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Euro zone underlying inflation below target already - Deutsche Bank



<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-Euro zone underlying inflation below target already - Deutsche Bank</title></head><body>

STOXX 600 up 0.5%

Market mulls slower inflation

Miners lead gains after China factory data

Light maker Signify shines

Worldline shares surge almost 12% after report Credit Agricole exploring stake

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EURO ZONE UNDERLYING INFLATION BELOW TARGET ALREADY - DEUTSCHE BANK (1239 GMT)

Measures of underlying inflation in the eurozone could be below the bloc's 2% target already Deutsche Bank said in a Friday note burrowing into sub metrics in the recent releases.

If they're right, it would increase the chances of the European Central Bank starting to cut rates soon, weighing on the euro, but boosting European government bonds.

Inflation momentum has been slowing quickly in the euro zone, and flash data for November, released Thursday, showed headline year-on-year consumer price growth dropped to 2.4% in November from 2.9% in October, well below expectations for 2.7%, dragged lower by nearly all items.

So called core inflation also dipped but was at 3.6%. The Euro zone, like many major developed economies has a 2% inflation target.

However, Deutsche go back to the final data release for October, which contains various underlying inflation metrics - several only reported on a year on year basis - and decide: "it is quite evident that in Oct-23 underlying inflation in the euro area may have already been running at target."

The measures include core inflation excluding clothing, holiday and air transports, which Deutsche say is a good proxy for underlying inflation, the Bank of France's 'finecore' measure of inflation, and the ECB's super core inflation metric.

With a bit of fiddling around with recent releases' three month moving averages, and working out what they would indicate on an annualised basis they conclude: "recent (inflation) momentum has been close to target and much weaker than suggested by yoy% readings."

As for the market impact, George Saravelos, the bank's head of FX research, says "The risks of an ECB rate cut as soon as Q1 are rising," and so "we see no reason to be chasing EUR/USD higher above 1.10."

The euro was last at EUR=EBS $1.0897 having poked its head above $1.10 earlier this week.


(Alun John)

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DEFENSIVES TO SHINE IN 2024 - BOFA (1157 GMT)

Defensive stocks in Europe will outshine their cyclical peers next year, according to Bank of America equity strategists.

They have slapped an overweight weighting on defensives, and an underweight on cyclicals, citing intensifying credit-cycle weakness, a roll-over in the U.S. fiscal impulse and reduced support from order backlog liquidation as reasons.

"This would imply scope for wider credit spreads and lower bond yields ahead, both of which tend to be associated with defensive outperformance, leaving us overweight in consumer staples and pharma," write the BofA strategists.

They also lift telecoms to overweight, which they say tends to benefit in periods of rising

risk premia.

BofA sees the recent outperformance of cyclicals reversing, as the macro cycle rolls over, and they are underweight capital goods, construction materials and autos.



(Lucy Raitano)

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2024, A 'MAKE OR BREAK' YEAR FOR EUROPEAN REAL ESTATE - BARCLAYS (1051 GMT)

It has been a tricky year for real estate stocks which were weighed down by expectations of monetary tightening, butBarclays analysts think the clouds over the sector should begin to clear in 2024 as new opportunities emerge.

They expect transaction markets to reopen but with lower prices than current book values, which should favour companies with capital or access to capital.

Year-to-date transaction volumes are down 54% from a year ago and 43% below the 10 year average, due to a significant gap between sellers and buyers' price aspirations, according to the broker's calculations.

This gap will shrink during 2024, as long as sellers' pricing expectations come down materially.

Clocking a more than 15% rise in November, European real estate stocks .SX86P are up about 3% this year, just a third of the gains in the pan-European benchmark index STOXX 600.

Barclays is positive on the listed real estate market in 2024 and beyond, but warns it's unlikely to be a straightforward path.

"The sector needs equity capital both to withstand the impact from asset values rebasing as transaction markets reopen and to take advantage of the opportunities we expect to emerge", it says.

Barclays also believes that the next decade will be characterised by a shift back to public real estate from private, as listed companies generally have better starting balance sheets than private peers and access to permanent equity capital.

Barclays is "overweight" on Land Securities Group LAND.L, Unibail-Rodamco-Westfield URW.PA, Icade ICAD.PA, Unite Group UTG.L and LondonMetric Property LMPL.L, while "underweight" on Vonovia VNAn.DE, Aroundtown AT1.DE, Colonial COL.MC, Covivio CVO.PA and Cofinimmo COFB.BR.


