European Midday Briefing: German Inflation Data Awaited

MARKET WRAPS

Stocks:

European shares were higher on Thursday despite a tech-led retreat on Wall Street and a mixed Asian session. And with U.S. markets closed for Thanksgiving, thin trading volumes are seen likely for the rest of the session.

Shares on the Move

Shares of ASML rose sharply after Bloomberg reported that the U.S. could impose less-strict-than-expected tech export curbs to China, citing sources.

According to the report, the Biden administration could unveil restrictions that might hit fewer Huawei suppliers than previously expected, as soon as next week. Shares of other chip makers ASM International also posted solid gains.

Stocks to Watch

Leonardo and its partners in the Global Combat Air Programme, which aims at developing a sixth-generation fighter jet, would see their industrial risk reduced if Saudi Arabia joins the project, Equita said.

On Wednesday, Italian Foreign Minister Antonio Tajani and Leonardo's Co-general Manager Lorenzo Mariani said GCAP will be expanded to other countries beyond Japan, Italy and the U.K., probably including Saudi Arabia. This would allow for its costs to be shared, reducing industrial risk, and would guarantee orders from an additional country, Equita said.

The project brings together Leonardo, BAE Systems and Mitsubishi Heavy Industries.

Forex:

The euro might rise if data show German inflation accelerated in November, UniCredit Research said, but the currency's inability to break above $1.06 suggests that investors "do not really want to ride a more sustained recovery of the single currency for now."

The German data are due at 1300 GMT and come ahead of the wider eurozone inflation figures on Friday.

ING said euro traders should be wary of French political developments amid concerns over the fate of the government and the budget.

"The French-German sovereign 10-year sovereign bond spread has widened to levels last seen in 2012, which is worrying for the euro and a reminder that any chance of fiscal support from either France or Germany is remote."

Far-right leader Marine Le Pen has threatened a no-confidence vote over Prime Minister Michel Barnier's budget. The budget includes plans to cut spending and raise taxes in an effort to reduce the deficit.

Swissquote Bank said the recent rise in European natural gas prices could lift eurozone inflation in coming months and offer some support to the euro.

Europe is expected to face the coldest winter since Russia invaded Ukraine and since the continent gave up on Russian energy supplies. Gas reserves could decline, raising prices and consumer prices. Such a situation could limit interest-rate cuts by the European Central Bank and "throw a floor under the euro's weakness."

Chart analysis suggests the euro needs to rise firmly above $1.06 before investors can be sure that its recovery is convincing, UniCredit Research said.

"Charts still require a rebound above $1.06 and even more $1.0660 at least to provide the euro with more convincing and lasting relief."

Rabobank said sterling is likely to rise against the euro as European political and budget worries outpace concerns about the implications of the U.K.'s October budget.

The U.K. labor market is loosening as a result of employer tax rises and consumer confidence could weaken on higher mortgage rates as the Bank of England is expected to cut rates more cautiously given increased fiscal spending.

However, these issues are "not as great as the budgetary and political issues facing France." Germany also has budget and political issues, while Italy faces strike action Friday in response to budget disappointments, Rabobank said.

It expects EUR/GBP to fall to 0.8150 within 12 months from 0.8326 currently.

The dollar edged higher but with the Thanksgiving holiday, thinner liquidity and lighter volumes are likely, Pepperstone said, which will persist into the weekend barring any unexpected news flows.

Lombard Odier said the dollar may strengthen in the short term, benefiting from positive market sentiment and higher Fed interest rates versus other developed market currencies.

It said emerging market currencies will be more vulnerable, particularly those countries with a high share of U.S. exports, as geopolitical risks and trade tensions introduce additional volatility.

UOB said the USD Index's rally has likely peaked at 108.07, the Nov. 22 high, citing charts, and the index is likely to pull back further and test rising trendline support, currently at 105.50.

Bitcoin continued to trade at slightly weaker levels after its recent pullback from record highs just shy of $100,000, but many analysts expect this to be a short-lived correction, with the cryptocurrency seen hitting the $100,000 mark soon. Standard Chartered expects bitcoin to reach $125,000 by the end of 2024 and $200,000 by the end of 2025.

Bonds:

An escalation of France's political issues could discourage Asian investors from buying French government bonds, which could be at risk in the first quarter, Jefferies said.

Net French government bond supply increases substantially in 2025, and if there are any rating or political risks on the horizon, "then Asian investors may not be the most willing buyers."

Ireland seems to be on track to become the next AAA credit within the eurozone, paving the way to a convergence between Irish and Dutch government bond yields, Citi said. S&P put Ireland's AA rating on a positive outlook in mid-November.

Friday's Irish general election indicates a return of the centrist Fine Gael and Fianna Fail parties in coalition, which would likely ensure policy continuity, wirh Citi adding that Ireland benefits from strong growth and a strong budgetary position.

"Overall, we remain constructive and continue to expect convergence of Irish credit with [Dutch government bonds] DSLs," Citi said.

Lombard Odier said corporate bonds are likely to generate better returns than government bonds in 2025 thanks to sound balance sheets.

Corporate bond spreads are expected to remain tight in 2025, with high-yield bonds likely to outperform. Investment-grade bonds could be more sensitive to signs of rising inflation, given the longer duration and hence higher interest-rate sensitivity of investment grade versus high yield.

Energy:

Oil prices were weaker after OPEC+ postponed its Sunday policy meeting, saying several ministers will be attending the Gulf Summit in Kuwait on Sunday.

