Bloomberg Daybreak: Europe 04/02/2024

Summary

Bloomberg Daybreak Europe discusses strong US factory data leading to a reevaluation of the number of Fed cuts anticipated for the year, with the odds of a June cut falling below 50%. Geopolitical tensions rise after an Israeli strike in Syria results in Iranian military casualties, and oil prices approach a five-month high due to Middle East risks and tightened supply. Additionally, the show covers economic data, central bank decisions, and market reactions from various regions including Turkey, Argentina, and Egypt.

Takeaways

• 📈 Strong US factory data leads to a market reevaluation of the number of Federal Reserve rate cuts anticipated for the year, with the probability of a June cut falling below 50%.
• 🇮🇷 Iran promises a decisive response to an Israeli airstrike on its embassy in Syria, which resulted in the death of two military generals, escalating tensions in the Middle East.
• 🤝 Israel agrees to face-to-face talks with the US regarding an invasion of Rafah, amidst heightened risks and tighter oil supply, pushing oil prices near a five-month high.
• 🌐 Asian markets display mixed reactions, with Hong Kong's Hang Seng experiencing a catch-up rally and the Nikkei in Japan slightly positive despite previous losses.
• 💰 US dollar remains relatively stable, while Brent crude oil trades just below $88 a barrel, and gold prices hover near record highs at $2,257 an ounce.
• 🇯🇵 Yen weakens towards 152 per US dollar, with traders anticipating the possibility of Japanese official intervention to strengthen the currency.
• 📉 US stocks joined bond losses following the release of strong factory data, reinforcing the narrative of a resilient US economy and less urgency for Fed rate cuts.
• 📈 Strong economic data from China, including better-than-expected PMI figures, but the CSI 300 index sees a slight decline.
• 🛣️ Oil prices are driven not only by geopolitical risks but also by supply fundamentals, with OPEC+ maintaining production cuts and US refineries seeking alternative sources after Mexico cancels some crude exports.
• 🏦 Citigroup reportedly implements a new round of job cuts in its US investment bank, affecting roles in technology, media, and telecom sectors.
• 🛒 UK supermarket price inflation drops to its lowest level in over two years, with increased competition among retailers to attract customers.

Q & A

What was the main impact of the strong U.S. factory data on the financial markets?

The strong U.S. factory data led to a rethink among markets regarding the number of Fed cuts this year, with the odds of a June cut dipping below 50%.

How did Iran respond to the Israeli strike on its embassy in Syria?

Iran vowed a decisive response to the Israeli strike that killed two of its military generals.

What is the significance of the U.S. jobs report for March?

The U.S. jobs report for March is significant as it will influence the Fed's decision on whether to cut rates, with all eyes on the employment data for clues about the state of the labor market.

What is the current stance of the Federal Reserve on interest rates based on the recent economic data?

Based on the recent economic data, the Federal Reserve is not in a rush to cut rates as the US economy has shown resilience, with strong factory data and slower than expected inflation falls.

What is the current situation with the yen and the potential for Japanese intervention?

The yen is weakening towards 152 per US dollar, a key level that has traders elevating the chances that Japanese officials may intervene to strengthen the currency.

How has the oil market been affected by geopolitical risks and supply constraints?

Geopolitical risks and supply constraints have led to oil prices nearing a five-month high. Tensions in the Middle East and tighter supply from Mexico have contributed to the price increase.

What is the current status of the UBS share buyback program?

UBS has announced a new share buyback program of up to $2 billion, which is expected to commence after the completion of the merger between UBS and Credit Suisse.

What was the outcome of the municipal elections in Turkey?

In the municipal elections, Turkey's president, Recep Tayyip Erdogan, suffered an unprecedented defeat as the AK Party fell behind the main opposition CHP.

What are the key economic data points to watch for in the upcoming week?

Key economic data points to watch for include eurozone CPI, euro area PMIs, and the US March jobs report, which will be influential in terms of Fed rate decisions.

What is the Reserve Bank of Australia's new system for implementing monetary policy?

The Reserve Bank of Australia plans to transition to a new system that focuses on the nuts and bolts of moving money around to achieve the cash rate target, responding to imbalances within the system and the running down of excess reserves.

What are the potential implications of a U.S. debt crisis for emerging markets?

A U.S. debt crisis could have significant ripple effects for emerging markets, potentially leading to financial instability and reduced investor confidence. However, fundamentals in many emerging markets are currently on the mend, with improving financing channels and fundamentals.