(Matteo Allievi)

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MINERS GIVE EUROPE A BOOST (0855 GMT)

Europe's STOXX 600 index is adding 0.5% this morning, lifted by basic resources .SXPP which hit a four-month high in early trading, up 2.9%.

London-listed miners are the biggest supportive weights, with the likes of Anglo American AAL.L, Rio Tinto RIO.L and Glencore GLEN.L all rising between 2.6%-5.6%.

The rises come after mixed factory activity data for China in November, which suggested more stimulus will be needed to shore up economic growth.

On a sector basis, the biggest drag is real estate .SX86P and food and beverages .SX3P though they are only falling a marginal 0.1%.

Shares in the world's biggest light maker Signify LIGHT.AS are shining, up around 5% after the company announced a new organisation structure to reduce costs.

Europe's biggest faller is German IT firm Bechtle BC8G.DE, down 5.6% after announcing a convertible bond issue for up to 300 million euros.

In the UK, Ceres Power CWR.L is the biggest faller, losing up to a fifth of its value after a post-close trading update on Thursday and some brokerage cuts.


(Lucy Raitano)

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EUROPEAN FUTURES FLASH GREEN AS MARKET DIGESTS SLOWER INFLATION (0729 GMT)

The STOXX 600 .STOXX is heading for a positive start to Friday, as Thursday's softer-than-expected inflation reads keep markets flashing green.

EuroSTOXX50 .STXEc1 futures, FTSE futures .FDXc1 and DAX futures .FDXc1 are all indicating rises of 0.4%-0.5% at the open.

It builds on Thursday's gains, when European shares hit a more than two-month high after data showing a drop in inflation in the U.S. and Europe boosted bets that central banks will soon be cutting interest rates.

In company news, British sports and fashion group Frasers FRAS.L said it will seek to buy SportScheck's business and assets out of administration after the German sporting goods retailer filed for insolvency.

Attention will also be on British drugmaker GSK GSK.L after CEO Emma Walmsley gave an upbeat assessment of the new respiratory syncytial virus (RSV) vaccine.

Struggling Swedish streaming company Viaplay VPLAYb.ST meanwhile said it planned to raise new equity and restructure its debt in a rescue plan.

(Lucy Raitano)

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MARKETS WARY POWELL MAY UNDERMINE RATE-CUT BETS (0700 GMT)

With a blockbuster November in the rear view mirror, investors are gearing up for a bright start to December in Europe, full of expectations that central banks will soon start cutting rates, although a "fireside chat" with Fed Chair Jerome Powell later in the day could spoil the party.

A calendar full of manufacturing PMIs from countries across Europe will provide a clearer picture of the region's economy, but in the meantime futures indicate a higher open for European bourses.

Data on Thursday from both the euro zone and the U.S. showed inflation was easing, spurring expectations of rate cuts by central banks, with money markets pricing in more than 100 basis points in rate cuts next year from both the Fed and the ECB.

The disconnect between financial markets and central banks has only deepened as central banks push back against talk of rate cuts while markets take in the relatively more benign inflation data of recent weeks.

Fed policymaker Christopher Waller, an influential and hawkish Fed voice, shook things up a bit this week, however, saying he was increasingly confident inflation would return to its 2% target. That helped to embolden markets to take on rate-cut bets.

Markets are now pricing in a 46% chance of the central bank cutting rates in March, the CME FedWatch tool showed. A week earlier it was priced at 27%.

With that backdrop, the spotlight will shine brightly on Powell when he takes the stage later on Friday. Whether Powell chooses to stay away from policy comments or talk about rates remains to be seen. Whatever he says, or not, will sway the markets.

Over in Asia, the last month of the year got off to a tentative start, with shares lower, the dollar on the defensive and oil prices extending their recent decline.

In company-related news, Tesla's TSLA.O long-delayed Cybertruck is here. The vehicle, made of shiny stainless steel and shaped into flat planes, will be priced from $60,990, more than 50% above what CEO Elon Musk had touted in 2019.

Key developments that could influence markets on Friday:

Economic events: UK nationwide house prices for November, Manufacturing PMI data from France, UK, Germany and euro zone.

Speakers: Bank of England MPC member Megan Greene, ECB President Christine Lagarde, Fed Chair Jerome Powell.


(Ankur Banerjee)

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US Dollar Index https://tmsnrt.rs/3T0aykU

Rates rethink https://tmsnrt.rs/3RokweO

Investors expect ECB to cut rates first as economy slumps https://tmsnrt.rs/3QWRUHR

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