European Midday Briefing : Hopes of U.S. Rate Cut Buoys Mood

MARKET WRAPS

Stocks:

European stocks traded higher on Tuesday as hopes of an interest rate cut by the Federal Reserve later this year following last week's U.S. jobs data have continued to support the positive momentum.

Hopes of Fed cuts are still alive after the Fed's Barkin said he expects high interest rates to continue to cool the economy and inflation to return to target, SEB said.

Market Insight

The global electric-vehicle market is experiencing a slowdown in sales after three years of rapid growth, Bernstein said.

EV sales rose 20% on year in 1Q slower than Bernstein's forecast for 25% growth in 2024. The slowdown was weighed by slower sales growth in Europe while U.S. and China's EV markets were more or less in line with forecasts, it said.

Bernstein remained cautiously optimistic about China's auto sector with passenger vehicle sales estimated at 21.5 million-22 million units this year.

China sold 21.7 million passenger cars last year, according to China Passenger Car Association data. The Chinese government's trade-in program for autos may further boost domestic demand and help support exports, it added.

U.S. Markets:

Stock futures were mixed, with equities cooling off after a rally following the jobs report.

Earnings are center stage this week, with no major economic data scheduled in coming days. Results are due today from Walt Disney, while Uber and Airbnb report on Wednesday.

Stocks to Watch

Apple has been working on a chip to run artificial-intelligence software in data-center servers, WSJ reported, a move that could give Apple an edge in the AI race.

Beyond's loss widened in the first quarter as revenue rose 0.3% and missed Wall Street expectations. The stock was declining 8.6% in premarket trading.

Forex:

Investors perceive a high risk that the Riksbank, Sweden's central bank, could cut interest rates at a meeting on Wednesday and this would likely be negative for European currencies, ING said.

"One downside risk to European currencies comes from tomorrow's Riksbank's policy meeting... As we saw with the Swiss National Bank rate reduction in March, European rate cuts do add to the divergence theme and see European currencies underperform."

The dollar recovered from the losses it suffered after Friday's U.S. jobs data, which reignited the prospect of the Fed cutting interest rates.

Low levels of volatility in a quiet week for U.S. data are positive for the dollar as this fuels carry trades--where investors borrow in low-yielding currencies to invest in higher-yielding assets elsewhere--, ING said.

"Here, the dollar does OK since it offers the highest short-term deposit rate in the G-10 space."

A quiet U.S. calendar and the possibility of Sweden's Riksbank cutting rates on Wednesday should keep the DXY dollar index supported, potentially lifting it toward 105.50/75, ING added.

Bonds:

Easing inflation, prospective rate cuts and a U.S. soft landing are behind Generali Investments' call to moderately increase duration exposure.

Global economic green shoots and bumpy U.S. inflation keep the risks to yields two-sided in the short term, though, Generali said.

"But we see 10-year U.S. Treasury yields above 4.60% as a good entry level."

Energy:

Oil prices were steady as traders assessed geopolitical developments in the Middle East after Israel stepped up attacks in the southern Gaza city of Rafah while negotiations for a ceasefire remained on edge.

Israel took control of the crossing linking the Gaza Strip to Egypt after saying that the terms of the Egyptian-Qatari ceasefire proposal that Hamas accepted didn't meet its core demands.

Oil was also supported by expectations of strong demand this summer after top exporter Saudi Arabia raised the official selling price of its flagship crude to Asia, northwest Europe and the Mediterranean.

Metals:

Gold futures were broadly flat, trading in a narrow band, with losses tempered by increased tensions in the Middle East and market speculation around potential U.S. interest-rate cuts.

Copper

Janus Henderson Investors is positioning for a copper boom. "Let's face it. It's the flavor of the year. Everybody likes copper."

It's more bullish on the metal than other commodities because of its role in electrification.

"There's no better alternative for copper," Janus said, adding ot isn't concerned about the risk of manufacturers substituting aluminum in its place should prices get too high.

Still, any road to higher prices could be bumpy. "It's not going to be one-way traffic" and concerns about supply shortfalls don't "mean it can't go down $1.50 before it doubles."

EMEA HEADLINES

BP to Cut Costs After Profit Misses Expectations on Weaker Oil, Gas Prices

BP plans to cut at least $2 billion in costs after the British energy company's first-quarter profit was hit by lower prices for oil and gas sold and a U.S. refinery outage, missing market forecasts.

