European Midday Briefing : Stocks Rise on Hopes of Earlier Fed Rate Cut

MARKET WRAPS

Stocks:

European stocks rose on Monday after Friday's weaker-than-expected U.S. jobs data increased prospects that the Federal Reserve could cut interest rates earlier, potentially by September.

"The Fed won't be in a position to cut its interest rates right away, but is given a higher chance to do so a bit earlier than what was expected at the start of last week," Swissquote Bank said.

Better-than-expected earnings from Apple and Amazon also helped sentiment, it added.

Sweden's Riksbank

The Riksbank is likely to begin an easing cycle this week by cutting its policy rate to 3.75% from 4.0%, Capital Economics said.

Since the March meeting, inflation has come in much lower than the Riksbank expected. Policymakers are increasingly confident that underlying inflation will come sustainably back to target, and recent krona depreciation is unlikely to dissuade them, it said.

Although Capital Economics anticipates that the Riksbank will leave rates unchanged in June, it expects a total of 100 basis points of rate cuts this year versus market pricing of around 65 basis points.

"For next year we expect a further 50 basis points of rate cuts to bring the policy rate to 2.5%."

U.S. Markets:

Stock futures traded modestly higher, extending last week's gains, as the jobs report boosted prospects for an interest-rate cut from the Fed.

Focus will turn this week to more key earnings, including from Walt Disney on Tuesday, and Uber and Airbnb on Wednesday.

Stocks to Watch

Berkshire Hathaway sold shares in Apple in the first quarter, but Warren Buffett praised the company and said it is "extremely likely" that Apple will remain Berkshire's largest stock position at the end of the year. Apple was falling 1.2%, while Berkshire's class B shares rose 1% premarket.

Perficient was rising 53% after it reached a deal to be acquired by EQT for about $3 billion including debt.

Forex:

The dollar rose in early trade, having recovered most of the losses suffered after Friday's weaker-than-expected U.S. jobs data and weak ISM purchasing managers' survey for the services sector which revealed a contraction in April.

The recovery was helped by the fact that the prices paid component of the ISM survey jumped to nearly 60, suggesting that inflation pressures remain, UniCredit said.

"This probably prevented a more-intense retreat by the U.S. unit and triggered some profit-taking," it said, adding that the DXY dollar index rose back above 105, having dropped close to 104.50 after the jobs data.

Bonds:

Eurozone government bonds remained primarily stuck in a bond-negative pull emanating from the Treasury market in April, LBBW said.

While the European Central Bank reaffirmed that it is aiming for a turnaround in interest-rates in June-putting a rate cut in sight-, the fact that a turnaround in monetary policy in the U.S. is becoming increasingly uncertain overshadowed the central bank signals from the eurozone, it said.

"Improved economic prospects in the eurozone further intensified the bearish factors."

Energy:

Oil was higher as ceasefire talks between Israel and Hamas showed little progress and Saudi Arabia lifted its official selling prices for June loadings for most regions.

Ceasefire talks hit a standstill once again, reigniting fears of further escalation in the region amid Israel's planned invasion of Rafah.

Meanwhile, Aramco's flagship Arab Light crude to Asia was raised by $0.90 a barrel compared to the previous month, signaling expectations of stronger demand and tightening supplies this quarter, according to analysts.

Metals:

Gold futures rose 1% on improved hopes for U.S. interest rate cuts after promising economic data on Friday.

Additionally, central banks, led by China, are still increasing their reserve gold allocation, potentially to divest away from the U.S. dollar, Bank of America said.

EMEA HEADLINES

EQT to Buy U.S. Digital Consultancy Perficient in $3 Billion Deal

EQT will acquire U.S. digital consultancy Perficient in an all-cash deal valued at around $3 billion, the companies said late Sunday.

Swedish private-equity firm EQT said it will pay $76 a share, a 58% premium to Perficient's closing price of $48.11 on Friday.

