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MARKET WRAPS

Watch For:

EU harmonized CPI; UK CPI, PPI; trading updates from Antofagasta, Pearson, Smiths Group, Just Eat Takeaway.com, Richemont

Opening Call:

Stock futures declined as the market dialed back bets on rate cuts this year. Asian stock benchmarks fell after data showing slower Chinese growth; the dollar and Treasury yields steadied; while oil futures fell and gold was flat.

Equities:

European stock futures fell early Wednesday amid dwindling prospects for rate cuts in 2024 following comments by European Central Bank and Federal Reserve officials.

Fed governor Christopher Waller said in a speech on Tuesday that the U.S. central bank is likely to be able to cut interest rates this year, but there is no need for policy to be "rushed."

Meanwhile, data showed China's growth rate slipped to 5.2% for 2023, one of the lowest levels in decades, confirming a number uttered by Premier Li Qiang a day earlier at the World Economic Forum in Davos.

Last year's growth rate managed to top the Chinese government's official target of around 5% growth, following a year of volatility and shifting expectations. Maintaining growth at a similar pace this year may prove harder, given policymakers' hesitance so far to launch any big-ticket stimulus packages.

Other economic data in focus today include U.K. and eurozone inflation data and U.S. retail sales.

Forex:

The dollar steadied in Asia, but could strengthen amid waning Fed rate-cut prospects. Fed governor Christopher Waller pushed back on imminent Fed rate cuts overnight, said Matt Simpson, a market analyst at City Index and FOREX.com. Fed fund futures now imply four Fed rate cuts in 2024, down from five previously, Simpson noted.

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U.K. inflation data today will be a key focus for gilts and sterling, with a weak reading potentially fueling expectations that the Bank of England could cut interest rates earlier than expected, said Tickmill Group analyst James Harte.

"Should a fresh decline be recorded tomorrow, traders are likely to start to push back against the BOE's signals, anticipating earlier BOE loosening than is currently projected," he says.

Bonds:

Treasury yields posted their biggest one-day jumps in one or two months overnight after central bank officials in the U.S. and Europe pushed back on market expectations for the timing and pace of rate cuts.

"A hawkish mood has prevailed in markets this year, and comments from the Fed's Waller today seemed to add fuel to that fire, at least initially. But given how aggressively rate cuts were priced in late last year, investors are still discounting a huge amount of easing in 2024 and 2025 - rightly so, in our view," said James Reilly, a markets economist at Capital Economics.

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Debt issuance is likely to decline in 2024 as the U.S. faces a recession by midyear, Deutsche Bank said. It expects U.S. investment-grade net issuance to total $440 billion this year, down from $620 billion in 2023.

High-yield is forecast to increase to $120 billion from $85 billion as the high cost of funding in the loan market pushes issuers to HY when dealing with large amounts of bonds maturing in 2025 and 2026. "Net supply trends for [investment-grade] should continue to be balanced-to-positive...while [high-yield] is likely less positive," the bank said.

Energy:

Oil futures fell amid signs that the Middle East conflict isn't hurting supply. Houthi militants' attacks on commercial ships in the Red Sea haven't affected global oil supply, said Commonwealth Bank of Australia. Oil tankers can transit around Africa to transport cargoes between Asia and Europe, CBA added.

Metals:

Gold futures were little changed after front-month Comex gold for January delivery settled 1.0% lower on Tuesday. The precious metal managed to pare some of its overnight losses following weak U.S. economic data, ANZ said. Gold was under pressure overnight as investor demand abated amid a stronger USD, ANZ added.

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Copper prices declined as remarks from Fed officials reignited focus on the timing of rate cuts. Treasury yields gained, which could weigh on investor appetite in the base-metal sector, ANZ added.

On the flip side, supplies remain tight given miners' struggles with production, ANZ said. Concerns about supplies this year may support copper prices long term.

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Most iron-ore futures rose amid hopes of further stimulus measures. Beijing is considering a CNY1 trillion new debt issuance under a so-called special sovereign bond plan, according to a media report.

But supply-and-demand dynamics are still relatively weak with iron-ore inventories continuing to rise significantly, Baocheng Futures said.

