EMEA Morning Briefing : Shares Set to Gain Amid Optimism for Rate Cuts

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Opening Call:

Shares are heading for higher ground in Europe on Tuesday on optimism for interest-rate cuts this year. In Asia, stock benchmarks were mixed; Treasury yields were barely changed; the dollar was consolidating; while oil and gold gained ground.

Equities:

European shares look set to advance on Tuesday, as U.S. jobs data continued to fuel hopes for rate cuts in 2024.

Friday's not-too-hot payrolls report kept interest-rate-cut hopes alive. Adding to investors' hopes, Richmond Fed President Tom Barkin said he was "optimistic" that "restrictive" rates level will bring inflation back toward the central bank's 2% target.

Derivatives traders are now pricing in a roughly 90% chance that the Federal Reserve will cut benchmark rates by the end of the year, according to CME Group.

It is another busy week of earnings, with first-quarter results so far giving investors reason for optimism. Walt Disney, Uber and Airbnb are among the companies reporting results this week.

Forex:

The dollar was little changed in Asia amid a week featuring few data points likely to move markets and lots of Fedspeak.

The dollar remains highly overvalued, partly driven by markets' pared expectations of Fed rate cuts given persistently sticky U.S. inflation and a strong labor market, said DBS.

Geopolitical tensions around the Middle East are also supporting the dollar, which is widely seen as a safe haven, it said.

Still, with the Fed refraining from shifting to a more hawkish stance in its May FOMC, the dollar may be close to topping out before easing in the second half in anticipation of Fed rate cuts, DBS added.

Bonds:

Treasury yields were flat in a quiet week for U.S. data.

Traders face a week lacking in top-tier economic data and as such, focus will be on Treasury auctions, including sales of $58 billion in three-year notes on Tuesday, $42 billion of 10-year notes on Wednesday and $25 billion of 30-year bonds on Thursday.

People have been "keen to get into the market and capture the yield before the Fed begins cutting rates," PGIM Fixed Income said.

Energy:

Oil rose in Asia, boosted by the prospects of potential supply disruptions caused by the Israel-Hamas conflict.

Israel began hitting targets in the southern Gazan city of Rafah, after Hamas said it had presented a proposal to pause the fighting in Gaza, in a short statement that Israel said didn't meet its requirements.

"Positive signs" shown by the Chinese service sector in April and investor sentiment in the Eurozone reaching its peak in two years are helping buoy prospects for energy demand, said XS.com.

Metals:

Gold prices edged higher, supported by fresh hopes of Fed rate cuts this year, which boosts the appeal of the non-interest-bearing precious metal.

Remarks from Fed officials overnight suggesting that rate cuts are still possible later this year are supporting gold, especially after Fed Chair Jerome Powell's "less-than-hawkish" comments last week, ANZ Research said.

Israel's rejection of the Hamas ceasefire proposal has also kept demand for haven assets high, ANZ added.

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Copper rose amid tightening supply.

Tightness in the copper market has been weighing on Chinese smelters, with potential production cuts looming over the market, ANZ Research said.

Meanwhile, news reports suggest Chinese smelters could begin exporting refined metal to benefit from strong LME prices, it added.

Copper demand remains supported due to strong growth in sectors including renewable energy and power grids, it said.

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Iron ore futures gained, boosted by further stimulus measures for the property sector in some major cities in China.

Wuhan and Shenzhen's local governments eased some home buying curbs on Monday, which likely signals that more easing policies are on the way, Nomura said.

The positive sentiment toward the property sector may support iron-ore prices further, Nanhua Futures added.

TODAY'S TOP HEADLINES

Fed Reluctance to Cut Rates Makes Easing Harder for Emerging Markets

Central banks in Brazil and Mexico that led the global fight against inflation could now be stuck with steep interest rates due, in part, to the U.S. Federal Reserve's reluctance to cut.

Emerging-market central banks managed to tame price increases by raising borrowing costs much earlier and higher than their peers in the developed world. But the Fed's decision to keep rates at high levels is curbing their ability to loosen financial conditions, weakening their currencies and could hamstring their economies if borrowing costs take longer to fall.

Israel Attacks Rafah, as It Questions Hamas Cease-Fire Terms

TEL AVIV-Israel began hitting targets in the southern Gaza city of Rafah, after Hamas said it had accepted a proposal to pause the fighting that Israel said fell short of what it could accept.