Atos Receives Four Restructuring Proposals

French IT firm Atos said it has received four new financial restructuring proposals as part of its refinancing process, aimed to trim its debt pile and restore profitability.

Shares at 0729 GMT on Monday were down 3.8% at EUR2.09, after reaching a 10% rise on market opening. However, shares are 83% lower over the last 12 months as the group warned about the need of further liquidity to keep operations going until it strikes a definitive agreement with creditors.

Vinci Begins CEO Succession Plan With Appointment of Pierre Anjolras as COO

Vinci has appointed company veteran Pierre Anjolras as chief operating officer, marking the first step in the process to name a successor for chief executive Xavier Huillard, whose term will end next year.

Anjolras joined the French construction and infrastructure company in 1999, it said Monday. He acquired extensive experience in motorway concessions, becoming COO of Cofiroute in 2004 before being named CEO of ASF in 2007. Cofiroute and ASF are Vinci Autoroutes networks.

Israel Tells Gazans to Evacuate Rafah Neighborhoods Ahead of Planned Offensive

TEL AVIV-The Israeli military on Monday told Palestinians sheltering in some areas of eastern Rafah to move to a designated area further north, warning them of a much-anticipated offensive to rout Hamas in the southern Gazan city.

The evacuation notice, which was delivered via text messages, phone calls, fliers and media broadcasts in Arabic, came after talks over a cease-fire to free hostages held in Gaza faltered in Cairo over the weekend, amid disagreement over whether there should be a permanent end to the fighting or just a temporary pause.

GLOBAL NEWS

China Services-Sector Gauge Shows Slower Activity Expansion

A private gauge of China's services sector showed activity grew at a slightly slower pace in April, though there are signs of a recovery in consumption given strong spending over recent holidays.

The Caixin services purchasing managers index declined to 52.5 in April from 52.7 in March, Caixin Media Co. and S&P Global said Monday. Despite the fall, the index has stayed in expansion territory for 16 straight months. A reading above the 50 mark suggests an expansion in activity, while one below indicates a contraction.

Why the Fed Is Right to Bide Its Time on Rate Moves

If you want to know the trouble with a balanced outlook, ask a tightrope walker.

The Federal Reserve has finally reached the stage of being balanced between whether interest rates are too high or too low. Unfortunately, it's a precarious balance, with exceptionally weak evidence that rates are in the right place. They might be too low or too high, but it will be hard to stay balanced for long.

Biden Races to Trump-Proof His Agenda

WASHINGTON-Less than four weeks after taking office, President Trump, his senior White House aides and a group of Republican lawmakers gathered in the Oval Office to sign a resolution that killed an obscure Obama-era energy regulation.

"This is a big signing-very important signing," Trump said during the 2017 event.

Israel Wants to Go Into Rafah. It Could Go Badly.

TEL AVIV-Israel has said repeatedly it needs to attack the Gaza Strip city of Rafah to wipe out the last organized battalions of the militant group Hamas. It could be its riskiest operation yet.

Its military will somehow have to thread the needle between not doing so much damage that it inflames international outrage, further impairs its crucial relationship with the U.S. and kills some of the Israeli hostages believed to be held there, while not going in so softly that it fails to rout Hamas and puts its own soldiers at risk. The broader effort to normalize relations with Saudi Arabia in hopes of realigning the balance in the Middle East is in the equation as well.

China's Xi Shouldn't Expect an Easy Ride in Europe This Time

Chinese leader Xi Jinping's first visit to Europe in nearly five years is shaping up as a test of the continent's willingness to confront Beijing over its support of Russia's invasion of Ukraine as well as Chinese trade policies that have eviscerated critical European industries.

European leaders tend to tread lightly with Beijing, not wanting to jeopardize ties with a major trade partner. But French President Emmanuel Macron, who is set to meet with Xi on Monday on the first leg of the six-day trip, has cast the Ukraine war and China's trade practices as an existential threat to Europe.

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

(END) Dow Jones Newswires

05-06-24 0541ET