European shares start week on shaky footing

On Monday, the Euro Stoxx 50 closed down more than 0.5% as investors prepared for the World Economic Forum. ECB’s Robert Holzmann dismissed 2024 rate cuts, citing an unlikely need unless a significant economic shock occurs. Germany’s 0.3% economic contraction in 2023, driven by inflation, higher borrowing costs, and weak demand, added to economic concerns. Eurozone industrial activity contracted by 0.3% in November for the third consecutive month. Corporate moves included Dassault Aviation’s 6% drop, Atos falling over 15%, and Commerzbank rising almost 1% amid renewed merger talks. Meantime US markets remained closed in remembrance of Martin Luther King Day. 

Summary for 16.01.2024 

• Asian equities declined on Tuesday, with Japan’s Nikkei 225 slipping 0.4% after a six-day rally. Concerns over Middle East tensions and weakness in commodity markets affected regional indices. Australia’s ASX 200 fell nearly 1%, while South Korea’s KOSPI dropped 0.7%. China’s CSI 300 and Shanghai Composite rebounded, attracting bargain buying. Attention turns to China’s upcoming economic indicators, including GDP data, and Japanese inflation figures. 
• European equities are set to open lower after declines for shares in Asia and US equity futures.  
• Oil prices showed little movement this morning, with attention on potential developments in the Middle East and economic data. Concerns about disruptions to supplies due to Middle East tensions supported prices but worries about global economic conditions and ample oil production limited gains.  
• Houthi militants hit a US-owned commercial vessel with an anti-ship ballistic missile on Monday, underscoring warnings that the world’s most important trade artery remains too risky for navigation. The strike underscores warnings from the US, reported by a top industry trade group, that ships should steer clear of the Red Sea. UK Prime Minister Rishi Sunak said Monday he wants tensions to cool in the trade route.   
• Former President Donald Trump cruised to victory in the Iowa caucus, warding off a late challenge from rivals Ron DeSantis and Nikki Haley and cementing his status as the clear Republican frontrunner in the race. News organisations including the Associated Press, CNN, and CBS News called the contest for Trump sooner than expected, about 30 minutes after caucuses opened at 7 p.m. Central time. 
• Governing Council member Robert Holzmann deems ECB rate cuts in 2024 highly unlikely, asserting no current rationale for discussion unless a significant economic shock occurs. Colleague Nagel considers it premature due to persistently high inflation but suggests potential consideration around summer. Chief Economist Lane hints at a more plausible timeframe in June, aligning with the ECB’s projection of inflation reaching 2% in late 2025. 
• China’s $1.24 trillion sovereign wealth fund vowed to help with risk mitigation and market stabilization in 2024, the latest sign of state companies playing a bigger role in bolstering the nation’s ailing stock market. Separately, some asset managers are beginning to prepare for a turn in Chinese equities given persistent declines. 
• Elon Musk expressed discomfort with expanding AI/robotics at Tesla without at least a 25% voting control. In a social media post, Musk mentioned a preference for influence without being impervious to overturning decisions. He owns about 13% of Tesla and suggested openness to a dual-class voting structure to achieve the desired control. Musk currently faces a lawsuit over his compensation package. 
• Microsoft has launched Copilot Pro, a $20/month subscription for AI assistance in applications like Word and Excel. The enterprise version is now available to smaller businesses, removing the 300-person minimum requirement. Microsoft aims to expand Copilot’s usage beyond large enterprises, competing with Google, and highlights its integration into daily-use applications. 
• A US law enforcement agency determined that Apple can use a redesign to bypass an import ban on certain Apple Watch models imposed by the US International Trade Commission. The dispute with Masimo involves patent infringement, and Apple claims the redesigned watches “definitively do not contain pulse oximetry functionality.” In another development, Apple is offering rare discounts of up to 5% on certain iPhone models in China amid fierce competition, declining sales, and growing pressure from local rivals like Huawei and Xiaomi. 
• Boeing will implement additional quality inspections for the 737 MAX following a mid-air cabin panel blowout in an Alaska Airlines MAX 9. The planemaker will inspect door plugs at Spirit AeroSystems, the supplier involved, and conduct checks at 50 other points in Spirit’s production process. The Federal Aviation Administration extended the grounding of 171 MAX 9 planes for safety checks, with Boeing planning additional inspections and improvements to quality assurance. 
• Atos appointed Paul Saleh as its new CEO, marking the fourth chief executive in less than two years. The announcement came with a warning of slightly below-target free cash flow for the second half of the year, causing Atos shares to plunge by 16%. The company, grappling with a series of profit warnings and facing challenges in its restructuring plan, is also dealing with the extended negotiation of the sale of its loss-making Tech Foundations arm. 
• Shares in Brazilian airline Gol dropped up to 13% after reports suggested the company might file for Chapter 11 bankruptcy protection in the U.S. within a month. Facing high debt and delayed Boeing deliveries, Gol is reportedly negotiating with stakeholders for financial flexibility. Analysts note concerns about potential shareholder dilution and compare it to peers LATAM Airlines and Azul, which underwent debt restructuring processes.