Israel's military said on Monday night that it was "conducting targeted strikes against Hamas terror targets in eastern Rafah" hours after Israel warned tens of thousands of Palestinians to evacuate parts of the city ahead of an offensive.

Self-Driving Startup Wayve Raises More Than $1 Billion in Funding Led by SoftBank Group

Wayve Technologies raised more than $1.0 billion to accelerate its efforts to redefine autonomous driving via artificial intelligence and expand operations and partnerships in new markets.

The U.K. startup said Tuesday that SoftBank Group led the $1.05 billion series C round, with new investor Nvidia and existing investor Microsoft also contributing to the fundraising.

BP Earnings Are on Tap. It's Betting Big on the Gulf of Mexico.

BP reports first quarter earnings Tuesday morning as it prepares to ramp up its oil-drilling program, including near the site of its largest failure-the Gulf of Mexico.

The 2010 Deepwater Horizon explosion in the Gulf killed 11 workers and led BP to sell off some of its oil assets to pay for damages. But BP is back to exploring for new oil wells, and some of its most aggressive exploration projects are in the Gulf.

Lucid Sales Beat Wall Street With an Assist From the Saudis. The Stock Is Down.

First-quarter sales from electric vehicle start-up Lucid were better than expected, but a big portion of sales came from a related party-the Saudi Government.

Shares dropped after the results, giving back some impressive recent gains.

Ukraine's Strained Military Tries a New Style of Recruitment

KYIV, Ukraine-Ukraine's military is turning to towering billboards and Instagram posts that mix bravado with stark warnings in an effort to attract recruits and make up for shortfalls in personnel.

"Don't wait for the enemy to come to your home," urges an online poster for the Da Vinci Wolves battalion, a volunteer unit. "Destroy the enemy together with us," proposes another showing soldiers firing a howitzer.

U.S. Delays Sending Precision Weapons to Israel

The Biden administration has delayed the sale of thousands of precision weapons to Israel, raising questions about whether the U.S. is deliberating slowing the delivery of weapons to its top Middle East ally amid growing domestic political pressure.

The U.S. decision also comes as the administration is pushing back on Israel's declared plan to launch an attack on the city of Rafah in the southern Gaza Strip. The White House has publicly resisted calls to limit weapons sales despite mounting criticism about the death toll and destruction within Gaza through U.S.-provided weapons.

Pentagon Needs to Open Up About Russia's Use of Musk's Starlink, Sen. Warren Says

Sen. Elizabeth Warren (D., Mass.) pressed the Pentagon to address Russian troops' illicit use of Starlink internet terminals in Ukraine, calling the issue a "serious national security threat" to the U.S. and its allies.

In a letter addressed to Defense Secretary Lloyd Austin, Warren cited a Wall Street Journal investigation that illustrated how a black market of middlemen from the Middle East and elsewhere have funneled the compact satellite dishes into the hands of American adversaries and accused war criminals on the battlefields of Ukraine and Sudan.

Apple Is Developing AI Chips for Data Centers, Seeking Edge in Arms Race

Apple has been working on its own chip designed to run artificial intelligence software in data center servers, a move that has the potential to give the company an advantage in the AI arms race.

Over the past decade, Apple has emerged as a leading player designing chips for iPhones, iPads, Apple Watch and Mac computers. The server project, which is internally code-named Project ACDC-for Apple Chips in Data Center-will bring this talent to bear for the company's servers, according to people familiar with the matter.

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Expected Major Events for Tuesday

04:30/NED: Apr CPI

05:45/SWI: Apr Unemployment

06:00/ROM: Mar PPI

06:00/GER: Mar Foreign Trade

06:00/GER: Mar Manufacturing orders

06:00/GER: Mar Manufacturing turnover

06:00/UK: Apr Halifax House Price Index

06:30/HUN: Mar Retail Sales

06:45/FRA: 1Q Flash estimate of job creation

06:45/FRA: Mar Foreign trade

06:45/FRA: Mar Balance of payments

07:00/SVK: Mar Internal trade, incl Wholesale & Retail

07:00/AUT: Apr Wholesale Price Index

07:00/SWI: Apr SNB foreign currency reserves

07:00/CZE: Mar Industry, Construction

07:00/CZE: Mar External trade

08:00/UK: Apr UK monthly car registrations figures

08:00/ICE: Apr External trade, preliminary figures

08:30/UK: Apr S&P Global UK Construction PMI

09:00/EU: Mar Retail trade

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05-07-24 0016ET