MARKET WRAPS
European stocks extended their gains on Wednesday following fresh records on Wall Street as weaker-than-expected U.S. labor-market data reaffirmed investors' belief that the Federal Reserve can begin cutting interest rates during its September meeting.
"It's just that Goldilocks scenario," Bolvin Wealth Management Group said of the U.S. labor market. "It's cooling just enough that we're not heading into a recession but yet it's going to help ease inflation a little bit."
Stocks:
Market Insight
U.K. voters head to the polls in the general election later on Thursday with the opposition Labour Party likely to secure a good majority or supermajority, giving it a very large margin to pass any reforms in coming years, Swissquote Bank said.
"...a Labour win is positive for both U.K. stocks and sterling. Small and medium-sized British stocks will likely benefit more from a Labour win than the FTSE 100, which is mostly exposed to the global market conditions."
Stocks to Watch
The current Goldilocks environment--with moderate growth, inflation and interest rates--offers a relatively benign backdrop for insurers which will help them overdeliver on their targets, Berenberg said.
"The main risk we see is that the current relatively stable market environment may encourage insurers to consider M&A more."
RBC Cap italMarkets said potential Hurricane Beryl losses shouldn't threaten European specialty insurers' and reinsurers ' full-year targets, though it is still too soon to tell.
"History tells us that the sector typically rebounds back following the sell-off around landfall, and the post-event rate hardening is a positive catalyst."
Forex:
The euro was higher versus the dollar following weak U.S. economic data on Wednesday but any further gains will be limited, ING said.
"We remain somewhat doubtful that markets will be comfortable with the euro trading close to 1.09 against the dollar given lingering uncertainty about French politics and the rising risk of a [Donald Trump re-election in the U.S. election]."
ING said Trump's protectionist and tax-cut policies are expected to slow the Fed's interest rate cuts.
Forex.com and City Index said the USD Index is likely on course to snap a four-week winning streak at current levels, based on the weekly chart. The index is poised to complete a three-week bearish reversal pattern called an "evening star" formation.
Given the index has failed to retest the large bearish engulfing candle high set in April as well as the 106.00 level, this suggests an early stage of a bearish reversal for USD could be looming.
Sterling rose against a weaker dollar but was flat against the euro as voting begins in the U.K.
"Barring something completely unforeseen, the Labour Party is likely to win the election comfortably," Commerzbank said.
"Accordingly, the pound's reaction to the election result is likely to be muted."
The only two potentially problematic outcomes would be if Labour wins by such a landslide that the market gets nervous or the right-wing Reform U.K. wins significantly more votes than expected, Commerzbank added.
Bonds:
For a change, European bond markets are probably in for a relatively quiet trading session with U.S. markets closed and the U.K. going to the polls, Commerzbank Research said.
"Yet, the latest underwhelming U.S. data is still sinking in and political headline risks linger."
The French government bond market is facing a long-end supply test with EUR8 billion-EUR10.5 billion in long-dated debt on offer.
Dwindling chances of an absolute majority for the National Rally party in France increase optimism for government bonds, PGIM Fixed Income said.
"While country-specific politics will continue to play out in France with the potential for a more 'moderate' right, recent events provide another reminder of how quickly and unexpectedly debt-sustainability concerns can resurface."
Although the first round of the French parliamentary elections largely met expectations, the second round may see an increasing number of blocs-other than the far-right National Rally-leave the race to support other, non-National Rally parties, PGIM said.
Citi Research said the market might now be tempted to price in some likelihood of a more benign election outcome in France based on the first opinion poll following candidate withdrawals.
This poll's arithmetic suggests that the only potential grouping that can get close to a majority is the centrist, it added.
"We note that this is just one poll, and such a coalition looks ambitious to cobble together and would still be short of majority. Yet, this might allow the market to price in some likelihood of a centrist PM, a more benign scenario than what currently seems priced," Citi added.
German Bunds are expected to be rangebound for medium and longer maturities, Erste Group Research said.
"The guidelines from the USA could create temporary downward pressure on yields. On the other hand, yields for short maturities should fall sustainably, as future interest rate cuts by the European Central Bank should increasingly be priced in," Erste said.
