MARKET WRAPS

Stocks:

European stocks edged higher in a cautious opening session, as traders weighed worries over China's debt burden against encouraging comments by a European Central Bank board member.

Isabel Schnabel declined to rule out interest-rate cuts next year in an interview published earlier Tuesday. Her remarks helped to further cement market odds the ECB will cut rates next year, to 69% in March and 90% in April.

Capping gains for stocks was that Moody's cut its outlook on the China's credit rating to negative. It said financial lifelines extended by the government to distressed regions and companies were harming the economy.

Shares on the Move

Barclays fell sharply following media reports that the Qatar Investment Authority was cutting its stake in the British bank.

"It's certainly not helpful when one of the largest shareholders is selling stock ahead of the forthcoming strategy update and so soon after some of the high level proposals for this were mooted in the press," Shore Capital said.

The lender's stock--which opened 4.7% lower before paring losses--was a drag on London's FTSE 100, Interactive Investor said.

Stock to Watch

Europe's major carmakers are set to post significantly lower EBIT figures in 2024, dropping an average of 19%, UBS said.

It expects flat global sales volumes due to intense competition and lower affordability, and has a negative view on price and mix.High production costs are also a factor.

UBS projects that BMW's EBIT will decline most--by 26% to EUR12.85 billion, from an estimated EUR17.33 billion in 2023. Mercedes-Benz, Volkswagen, Renault and Stellantis will each see EBIT fall between 18% and 24%, UBS added.

Porsche, however, could see EBIT growth of 7% thanks to high prices and a positive mix from new models, UBS said. On aggregate, UBS said its 2024 estimates are around 15%-20% below consensus.

U.S. Markets:

Futures pointed to minor losses for U.S. stock indexes, while government bonds rose in price.

Up ahead, investors will parse monthly gauges of U.S. services from ISM and S&P Global, and the JOLTS report on job openings.

The Atlanta Fed's real-time forecast for GDP growth this quarter stands at 1.2%, which would be the slowest pace since the second quarter of 2022, Deutsche Bank noted.

Forex:

The dollar should recover this week as its recent correction lower looks to have gone too far, TD Securities said.

Positioning and short-term valuations are stretched, increasing the risk that the dollar rallies if Friday's nonfarm payrolls data are strong, TD Securities said. It also upgraded its view on the dollar until year-end and now expects EUR/USD to finish the year at 1.08.

Bonds:

The front-end of the eurozone government bond yield curve remains bid-implying investor demand-shrugging off a slowdown in expectations of U.S. rate cut hopes, Commerzbank Research said.

"With today's U.S. ISM expected to stabilise, the jury remains out for how long the eurozone front-end can decouple from the consolidation in U.S. space," Commerzbank said.

Hargreaves Lansdown said big downward moves in bond yields aren't imminent but there is scope for lower yields further out, with higher volatility along the way.

"Investors should not be put off by this outlook-we think this could the most interesting entry point for bond investors in decades," Hargreaves Lansdown said.

There is potential that investors could be rewarded either with income from higher-for-longer yields, or growth, as yields fall.

"Volatility is hard to stomach but can offer opportunities for good quality active fund managers to take advantage of price fluctuations."

Energy:

Oil futures were close to 1% higher amid demand concerns, market skepticism following OPEC+ output cuts and tensions in the Middle East.

Prices declined on Monday after OPEC+'s voluntary curbs announcement left traders disappointed, raising questions over compliance and future supply policy.

Meanwhile, the Israel-Hamas conflict and a series of attacks in Middle-Eastern waters fueled supply concerns, and falling U.S. factory orders in October contributed to investor fears of a broader economic slowdown.

Capital Economics said crude prices should decline by the end of next year as a result of less constrained global supply and modest demand.

It assumes OPEC+ production will gradually rise starting from April, likely driving supply growth at a time of only moderate growth in demand.

"We think that the oil market will be in a slight deficit on average over most of 2024 but with a surplus in the final quarter," Capital Economics said.

It has forecast Brent at $75 a barrel and WTI at $70 a barrel by the end of 2024, from previous expectations of $85 a barrel and $80 a barrel, respectively.

Metals:

Base metals were weaker on worries about the economy and demand for industrial goods, while gold edged up.

"The macroeconomic environment is on the bearish side of the ledger," according to Peak Trading Research, citing weakness in crude oil and commodity currencies like the Australian dollar and Brazilian real.

Peak added that markets will be looking to Friday's nonfarm payrolls in the U.S. and in turn how they could affect Federal Reserve policy, though said it's unlikely the Fed will hike rates again.

