European Midday Briefing: French Stocks Steady Post Election Results

MARKET WRAPS

Stocks:

After a wobbly start, French stocks edged higher after voters surprised by rejecting a far-right party that led in the first round of voting.

The eurozone's second-largest economy is set for what could be months of protracted negotiations for control of its legislature.

Even after a government is formed, there is a higher-than-usual risk of it breaking down, Danske Bank Research said.

"Times are tough, emotions are running high - and France has no tradition of forging coalitions between parties of very different political persuasions," Berenberg said.

It means it's likely France will continue to run deficits that are in excess of EU rules limiting the gap to 3% of GDP, after a 5.5% deficit-to-GDP ratio last year.

Stocks to Watch:

Far-left policies could hurt French banking stocks , according to Swissquote.

"Shares of French banks will particularly be in focus as the left suggested raising banks' mandatory capital buffers and transaction tasks, and will also be tempted to raise taxes on wealth, dividends and share buybacks."

Mined-Commodity Markets Tipped for Turnaround

Glencore and Alcoa are Jefferies's top second-half mining stock picks, and it is cautiously positive about the second-half outlook for mined-commodity prices.

It expects China's industrial activity will marginally improve and economic growth will be strong in India and Southeast Asia, while in the U.S. infrastructure projects will likely break ground and the Fed could cut rates.

Jefferies upgraded Ubisoft Entertainment to buy from underperform. The company recently rebranded its subscription service in a bid to monetize its new high-budget games via subscriptions. "We believe this approach provides financial benefits to Ubisoft through stable and recurring revenue, whilst it enhances customer engagement and expands market reach."

Citi said its order forecast for Siemens Energy is 5% ahead of consensus, which doesn't include the $1.5 billion Saudi order in the gas division. It reiterates it view that the company's margin guidance is too conservative, forecasting 1.3%, above the current guide.

Economic Insight

Growth in China's industrial output, consumption and investment likely all slowed down in June, according to a poll of economists by The Wall Street Journal.

U.S. Markets:

Thursday's inflation report is expected to be the main event for U.S. markets as the timing of the Fed's first interest-rate cut could hang in the balance.

This week, investors will watch for results from JPMorgan Chase and Citigroup, as well as Delta Air Lines, PepsiCo and Conagra.

Overall, S&P 500-listed companies are expected to report a fourth straight quarter of earnings growth.

Forex:

The euro was broadly flat against the dollar and the pound in early trading.

While Commerzbank said the implications of the French election are unlikely to impact monetary policy and therefore not directly relevant for the euro, the dollar rose as investors seek safe-haven assets after Sunday's surprise result, ING said.

Bonds:

"In credit markets, the surprising outcome of the second round of the French election will be the main topic, with French banks being in focus, " UniCredit Research said.

The deadlock of a hung parliament could prove damaging, Abrdn, said.

It was skeptical that meaningful budgetary progress can be made, and remains underweight French government bonds versus European peers.

The 10-year French-German government bond yield spread should remain in the 70-90 basis point range for the near term, MFS Investment Management said, sticking to its view after the results in France.

"OAT-Bund spreads may find some near-term comfort, but we are still looking at a potentially politically unstable medium outcome environment, "

Nomura expected the 10-year French OAT-German Bund yield spread to tighten in a limited to range of 57-63 basis points, if a centrist/technocrat prime minister is installed and political uncertainty subsides.

"We expect the eventual government to be by a centrist/non-partisan technocrat, which should assuage market fears and result in an eventual tightening as this week progresses."

Energy:

Oil prices edged lower as negotiations over a ceasefire and hostage deal in Gaza resume and traders monitor the potential effect of Hurricane Beryl on U.S. production and operations.

"Any meaningful disruptions to Texas refinery operations will likely support refined product cracks. Any prolonged refinery outages would be bearish for crude oil and bullish for refined products," ING said.

Metals:

Gold futures fell, but are broadly holding ground after a 2.1% rally last week.

