
Cleveland Fed President Loretta Mester on Thursday threw cold water on market expectations of an interest rate cut as soon as March.
Asked in an interview on Bloomberg television about market expectations for a move in March. Mester replied: “I mean it’s hard to predict the future, as you know, and it’s really going to be dependent on how the economy evolves. I think March is probably too early in my estimation,” Mester said.
Bitcoin ETFs Get Off to a Monster Start, Despite Resistance on Wall Street
The new bitcoin ETFs had a roaring debut in their first day of trading, but Vanguard refused to join the party.
The asset-management giant said Thursday it won’t offer the new spot bitcoin exchange-traded funds on its brokerage platform, highlighting concerns about the digital currency’s suitability for many individual investors.
China’s Consumer Prices Fell for a Third Straight Month in December
China’s consumer prices fell for a third straight month in December, suggesting continued weak domestic demand despite Beijing’s recent efforts to juice up economic growth.
The consumer-price index fell 0.3% in December from a year earlier, compared with November’s 0.5% drop, the National Bureau of Statistics said Friday. A Wall Street Journal poll of economists had tipped a 0.4% fall.
U.S.-Led Coalition Launches Strikes on Multiple Houthi Rebel Targets in Yemen
A U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen, officials said late Thursday, two days after the Yemeni rebel force defied an ultimatum to halt its attacks on ships transiting the Red Sea with a barrage of missiles and drones.
The strikes, conducted by U.S. and British forces and supported by Australia, Bahrain, Canada and the Netherlands, were intended to reduce the Houthis’ campaign, which the Iran-backed rebel group said it launched in response to Israel’s war on the Hamas militant group in Gaza.
Hunt for Critical Minerals Draws World Powers to Saudi Arabia
RIYADH, Saudi Arabia-The U.S., China and Russia are racing to secure critical metals needed to power the energy transition away from fossil fuels. Their latest battleground: oil-rich Saudi Arabia.
Government officials and top mining executives descended on Riyadh this week to tap in to the gusher of cash the Saudis are pouring into mining investments. The kingdom is positioning itself at the center of a “super region” extending from Central Asia to the Middle East and Africa, which it says holds at least a third of the world’s natural resources, including critical minerals.
Fed’s Mester says March is probably too early for rate cut
Cleveland Fed President Loretta Mester on Thursday threw cold water on market expectations of an interest rate cut as soon as March.