TODAY'S TOP HEADLINES

China's Growth Slows to Three-Decade Low Excluding Pandemic

HONG KONG-China's growth rate finished at one of the lowest levels in decades last year, underscoring the heavy toll that a property-sector collapse and weak consumer confidence have taken on the world's second-largest economy despite the lifting of all Covid-19 restrictions.

Gross domestic product in China expanded 5.2% in the fourth quarter and for the full year in 2023, according to data released by the National Bureau of Statistics on Wednesday. The reading confirmed a number uttered by Premier Li Qiang a day earlier at the World Economic Forum in Davos, Switzerland-an unusual disclosure of a high-profile data point by a senior leader before its formal release.

Waller Confirms Rate Cuts Ahead. The Timing Is Foggy.

The Federal Reserve's progress in reining in runaway prices without sending the U.S. economy into a tailspin is currently "almost as good as it gets," Fed Gov. Christopher Waller said Tuesday. That progress clears the way for the bank to lower interest rates this year, although Waller said he isn't 100% sure that the decline in inflation will last.

In remarks delivered at The Brookings Institution on Tuesday morning, Waller said he believes monetary policy is currently set properly, at a restrictive level that should continue to put downward pressure on demand, allowing central bank officials to achieve their 2% inflation target.

Israel's War in Gaza Enters Its Most Perilous Phase Yet

KHAN YOUNIS, Gaza Strip-In a dark tunnel lined with concrete, 60 feet below ground, the Israeli general held one hand above the other to illustrate his soldiers' mission: to destroy Hamas in this sprawling city, and in the intricate warrens beneath it.

It's laborious. "Underground, the defender has the edge. We're working to cut it down," said Brig. Gen. Dan Goldfus, who commands the 98th Paratroopers Division of the Israeli military. He's tasked with taking Khan Younis, the biggest city in the southern Gaza Strip and the army's most complex challenge so far.

Shell Suspends Red Sea Shipments Amid Fears of More Houthi Attacks

British oil major Shell suspended all shipments through the Red Sea after U.S. and U.K. strikes on Yemen's Houthi rebels triggered fears of further escalation, according to people familiar with the decision.

The West's targeting of the Iranian-ally militia came after the Houthis launched dozens of missiles and drones at commercial vessels around the Red Sea and the nearby Bab el-Mandeb. The militia has said the attacks are in response to an Israeli offensive in the Gaza Strip.

U.S. to Put Houthis Back on Terrorist List

WASHINGTON-The Biden administration plans to put the Houthi rebel group back on one of its lists of terrorist organizations, days after the U.S. launched strikes on its facilities in Yemen in retaliation for months of attacks on commercial vessels in the Red Sea, officials said.

The placement as a specially designated global terrorist group, which the U.S. plans to formally announce on Wednesday, reverses a decision made early in President Biden's term to remove the Houthis from the list over concerns it hurt prospects for peace talks and further crippled the economy of an impoverished nation at risk of famine. The Trump administration first put the Houthis on the list.

Supreme Court Denies Petitions on Apple, Epic Appeals

The U.S. Supreme Court declined to hear an appeal of an antitrust ruling related to Apple's App Store, a decision that prompted the iPhone maker to issue new, controversial policies that were swiftly criticized by third-party software makers.

Apple and "Fortnite" developer Epic Games last year separately asked the Supreme Court to weigh in on their legal dispute. The court denied the petitions of both companies Tuesday. A federal judge in 2021 had largely ruled against Epic, finding that Apple must allow developers to steer customers to payment options within their own apps.

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Expected Major Events for Wednesday

07:00/UK: Dec CPI

07:00/UK: Dec UK producer prices

08:00/CZE: Dec PPI

08:00/AUT: Dec CPI

08:00/SVK: Dec Harmonized CPI

09:00/POL: Nov Merchandise trade

09:30/UK: Oct Card Spending statistics

09:30/UK: Nov UK House Price Index

10:00/CYP: Dec Harmonised CPI

10:00/MLT: Dec Harmonised CPI

10:00/EU: Dec Harmonised CPI

16:59/AUT: Jan OPEC Monthly Oil Market Report

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(END) Dow Jones Newswires

January 17, 2024 00:16 ET (05:16 GMT)

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