A significant factor of uncertainty is the effect of the French elections and how a future government will deal with the national budget, it added.
Energy:
Oil prices edged lower, with benchmarks holding near levels last seen more than two months ago, supported by renewed hopes that the Fed will start cutting rates soon, as well as a large draw in U.S. crude and gasoline inventories last week.
"A slowdown in growth momentum will support disinflationary impulse in coming months, paving the way for the Fed to cut rates," ANZ Research said.
Traders now wait for the U.S. nonfarm payrolls report due on Friday.
Metals:
Gold futures slipped, but mostly held their ground after Wednesday's rally. The precious metal is trading at its highest level since June 21, helped by the dollar and Treasury yields both slipping back.
Iron Ore Outlook
Relatively high stockpiles of iron ore at Chinese ports will remain a headwind for prices of the steel ingredient over the next couple of months, but that should change come 4Q, according to Morgan Stanley.
It has forecast iron-ore prices to rise heading into the year-end, projecting a seasonal softening in Brazil's exports and robust demand in China and other big markets.
Metallurgical Coal
Metallurgical coal is now Morgan Stanley's top pick among mined commodities, and said investors underestimate supply constraints for the industry in China. It has predicted the market will tighten as those constraints help balance soft demand from China's property industry, while India's import demand is also expected to rise.
EMEA HEADLINES
German Factory Orders Unexpectedly Sink Again
German manufacturing orders fell for a fifth straight month in May, defying expectations of an uptick, indicating that the key sector for the country's export economy continues to struggle.
Orders were 1.6% lower than the prior month, German statistics office Destatis said Thursday, after orders fell 0.6% in April. That compared with a 0.9% rise expected by a consensus of economists polled by The Wall Street Journal.
Ericsson Intends to Book $1.1 Billion Charge for Latest Quarter
Ericsson said it expects an additional charge associated with the purchase of the company's Vonage cloud-communications subsidiary, two years after reaching the deal to expand in the U.S.
The Swedish telecom-equipment company said Wednesday that it would book a $1.1 billion noncash charge in the second quarter after Vonage's current portfolio reported lower-than-expected growth rates.
Continental AG shares jump 10% as German firm predicts boost from China
Continental AG shares jumped 10% on Thursday after the German car parts manufacturer told analysts it expects strong growth in China, paired with its push to increase its margins and cut its costs, will boost its profits in the second quarter of 2024.
In a pre-close call with analysts, the Hanover headquartered manufacturer said it expects a rebound in the Chinese car market will boost its tires and auto parts segments and offset a slump in Europe and North America.
Roche to halt lung-cancer drug trial after disappointing data
Roche Holding said it plans to halt a mid- and late-stage clinical study for a combination of drugs to treat lung cancer after it failed to meet the trial's primary efficacy goals.
The Swiss pharmaceutical company said Thursday that its investigational tiragolumab drug in combination with its cancer immunotherapy Tecentriq and chemotherapy didn't meet the trial's objectives of progression-free survival and overall survival at its first interim analysis. Tiragolumab is thought to act as an amplifier of the body's immune response to cancer with other cancer drugs, it added.
Barclays Agrees to Sell German Consumer Finance Business to Austria's Bawag
Barclays agreed to sell its German consumer finance business to a subsidiary of Austrian bank Bawag Group as it continues with its plan to simplify its business.
The British lender on Thursday said that its Hamburg-based Consumer Bank Europe-which offers diversified retail banking services to the German and Austrian markets-will be bought for a small premium to net assets which will be paid in cash when the deal closes.
GLOBAL NEWS
Making Money on the Election Trade Is Harder Than Ever
Elections are getting trickier for investors. Once all you had to think about was who would win, a hard enough job when polls are unreliable. Now you need to decide whether there will be a surprise landslide-and if there is, whether that will be good or bad for markets.
Investors in India and Mexico, and to an extent Monday in France and the U.S., have seen big swings as a result of such bets-and some big losses when they went wrong.
Fed Officials Signaled No Hurry to Cut Rates
(MORE TO FOLLOW) Dow Jones Newswires
07-04-24 0600ET
