EMEA Morning Briefing : Shares Set to Rise; Market Waits for U.S. CPI Report

MARKET WRAPS

Watch For:

EU industrial production, GDP; trading updates from Commerzbank, ABN Amro, Allianz, Merck, Hapag-Lloyd, Thyssenkrupp, Burberry, E.ON, RWE, Imperial Brands, Britvic, Compass Group, Experian

Opening Call:

Shares are set to rise in Europe on Wednesday as investors await U.S. consumer-price data due later in the day. In Asia, stock benchmarks were mixed; Treasury yields were flat; the dollar ticked lower; while oil and gold strengthened.

Equities:

European shares are poised for a higher open on Wednesday, as traders take in one U.S. inflation report and look ahead to another that will offer a much-anticipated look at how consumer prices have been faring.

A report on wholesale prices offered mixed signals for investors trying to assess the Federal Reserve's path forward in its fight against inflation.

The producer-price index rose more than economists expected in April, but was revised lower for March. Investors could be forced to reassess their optimism after Wednesday's release of the consumer-price index. A surprisingly high reading for April would extend a streak of three reports that have come in firmer than expected.

"A hot CPI print would create volatility as expectations for interest-rate cuts are lowered," said Bel Air Investment Advisors.

Forex:

The dollar edged down in Asia, as the balance of risks seems a bit skewed to the downside for the U.S. currency.

Given the hawkish repricing of Fed rate-cut expectations seen in April, market participants certainly like to position for a scenario that disinflation in the U.S. will continue, Maybank said.

U.S. CPI data are due later in the day.

A weaker-than-expected U.S. inflation reading on Wednesday could drive the dollar and U.S. Treasury yields lower while supporting the euro, DHF Capital said.

Bonds:

Treasury yields were flat ahead of an expected small decline in U.S. inflation and as markets stick to expectations of an interest rate cut in September despite pushback from Fed officials and some analysts.

Treasury yields could rise considerably if U.S. services inflation data accelerates, even if headline inflation is in line with market expectations, asset management company TwentyFour said.

"The Fed needs to see housing inflation and services inflation, in general, picking up the disinflationary baton from goods for headline numbers to continue declining towards the Fed's target in a sustainable manner," it said.

Energy:

Oil futures rose in a likely technical recovery after settling at a nine-week low overnight.

However, gains may be capped after OPEC kept its monthly forecasts largely unchanged in its monthly report released Tuesday, analysts said.

Helping oil prices decline overnight was also a media report that some OPEC+ producers want their production capacity upgraded, NAB said.

Metals:

Gold edged higher, following earlier losses in possible position adjustment ahead of U.S. CPI data due out later.

Upside risks appear to have returned to the gold market, with precious metals traders holding plenty of "dry-powder" and keeping a keen eye on the CPI data, said TD Securities.

Any signs of weakening in economic data could be the catalyst that macro traders are waiting for, which gives strength to the argument that there is still plenty of upside in the cards for the precious metal, it added.

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Copper rose amid ongoing supply side issues.

Struggles in the mining industry are pushing prices higher due to tightening availability of copper concentrate, such as Chile reporting a decline in output for March, ANZ said.

The possibility of trade disruptions, driven by the U.S. announcing higher tariffs on Chinese imports, including EVs, is also helping drive prices higher, ANZ added.

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Iron prices were lower amid tepid investor sentiment and sliding coal prices.

Beijing's CNY1 trillion ultralong bond issuance and Chinese policymakers' passing mention at the recent Politburo meeting of plans to digest housing inventory have lifted macroeconomic expectations, Huarong Rongda Futures said.

However, the specific use of the ultralong long bond is still unknown and developers' debt defaults are still occurring, weighing on investor confidence, it said.

Meanwhile, expectations of growing coal supply in China's Shanxi province are dragging down coking coal prices and putting further pressure on iron ore prices, it added.