"The oil market can not cope with more OPEC+ barrels in 2025, and we see Brent oil price dropping to around $60/bbl by end 2025 if OPEC+ goes ahead with the planned output increase," DNB Markets said.

In other news, U.S. crude oil stockpiles fell by 1.8 million last week, while gasoline inventories rose by 3.3 million barrels against expectations of a 600,000-barrels fall ahead of holiday travel.

Lombard Odier said expected production increases next year will likely keep oil prices under pressure over 12 months, potentially taking Brent crude below $70 a barrel, with markets remaining sensitive to U.S. and Middle East production.

The unwinding of production cuts by OPEC+, as well as geopolitical disruptions, will be key, it said.

"Portfolio exposure to oil and energy-related assets may offer hedges against inflation risks."

Metals:

Gold futures were broadly flat, with prices stabilizing after a sharp fall at the start of the week.

Pepperstone said the precious metal remains supported by strong buying interest at lower levels, which shows investors continue to see it as a reliable hedge in adverse market conditions.

It said gold appears to have entered a sideways trading range with volatility subsiding although renewed Middle Eastern or Eastern European tensions could quickly reignite volatility and drive prices higher.

Lombard Odier said higher-than-expected real interest rates and a stronger dollar may limit gold's short-term upside.

However, it still sees the precious metal as a valuable asset in 2025 and with disinflation and rate cuts continuing in major economies, investor demand is expected to pick up, providing support for prices.

Demand from central banks to diversify reserves is also likely to stay strong, Lombard Odier added.

"A dedicated allocation to gold into 2025 therefore plays a useful portfolio diversification role."

Base metals were weighed down by a stronger dollar and the looming threat of Donald Trump's proposed tariffs.

Concerns over a trade war with China have been heightened by the announcement of Jamieson Greer as the next U.S. trade representative, ANZ Research said. Perceived by the market as a hardliner on tariffs, Greer will be responsible for negotiating with other countries and play a central role in shaping Trump's tariffs on U.S. imports, which could dent industrial metals demand.

Greer said in May that China's stated ambitions and actions were a "generational challenge" for the U.S. in testimony before the U.S.-China economic and security review commission.

EMEA HEADLINES

U.S.-Europe Trade War Could Nudge Inflation Higher, ECB's Lagarde Says

A tariff war between the U.S. and Europe could drive up inflation a little in the short term, European Central Bank President Christine Lagarde said Thursday.

U.S. President-elect Donald Trump has threatened to slap steep tariffs on goods imported into the U.S., including from Europe. If European governments were to retaliate, sparking a transatlantic trade conflict, there would be a hit to global demand and economic output, Lagarde said in an interview with the Financial Times published on the ECB's website.

Remy Cointreau Expects Sales Slump Amid Challenges in China, U.S.

Remy Cointreau forecast a steeper sales drop and weaker profitability for its fiscal year than analysts expected, as European distillers grapple with mounting challenges in the U.S. and China.

However, executives at the French luxury liquor company said Thursday that they are starting to see signs of stabilization in the U.S., even if the market recovery is expected to be slow. The company aims to start reintroducing targeted marketing investments to boost its performance in the U.S. and China, two major markets for the industry, and continue with its cost-cutting plans.

Direct Line Rejects $4.2 Billion Aviva Bid

Direct Line Insurance Group said it rejected the 3.28 billion pounds ($4.16 billion) takeover approach from insurer and asset manager Aviva as it substantially undervalued the company.

Describing the approach as highly opportunistic, the British nonlife insurer said late Wednesday that the proposal didn't reflect the stand-alone value of the business. It added that the board continues to make early progress toward its financial targets, and expects to deliver attractive growth in profitability, capital generation and shareholder returns.

Vivendi Shareholder Seeks to Delay Vote on Split Plan

Vivendi said shareholder CIAM filed an interim injuction with a Paris court seeking to postpone a shareholders' meeting scheduled for next month to vote on the proposed break-up of the French media group.

Paris-based investment firm CIAM, which holds a 0.025% stake in Vivendi, previously said the plan to split Vivendi into four businesses undermined the rights of minority shareholders and that it would vote against the proposed spinoffs of broadcaster Canal+, advertising business Havas and publishing company Louis Hachette Group from Vivendi.

Auto Supplier Valeo Plans Around 870 Job Cuts Across French Sites

Valeo plans to cut 868 jobs across eight of its French sites, becoming the latest European automotive supplier to reduce its headcount as industry woes continue.

The French auto supplier said plans presented to trade unions would in result 694 forced redundancies, 174 voluntary redundancies and would affect 6.4% of the company's 13,500 employees in France.

Heidelberg Materials Agrees to Buy Giant Cement for $600 Million

Heidelberg Materials said it struck a deal to buy U.S. cement producer Giant Cement Holding for about $600 million in a bid to expand its footprint on the East Coast.

The German building-materials company said Thursday that the acquisition allows it to strengthen its presence in the southeastern U.S. and New England markets, and contributes to its efforts to reduce its carbon footprint.

GLOBAL NEWS

Biden's Surprising Middle East Peace Strategy: Working With Trump

WASHINGTON-As the Biden administration seeks to broker an end-of-term peace deal in the Middle East, it is bringing along a surprising back-seat partner: Donald Trump.

Instead of slamming a White House-brokered Lebanon cease-fire between Israel and Hezbollah announced Tuesday, Trump and his advisers have stayed largely quiet about the diplomatic breakthrough, while Biden administration officials shift their focus to a cease-fire in Gaza, a much tougher task.

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This article is a text version of a Wall Street Journal newsletter published earlier today.