EMEA Morning Briefing: Stock Futures Mixed; Oil on Track for Weekly Gain

European stock futures were mixed early Friday. Asian benchmarks were largely higher in holiday-thinned trading; the dollar and Treasury yields were little changed; while oil futures edged lower and gold futures steadied.

Equities:

Stock futures traded mixed early Friday. Asian trading was subdued ahead of the Lunar New Year holidays, with some markets including Hong Kong and Singapore closing early Friday, while others like China and South Korea were shut.

U.S. stocks closed higher Thursday, with two out of three benchmarks carving out fresh records, while the S&P 500 briefly eclipsed the 5000-point milestone for the first time ever, just before close.

“It looks like investors are determined to pass this 5,000 level, in spite of the fact of higher yields since this morning,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “It’s the consistency of good earnings that are pushing the market higher.”

On the docket for today are Germany CPI data and revisions to U.S. inflation data; the latter will be watched for in case of changes that could influence the Fed’s rate outlook.

Forex:

The dollar steadied early Friday. Market pricing for a Fed rate reduction in March has been trimmed to negligible levels and there seems to be latent upside fuel for USD in pricing for FOMC meetings beyond March, Westpac said.

The U.S. economy’s resilience could extend well into 2024, thanks to factors including lingering untapped pandemic-related income support, it said. Such factors could decrease the probability of Fed rate cuts, thereby supporting the appeal of U.S. fixed-income assets and demand for the greenback.

Bonds:

Treasury yields were little changed after finishing higher on Thursday following another strong government auction. A $25 billion auction of 30-year bonds went “very well” and was met with “really good demand” from indirect bidders, according to Tom di Galoma, co-head of global rates trading for BTIG in New York.

Friday brings revisions to the U.S. consumer-price index, and investors see some risk that the updated figures will show inflation was hotter than initially reported at the end of 2023.

Energy:

Oil futures were slightly lower early Friday, but are likely to be supported by continued Middle East tensions that could lead to supply disruptions. Prices are getting a boost from Israel’s rejection of Hamas’s terms for a cease-fire, UOB said.

Prices have continued to trade higher each day this week, with geopolitical tensions “a key source of support, particularly with recent escalations between the U.S. and Iran,” said Robbie Fraser, manager of global research and analytics at Schneider Electric.

Metals:

Gold steadied in Asia amid likely subdued trade given the Lunar New Year holiday has begun in the region.

Traders are digesting the U.S. weekly jobless claims released overnight, said ANZ. The decline in claims highlights the resilience of the U.S. economy, which could prompt the Fed to refrain from lowering rates in the short term, ANZ added.

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The price of zinc has fallen too far and should claw back some of its losses in the days ahead, said Sucden Financial head of research Daria Efanova. LME 3-month zinc broke below what had been a strong support level at $2,380/metric ton after China data Thursday fanned deflation fears, leading to an accelerated selloff as put options were exercised.

“We believe that these levels are oversold, and we could see a correction in the coming days,” Efanova said. The contract’s price has crept up by 0.3% so far this session, to $2,335/ton.

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Iron-ore prices are holding up well given the weakness in Chinese steel demand and sentiment, said Liberum, which expects another busy restocking cycle when traders return from the Lunar New Year holiday.

“At this stage, we remain constructive on iron ore’s very short-term demand/price outlook (CNY-May), while the China-centered Asian steel industry emerges from the northern winter and goes through its seasonal lift in activity,” Liberum said.

It is more cautious on the 2H outlook, saying there’s likely to be a seasonal pullback and that the market lacks alternative drivers of demand.

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