EMEA Morning Briefing : Stocks May Rise; Investors Parse Fed Officials' Comments

MARKET WRAPS

Watch For:

Consumer Confidence Survey for Germany, France; no major corporate events expected

Opening Call:

European stock futures were tracking higher ahead of Wednesday's open. Asian stock benchmarks were mixed; the dollar and Treasurys edged higher; oil and gold futures also rose.

Equities:

Stock futures were higher early Wednesday as investors parsed Fed officials' comments ahead of inflation data on both sides of the Atlantic later this week.

Fed governor Lisa Cook said Tuesday that a rate cut will be appropriate at some point but that the timing of any move is uncertain, while Fed governor Bowman said she doesn't expect any rate cuts this year.

U.S. markets were mixed Tuesday, with mostly technology stocks keeping things afloat.

Parag Thatte, a strategist at Deutsche Bank said the economy still has legs, and the gains enjoyed by technology giants could extend to other corners of the markets.

"We think the cycle can go on for a while," Thatte said, especially if higher productivity boosts economic growth in coming months.

Forex:

The dollar's strength could extend further in the near term as Fed rate cuts and a China economic recovery remain distant prospects, Bank of America said.

The dollar is supported by low volatility driving demand for its high yield and euro risk premium due to French election uncertainty, which could persist near-term, it said.

"From September onwards, higher implied volatility and proximity to Fed cuts could be more conducive to correcting USD overvaluation." The Fed should cut rates in December, although September remains possible, it added.

Bonds:

U.S. treasury yields edged higher early Wednesday as investors look ahead to May inflation data later in the week.

Supply is likely to remain a headwind for U.S. Treasurys even as already elevated yields aid demand, rates strategists at TD Securities said, especially as the November U.S. presidential election draws closer.

Demand from mutual funds and ETFs, leveraged investors, pension funds, and money market funds has been strong thus far, helping to absorb the recent increase in supply but levered investors face increased costs and pension fund buying might be starting to slow, they said.

"Demand from foreign investors remains highly uncertain," they added.

Energy:

Oil futures advanced in Asia. "Against a backdrop of escalating geopolitical tensions, including conflicts in the Middle East and the ongoing war between Russia and Ukraine, Brent surpassing $85 per barrel could be the start of more upward pressure on prices," Claudio Galimberti, director of global market analysis at Rystad Energy, said.

Galimberti said expectations for a summer surge in fuel demand have been aided by strong growth in aviation.

The Energy Information Administration is due to issue its weekly report on U.S. petroleum supplies Wednesday morning.

Metals:

Gold gained reversing earlier declines on a stronger U.S. dollar following hawkish comments by Fed officials.

Strong U.S. services data also bolstered the case for a more hawkish Fed, ANZ Research analysts said.

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Copper was lower in Asian trade. There appears to be an increasing disconnect between macroeconomic factors and pricing trends of base metals, with copper likely to be key in dictating the price direction of the complex in the near term, given the lack of solid fundamental signals, said Daria Efanova, Head of Research at Sucden Financial.

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Iron ore edged lower. Chinese iron ore price traded at the lowest level since the beginning of April earlier this week, Commerzbank Research commodity analysts said.

Weakness of China's construction sector, which is curbing steel demand, was having a negative impact, the analysts said.

TODAY'S TOP HEADLINES

Nvidia's stock storms back to score a rebound not seen in three years

Nvidia Corp. shares snapped back with a vengeance on Tuesday after a three-session slide that carried them into correction territory.

The stock staged a big rally in Tuesday's action, rising 6.8% to clock in as the second-best performer in the S&P 500 SPX on the day. That rebound came after Nvidia shares NVDA lost 12.9% over the preceding three-session stretch.

Fed's Bowman says rate cut is not appropriate yet given inflation risks

The Federal Reserve should not be considering cutting interest rates given the continued risk that inflation remain sticky or even move higher, Fed Governor Michelle Bowman said Tuesday.

"We are still not yet at the point where it is appropriate to lower the policy rate," Bowman said, in a speech in London.

U.S. Talks Tough on Russia and Iran-So Long as It Doesn't Raise Gas Prices

The Biden administration wants to keep gas prices stable ahead of the election by encouraging oil to flow into global markets. The effort has run square into another priority: being tough on adversaries Russia, Iran and Venezuela.

The policy has led to softer-than-expected sanctions on major oil producers, according to diplomats, former government officials and energy-industry players briefed by current officials.

Volkswagen to Invest Up to $5 Billion Into EV Maker Rivian

Volkswagen Group is investing $1 billion in electric-pickup maker Rivian Automotive, with plans to spend up to $5 billion as part of a software-development partnership.

The deal, disclosed Tuesday, should provide a lift for the balance sheet of the loss-making startup and help lower the cost of Rivian's next generation of vehicles. For VW, the deal is aimed at bolstering its software unit, which has struggled with quality issues.

Zelensky's Formidable Task: Keeping the West and His Citizens On Board

KYIV-Ukraine's battle-weary troops are desperate for reinforcements. Civilians want to keep up the fight but are less eager to pick up rifles. The West is dangling membership in political and military blocs and feeding military aid but not enough for a breakthrough.

As Russia's invasion enters a third summer, Ukrainian President Volodymyr Zelensky is juggling competing domestic and international priorities even as Ukrainians and their Western allies agree: Russia can't be allowed to win.

The Reason U.S. Arms Shipments to Israel Have Slowed

American arms shipments to Israel have slowed since the early months of the war in Gaza because many of the previously ordered weapons have already been shipped or delivered while the Israeli government has put in fewer new requests, U.S. officials said.

Allegations of slowed arms shipments have roiled relations between Israel and the White House over the past week. Israeli Prime Minister Benjamin Netanyahu has called the current delivery pace a trickle, a claim the Biden administration has contested.

Tesla Recalls Thousands of Cybertrucks Over Trunk, Wiper Issues

Tesla is recalling its Cybertruck. Again.

The electric carmaker issued two recalls for more than 11,000 of its futuristic-looking trucks over issues with the trunk and the windshield wiper, according to filings with the National Highway Traffic Safety Administration. Tesla had two recalls earlier this year.

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Expected Major Events for Wednesday

05:00/FIN: May Labour force survey, incl unemployment

06:00/SWE: May PPI

06:00/GER: Jun GfK consumer climate survey

06:45/FRA: Jun Consumer confidence survey

08:00/ICE: May Labour Force Survey

08:00/ICE: May PPI

08:00/AUT: Jun Austria Manufacturing PMI

10:00/UK: Jun CBI Distributive Trades Survey

16:59/HUN: 1Q Balance of Payments

23:01/UK: Jun CBI Growth Indicator and Service Sector Survey

23:01/UK: May UK monthly automotive manufacturing figures

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

(END) Dow Jones Newswires

06-26-24 0015ET