   
 
 

EMEA HEADLINES

AT&T Drops Nokia for Ericsson in $14 Billion Deal

AT&T struck a deal with Ericsson to buy up to $14 billion of its hardware and services after the Swedish equipment supplier pledged to open up its software to competing systems.

The five-year agreement would move virtually all of AT&T's new purchases of certain cell-tower equipment to Ericsson, replacing existing machinery from Finnish rival Nokia in many markets. The Dallas-based telecom giant said it plans to start the swap next year and aims to have 70% of its wireless network traffic passing through open platforms by late 2026.

   
 
 

French Industry Continued Its Slump in October

French industrial production sank again in October, defying expectations for a slight rebound and adding to signs of a cooldown across the eurozone.

Total production across French industry decreased by 0.3% compared with the previous month, according to figures set out Tuesday by national statistics body Insee. In September, production dropped 0.6%, Insee said, revising down a previous estimate for a 0.5% decline.

   
 
 

UK Retail Sales Remained Weak in November Despite Black Friday Lift

Retail sales growth in the U.K. remained weak in November despite a boost from Black Friday, with the cost-of-living crisis continuing to squeeze household budgets, according to the latest British Retail Consortium data published on Tuesday.

Total retail sales for the four weeks to Nov. 25 increased by 2.7% compared with the prior month, when it saw growth of 2.5%, the BRC-KPMG Retail Sales Monitor report said. This was above the three-month average growth of 2.6%, but compares with 4.2% growth in November last year.

   
 
 

Telefonica Proposes Workforce Restructuring for 5,124 Jobs in Spain

Telefonica proposed a workforce restructuring plan that will affect 5,124 jobs in Spain as part of its reorganization.

The Spanish telecommunications company on Monday told unions that it aims to implement a labor force adjustment plan by 2026, due to organizational, technical and production needs, a spokesperson from trade union UGT told Dow Jones Newswires.

   
 
 

Brenntag Updates Mid-Term Targets, to Reorganize Divisions

Brenntag updated its mid-term financial targets and unveiled strategic steps to create divisional independence within the company.

The German chemical distributor said Tuesday that the strategy, presented at a Capital Markets Day in London, contains the operational and legal disentanglement of Brenntag Essentials and Brenntag Specialties, creating two distinct divisions with full autonomy. As a result of this product portfolio shift, Brenntag Group now expects an organic gross profit growth of between 4% to 7%, an Ebita margin growth of 7% to 9% and a conversion ratio of 35% to 37% annually by 2027, it said.

   
 
 
   
 
 

GLOBAL NEWS

China's Colossal Hidden-Debt Problem Is Coming to a Head

China is trying to defuse a financial time bomb that could severely damage its banking system.

Cities and provinces across the country have accumulated a massive amount of hidden debt following years of unchecked borrowing and spending. The International Monetary Fund and Wall Street banks estimate that the total outstanding off-balance-sheet government debt is around $7 trillion to $11 trillion. That includes corporate bonds issued by thousands of so-called local-government financing vehicles, which borrowed money to build roads, bridges and other infrastructure, or to fund other expenditures.

   
 
 

Moody's puts negative outlook on China's debt on expectations of regional government bailout

Moody's Investors Service on Tuesday cut the outlook on China's debt to negative from stable citing expectations that the national government will have to step in to rescue regional and local governments.

Moody's kept China's long-term rating at A1.

   
 
 

China's November Caixin Services PMI Rose to Three-Month High

A private gauge of China's services activities rose to a three-month high in November, contrasting with an official index that tumbled into contraction.

The Caixin services purchasing managers index climbed to 51.5 in November from 50.4 in October, Caixin Media Co. and S&P Global said Tuesday. A reading above the 50 mark suggests activity expansion, while one below that level indicates contraction.

   
 
 

Green Investors Were Crushed. Now It's Time to Make Money.

Invest according to your political views, and you're unlikely to make money. Companies that appeal to left-wingers or to right-wingers might be good or bad investments, but the fact of being, on current politics, clean and union-friendly for the left or oily and gun-friendly for the right is neither here nor there. What matters is their ability to make money and how highly they are valued.

This has been rammed home for environmentally-minded investors in the past year, as a coordinated selloff in anything with green credentials crushed the idea of making money while doing good.

   
 
 

Israel, Hamas Engage in Some of Fiercest Fighting of War

TEL AVIV-Israel and Hamas are locked in some of their fiercest fighting of the two-month-old war, including at close quarters, as Israel launched its offensive in the south while trying to finish its operations in and around Gaza City.

The Israeli military has essentially cornered Hamas fighters in two of their last strongholds in the northern Gaza Strip-the Shajaiya neighborhood of Gaza City and the city of Jabalia, immediately to the north.

   
 
 

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

December 05, 2023 05:37 ET (10:37 GMT)

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