MARKET WRAPS
Stocks:
European shares struggled for momentum on Monday in a cautious start to a busy week that includes the U.K. spring budget on Wednesday, Thursday's European Central Bank meeting and Friday's U.S. non-farm payrolls data.
The week is "overcrowded with potentially market-moving political events, while speculation over the prospect for interest rate cuts in major economies keeps bubbling," Hargreaves Lansdown said.
Stocks to Watch
Ferrari's long-term growth prospects are good, but its valuation is too high, Citi said, downgrading the stock to sell from neutral.
However, it lifted the price target to EUR329 from EUR308 to reflect higher earnings estimates and lower capital spending assumptions, but it's still around 15% below the current share price.
Citi said maintaining a neutral rating would require a positive effective tax rate and imply a price target of EUR400, which is difficult to justify.
The timing of the downgrade could be off as the stock might rise further, Cit added, but it views the valuation as rich given a 30% rally since December.
U.S. Markets:
Stock futures were narrowly mixed, after both the S&P 500 and Nasdaq set new record highs Friday.
Stocks to Watch
Macy's, on a WSJ report that an investor group has hiked its offer to buy the chain.
Nvidia, after it closed last session with a market cap above $2 trillion. Rallying chip stocks were the major factor behind the Nasdaq's outperformance on Friday.
Ahead this week:
-Earnings are expected from Target on Tuesday, and Broadcom, Costco and Kroger on Thursday
-Super Tuesday, when 15 states will hold presidential primary elections
-Jerome Powell is set to testify before Congress on Wednesday
-Nonfarm payrolls for February are due Friday.
Forex:
EUR/USD started the week at the upper end of a 1.0800-1.0850 range, but euro strength could be an opportunity to take profits as the U.S. economy continues to outperform the eurozone, Danske Bank Research said.
"Look for strategic selling opportunities and sell on near-term rallies as the ongoing trend of strong U.S. macro data continues."
Morgan Stanley Research said betting on EUR/USD falling remains an attractive, positive carry hedge for various economic scenarios, including the possibility of money markets pricing in earlier interest-rate cuts from the European Central Bank. It maintains a long one-year EUR/USD put at 1.07.
Although eurozone economic data could beat expectations, especially with such a low bar, EUR/USD has barely reacted to any signs of this, Morgan Stanley said.
"Its correlation to local economic data surprises has fallen to effectively zero."
The dollar is more likely to rise ahead of Friday's U.S. non-farm payrolls data, which are still forecast to show solid jobs growth and to keep markets expecting that U.S. interest rates won't be cut before the summer, ING said.
"The balance of risks for the dollar before U.S. payrolls looks slightly tilted to the upside and DXY could find some good support above 104.00."
The data will help indicate whether January's bumper figures were an outlier, ING said, which expects February's non-farm payrolls to rise around 200,000 jobs, in line with the consensus in a WSJ poll for a 210,000 rise.
The pound could fall as the U.K. government's reported lack of fiscal headroom in Wednesday's Spring Budget may result in an earlier interest rate cut, MUFG Bank said.
With limited fiscal scope to deliver tax cuts, the budget is unlikely to significantly impact the performance of the U.K. economy in the year ahead, MUFG added.
"At the margin, it makes it slightly more likely that the Bank of England could begin to cut rates sooner in June rather than waiting until August which is a negative development for the pound," MUFG said.
Bonds:
Ten-year Portuguese government bond yields rose after S&P upgraded Portugal's credit rating to A- from BBB+ with a stable outlook.
S&P said Portugal's steep deleveraging is fueling a significant and continued improvement in the country's external financial positions and is alleviating external liquidity risks.
It believes that following Portugal's general elections on March 10, the next government will continue to exercise fiscal discipline and focus on executing the NextGenerationEU funds.
Energy:
Oil futures were firmer in early European trade after OPEC+ agreed to extend voluntary production cuts of 2.2 million barrels a day through the second quarter of the year.
The group's move was widely expected by the market and reaffirms efforts to avoid a surplus of supply and prop up prices.
"Signs of tightness in the physical market continue to push crude oil higher," ANZ said.
"Output cuts by the OPEC+ alliance continue to reduce supply as the market worries about the renewed tensions in the Middle East."
Metals:
Base metals struggled higher, as data from China showed that weekly inventories for metals continued to rise last week as demand remained sluggish.