The London-based oil-and-gas giant said Tuesday that underlying replacement-cost profit-a metric similar to net income its U.S. peers report-was $2.72 billion, a marked decline from $4.96 billion in the same quarter last year. This missed a forecast of $2.87 billion, according to a company-compiled estimate from 24 analysts.

UBS Swings Back to Net Profit With Credit Suisse Integration on Track

UBS Group beat expectations with a return to net profit for the first quarter after posting losses for the prior two quarters, and said its integration of Credit Suisse is on track.

Nearly a year after the Swiss banking giant completed its rescue takeover of Credit Suisse under the auspices of Swiss authorities, UBS is contending with a toughening regulatory environment in its home market and with the challenges of absorbing its former rival.

UniCredit Raises Outlook After Revenue, Profit Beat

UniCredit lifted its 2024 guidance as it reported better than expected profit for the first quarter of the year.

The Italian bank on Tuesday reported a net profit of 2.56 billion euros ($2.75 billion) for the first three months of 2024, up from EUR2.06 billion in the same period a year before.

Infineon Cuts Chip Sales Guidance Again Amid Automotive Market Slowdown

Infineon Technologies lowered its sales forecasts for fiscal 2024 for the second time this year as it grapples with slower growth in the automotive sector.

The German chip maker said Tuesday that it is aiming for around 15.1 billion euros ($16.26 billion) plus or minus EUR400 million in sales for the year ending in September, down from EUR16.31 billion of fiscal 2023. Its segment result margin-a key profitability metric-is expected at around 20% compared with 27% in fiscal 2023. The group had previously guided for roughly EUR16 billion in revenue and a segment result margin in the low to mid-20s percentage range.

GLOBAL NEWS

RBA Keeps Rates on Hold, Repeats Nothing Ruled In or Out

SYDNEY-The Reserve Bank of Australia left interest rates unchanged Tuesday, and stuck with the message that it isn't ruling anything out as it seeks to bring inflation under control.

The RBA held the official cash rate at 4.35%, where it has remained since November. The outcome was widely anticipated by economists.

German Manufacturing Orders Remained Sluggish in March

German manufacturing orders fell unexpectedly in March, a reflection that an industrial rebound in Europe's largest economy might have to wait.

Orders were 0.4% lower than the prior month, German statistics office Destatis said Tuesday, flipping the 0.5% rise expected by a consensus of economists polled by The Wall Street Journal.

German Trade Gets Export Boost in March

Germany's trade in goods rebounded a little more than expected in March as both exports and imports increased, suggesting renewed demand both at home and abroad.

The eurozone's largest economy booked an adjusted trade surplus-representing the difference between exports and imports of goods-of 22.3 billion euros ($24.01 billion,) slightly more than forecast by economists, according to a poll by The Wall Street Journal.

It's a Good Time to Look at Apple and Other Growth Stocks That Pay Dividends

Apple announced it was boosting its dividend in its earnings report last week. Tech titans Meta Platforms, Alphabet, and Booking Holdings all initiated dividends this year. Paying a dividend is all the rage for cash-rich companies. And Wall Street is starting to notice.

Wolfe Research said in a report Friday that a combination of growing dividends and healthy free cash flow is a recipe for success.

U.S.-Israel Rift Widens Over Rafah Assault

WASHINGTON-The Biden administration's intensive public and private campaign to forestall Israel's assault on Rafah has become its toughest test to date with its Middle East ally.

Hours after President Biden on Monday warned Israeli Prime Minister Benjamin Netanyahu against a full-scale assault on Rafah, Israel's military conducted what it called targeted airstrikes in the eastern part of the city and sent in tanks as it seized the enclave's border crossing with Egypt.

Israeli Forces Seize Key Gaza Crossing Ahead of Planned Rafah Offensive

TEL AVIV-Israel sent tanks into Rafah and took control of a key crossing linking the Gaza Strip to Egypt, securing a strategic corridor as it ramps up preparations for a military offensive in the border city.

Israeli military footage showed its tanks entering the Gaza side of the Rafah crossing. The move followed a series of airstrikes against Hamas targets and warnings for civilians in the eastern part of Rafah to evacuate to zones in the west.

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05-07-24 0552ET