Angel One said gold prices are likely to remain elevated .

ING also said recent data from the Shanghai Metals Market shows that the premium paid on imported copper reverted to positive territory for the first time in almost two months as China demand slowly recovers.

Iron-ore Outlook

Morgan Stanley forecast continued expansion in global iron-ore demand in the years ahead and said a further rise in U.S. trade tariffs under a potential second Trump administration is unlikely to hobble markets.

"We do see risks to global economic growth from any intensification in trade barriers, which could hurt steel-demand growth."

"But global iron-ore demand has been driven by emerging market growth, with China staying resilient as a global (direct and indirect) steel exporter, even as trade tensions developed."

EMEA HEADLINES

Carlsberg to Buy Soft Drink Maker Britvic for $4.23 Billion

Danish brewer Carlsberg agreed to buy London-listed soft drinks maker Britvic for 3.3 billion pounds, or about $4.23 billion, as part of a plan to expand in the non-alcoholic beverage market and reduce reliance on beer sales.

Carlsberg, which brews its namesake lager as well as making non-beer alcoholic drinks like Somersby cider and Garage alcopop brands, said Monday that it is offering 1,315 pence for each Britvic share, a 29.6% premium to its closing price of 1,015 pence on June 20, the day before a previous proposal by Carlsberg was made public.

European Rocket Launch Takes Aim at SpaceX

PARIS-A new European rocket is poised to blast into space with a mission officials here say is vitally important: reducing the region's reliance on Elon Musk and SpaceX.

Europe's satellites and military intelligence have come to depend on the U.S. company after delays and malfunctions left the continent unable to get to orbit with its own rockets. Officials fear that dependence could extend to the battlefield: SpaceX's Starlink internet service has been crucial for Ukraine to fight off Russia, fanning worries in Europe that its armies might also need Musk for satellite communications in a war.

Crushing Debts Await Europe's New Leaders

New governments in Europe are being handed a poisoned chalice. They are being elected with mandates for change, but only limited means at their disposal to enact it.

Public debt is close to multidecade highs on both sides of the English Channel, where voters this week were electing new parliaments. In both France and the U.K., government spending and budget deficits as a share of gross domestic product are significantly above prepandemic levels. Economic growth remains lackluster, borrowing costs have surged, and demands on the public purse are rising, from defense to old-age pensions.

GLOBAL NEWS

This week's U.S. inflation report could have serious implications for stocks

Thursday's inflation report is expected to be the main event for U.S. markets during a busy week that also includes the start of the second quarter corporate earnings reporting season, a handful of Treasury debt auctions, and potential developments in the presidential election race.

Like all marquee economic releases, the June consumer price index numbers could have serious ramifications for markets, but investors will be paying especially close attention this month, as the timing of the Federal Reserve's first interest-rate cut could hang in the balance.

7 Stocks Poised for a Strong Second Half. And They Aren't Tech Giants.

It has been a great year for the largest stocks in the market, but other shares need to pick up the pace to keep the S&P 500 moving higher for the rest of 2024.

Which stocks are poised for a strong second half, however, is the big question for investors.

World Leaders Brace for Trump

WASHINGTON-Donald Trump has provoked U.S. allies for years, questioning NATO's relevance, demanding greater financial contributions and recently musing about the possibility of not protecting members who aren't paying enough for defense.

Now, with members of the alliance and other U.S. partners converging on Washington this week to celebrate the 75th anniversary of the North Atlantic Treaty Organization, heads of state are scrambling to find a common language with the Republican presidential candidate whose chances of winning in November have grown, according to the latest poll numbers.

China Outspends the U.S. on Fusion in the Race for Energy's Holy Grail

A high-tech race is under way between the U.S. and China as both countries chase an elusive energy source: fusion.

China is outspending the U.S., completing a massive fusion technology campus and launching a national fusion consortium that includes some of its largest industrial companies.

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

(END) Dow Jones Newswires

07-08-24 0530ET