TODAY'S TOP HEADLINES

China's Central Bank Holds Key Policy Rates Steady

China's central bank held key policy rates steady on Wednesday, a move that could preface a hold on benchmark lending rates later this month.

The People's Bank of China injected 125 billion yuan ($17.28 billion) worth of liquidity via the medium-term lending facility, which charges banks an interest rate of 2.5%. The rate was unchanged from last operation.

Stock market could suffer 'ugly' day if April CPI comes in above this level

A May rally has taken the stock market back to the cusp of record territory after last month's pullback - and April inflation data due out Wednesday is widely considered a potential catalyst for either new highs or a renewed slide.

Tom Essaye, founder of Sevens Report Research, took a look Tuesday at potential "good, bad and ugly" outcomes for the April consumer-price index reading.

Mester Says Fed in 'Really Good Place' to Study Economy Before Charting Rate Path

CLEVELAND-A top official at the Federal Reserve said it was too soon to say that progress bringing down inflation had stalled and said it was appropriate for the Fed to hold rates steady as it awaits evidence that price pressures are easing further.

"It's too early to really conclude that we stalled out or that inflation is going to reverse," said Cleveland Fed President Loretta Mester in an interview Tuesday. "I kind of always suspected that we wouldn't be able to make as quick progress as we got in the second half last year."

The Lopsided Reality of the Russia-China Relationship

When Russian President Vladimir Putin visits Chinese leader Xi Jinping in Beijing this week, the two leaders will seek to project their customary united front against the U.S.-led global order.

Beneath the surface, however, the relationship isn't one of equals.

Hamas Shift to Guerrilla Tactics Raises Specter of Forever War for Israel

Seven months into the war, Hamas is far from defeated, stoking fears in Israel that it is walking into a forever war.

The U.S.-designated terrorist group is using its network of tunnels, small cells of fighters and broad social influence to not only survive but to harry Israeli forces. Hamas is attacking more aggressively, firing more antitank weapons at soldiers sheltering in houses and at Israeli military vehicles daily, said an Israeli reservist from the 98th commando division currently fighting in Jabalia.

With America Off-Limits, China EV Makers Aim to Conquer Rest of World

BEIJING-Chinese automakers will focus on global markets outside the U.S. now that the Biden administration has declared America off-limits to made-in-China electric cars.

The 100% tariffs on Chinese EVs announced Tuesday in Washington are more of a symbolic blow than a practical one for Chinese carmakers. They have almost no business in the U.S. and already recognized that the political hurdles to entering the market were insurmountable.

Google to Roll Out AI Search Summaries to Billions by Year-End

Google will show artificial-intelligence-powered answers to billions of people using its namesake search engine by the end of the year, broadening its rollout of the technology as it tries to fend off growing competition in its core business.

The move, starting this week in the U.S., strengthens Google's embrace of generative AI, computer programs that can produce fluent text and other kinds of media.

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Expected Major Events for Wednesday

06:00/SWE: Apr CPI

06:00/NOR: Apr External trade in goods

06:00/ROM: 1Q Evolution of GDP (estimated data)

06:30/HUN: Mar Construction

06:45/FRA: Apr CPI

07:00/SVK: 1Q Flash estimate of GDP

07:00/SVK: 1Q Flash estimate of total employment

07:30/NED: 1Q GDP - 1st estimate

07:30/NED: Mar International trade

07:30/NED: Mar Consumer Spending

08:00/EU: Apr Long term interest rates statistics

08:00/POL: Apr CPI

08:00/FRA: May IEA Oil Market Report

08:00/POL: 1Q Flash estimate GDP

08:00/POL: Mar Merchandise trade

08:00/BUL: Apr CPI

08:00/BUL: 1Q Flash Estimate GDP

09:00/EU: Mar Industrial Production

09:00/CYP: 1Q GDP (Flash Estimate)

09:00/EU: 1Q Flash Estimate GDP

09:00/EU: 1Q Flash estimate employment EU and euro area

15:59/UKR: Mar Trade

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

(END) Dow Jones Newswires

05-15-24 0015ET