Data from the Shanghai Futures Exchange pointed to increased Chinese holdings of metals, at a time of weak consumption following the Lunar New Year holiday in mid-February, ING said.
Copper stocks in China jumped by 18% on-week to 214,487 tons as of Friday, the highest since March, 2023. At the same time, aluminum and zinc inventories both rose by more than 10% each.
Gold Miners
Shares in gold miners look over-sold following a drop in gold prices on hawkish Fed comments and a stronger U.S. economy, presenting buying opportunities on several equities, Berenberg said.
"Valuations are depressed but we think quality names can re-rate in the right macro backdrop, which we expect to come this year," Berenberg said.
It highlighted London-listed Endeavour Mining, Centamin and Hochschild Mining as attractively valued on the expectation that gold prices remain supported and will move higher through the year.
EMEA HEADLINES
Henkel Warns of Slower Sales Growth This Year
Henkel is forecasting slower organic sales growth this year as prices for materials to make its products are expected to remain flat, while the translation of sales in foreign currencies should also weigh on growth.
The German chemical and consumer-goods company on Monday reported sales of 21.51 billion euros ($23.32 billion) for 2023, down 3.9% in reported terms due to foreign exchange moves and the divestment of its Russian business, but up 4.2% organically.
Evonik to Cut Workforce by 6% Amid Challenging Market
Evonik Industries said it would cut its workforce by around 6% after it reported weaker-than-expected results for the fourth quarter, becoming the latest chemicals company to rein in costs amid a tough market environment.
The German chemicals company said Monday that it plans to cut up to 2,000 jobs by 2026 in order to reduce costs and establish a new organizational structure as it doesn't expect an economic recovery this year. It expects cost reductions of around 400 million euros ($433.6 million) annually by the end of 2026, Evonik said.
Saudi-Led Oil Producing Nations Extend Output Cuts
The Organization of the Petroleum Exporting Countries and its allies have collectively agreed to extend voluntary production cuts through the end of June, constricting global oil supplies for another quarter.
Saudi Arabia, United Arab Emirates, Kuwait, and Algeria agreed to the moves, which are in addition to previous rounds of production cuts that are slated to remain through the end of 2024, and come as U.S. oil production has continued to surge.
Red Sea Conflict Threatens Key Internet Cables
Conflict in the Middle East is drawing fresh attention to one of the internet's deepest vulnerabilities: the Red Sea.
Most internet traffic between Europe and East Asia runs through undersea cables that funnel into the narrow strait at the southern end of the Red Sea. That chokepoint has long posed risks for telecom infrastructure because of its busy ship traffic, which raises the likelihood of an accidental anchor drop striking a cable. Attacks by Iran-backed Houthis in Yemen have made the area more dangerous.
GLOBAL NEWS
Japan's Nikkei Tops 40000 for First Time, Driven by AI Optimism
Japan's benchmark stock index closed above 40000 for the first time, driven by stronger corporate earnings and a surge in chip-related stocks seen as likely to benefit from investments in artificial intelligence.
Chip maker Renesas Electronics rose 4.9% and semiconductor-testing equipment maker Advantest climbed 3.7%.
China Cancels Premier's Post-NPC Press Conference in Break With Tradition
China has canceled the press conference its premier holds at the conclusion of the annual "Two Sessions" meeting, ending a decadeslong tradition.
"There will be no premier's press conference after the second session of the 14th National People's Congress ends this year," NPC spokesperson Lou Qinjian said at a briefing Monday. The arrangement will last for the remainder of the current NPC's term, barring special circumstances, Lou said. The current NPC's term is expected to last until 2028.
U.S. Defeat in Micron Trade-Secrets Case Reveals Struggle Countering Beijing
U.S. officials across the political spectrum have described Chinese corporate theft as a defining threat of our times. A Justice Department loss last week underscores the challenges in addressing it.
When senior engineers and managers at the Taiwan factory of the U.S. chip maker Micron Technology left abruptly with hundreds of internal files nearly a decade ago for a rival teaming up with a Chinese government-owned company, it looked to prosecutors like an open-and-shut case of state-sponsored corporate theft.
Harris Calls for Gaza Cease-Fire as She Urges Hamas to Accept Deal
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03-04-24 0531ET
