EMEA Morning Briefing : Stocks Poised to Extend Losses as Sentiment Weakens

MARKET WRAPS

Watch For:

PMI data for eurozone, Germany, France, UK; UK monthly retail sales figures; no major corporate updates expected

Opening Call:

Stock futures for European and U.S. indexes fell early Friday. In Asia, stock benchmarks slid; the dollar strengthened; Treasury yields steadied; while oil and gold futures fell.

Equities:

European shares look poised to retreat further at Friday's open following a series of rate hikes by central banks and Federal Reserve Chair Jerome Powell's commentary that the U.S. central bank would likely lift rates again in coming months.

European equities had fallen Thursday after the Bank of England raised rates by more than expected.

The BOE's surprise 0.5 percentage-point rise and increasingly hawkish comments suggested the MPC has entered 'full-on panic mode' and that more rate hikes are coming, Monex Europe said.

"But [Thursday's] surprise will also reinforce the growing perception that the BOE has lost control of inflation, further hurting both the bank's credibility and the outlook for the economy and for sterling," Monex Europe added.

"As investors evaluate artificial intelligence developments, productivity gains, and efficiency improvements across corporate America, hawkish central banks lurk in the background," said Jose Torres, senior economist at Interactive Brokers.

"With prices continuing to rise at a brisk pace, pandemic savings unwinding, and student loan repayments ensuing this October, hawkish monetary officials may not be the only threat to this year's exciting equity rally that has pushed the S&P 500 index up roughly 18% year to date," he said.

U.S. stocks ended Thursday mostly higher as gains in shares of technology and consumer discretionary companies helped the S&P 500 snap a three-session losing streak.

Read: Stocks have already absorbed the Fed's rate-hike pause

Forex:

The dollar strengthened in Asia, reflecting the economic outlook, which is better in the U.S. than in other developed countries, Oanda said.

"Despite all the aggressive central bank tightening that is happening across Europe, the dollar is holding up on safe-haven flows as Europe's growth outlook deteriorates."

Much of the greenback's strength over the past year stemmed from higher interest rates in the U.S., but as other central banks catch up the currency remains strong. "It seems the growth picture won't be so bad for the U.S. as the disinflation process remains intact," Oanda added.

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JPY strengthened in Asia on prospects of verbal intervention by Japanese authorities. The latest one-way JPY move wouldn't have gone unnoticed by the BOJ and Ministry of Finance, said Chris Weston, head of research at Pepperstone

The prospects for headlines from Japanese authorities saying things such as "watching FX moves" have clearly risen, as JPY's trend and rate of change is likely not sitting well with them, Weston added.

Bonds:

Treasury yields were steady early Friday after the policy-sensitive 2-year Treasury led a rise overnight as global central banks delivered a flurry of interest-rate increases.

Investors weighed a round of interest-rate hikes by global central banks, underlining the challenges faced by policy makers in bringing down stubborn inflation. The BOE raised its key rate by 50 basis points, a larger-than-expected move.

The BOE move followed a half-point hike earlier from Norway's central bank, which warned that a further hike may be needed in the near term. The Swiss National Bank also hiked interest rates and said more increases might be needed.

Meanwhile, Turkey's central bank, in a reversal led by newly appointed Gov. Hafize Gaye Erkan, lifted its key rate to 15% from 8.5%, though the move was smaller than economists had expected as the country deals with inflation around 40%.

Energy:

Oil futures fell in Asia, weighed by a larger-than-expected inventory reduction. The EIA on Thursday reported a 3.8 million barrel drop in U.S. crude inventories last week, larger than the average decline of 2 million barrels expected by analysts surveyed by S&P Global Commodity Insights.

Oil prices are going to stay heavy as central-bank tightening will "kill" the global growth outlook, said Oanda.

Metals:

Gold edged lower early Friday, but could get support from the recent inversion of the U.S. Treasury yield curve, as this suggests that markets are pricing in the chance of a recession, which should ultimately boost gold's safe-haven appeal, ANZ said.

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Copper fell, pulling back in a possible technical shift following gains overnight amid signs of further tightness in the market.

ANZ said copper stockpiles in London Metal Exchange warehouses sank to their lowest level since October 2021.

Investors are also focusing on China's upcoming monetary easing and other supportive policies to boost the sluggish economy, which are likely to boost demand for copper.

TODAY'S TOP HEADLINES

Jerome Powell Says Interest Rates Likely to Rise Further

Federal Reserve Chair Jerome Powell said the central bank didn't raise interest rates last week as it wanted to slow down its historically rapid pace of increases, but stressed it would likely lift rates again in coming months.

"We moved very quickly at the beginning, and we've gradually slowed down. This is just a continuation of that," Powell said Thursday at a Senate Banking Committee hearing. The decision to hold rates steady, after 10 consecutive increases, was designed "to give ourselves more time-to stretch out the time for making these decisions."

UK Consumer Confidence Rose in June Despite Cost-of-Living Pressures

Confidence among U.K. consumers improved for the fifth month in a row in June, with Britons feeling more confident about their future financial situation, despite being squeezed on the cost of living via stubbornly high inflation and climbing interest rates.

Research firm GfK said its consumer-confidence barometer stood at minus 24 in June, compared with minus 27 a month earlier, higher than expectations from economists polled by The Wall Street Journal, also at minus 27.

Canada Passes Law Forcing Facebook, Google to Pay Media for Links

OTTAWA-Canada's Parliament approved legislation to compel digital companies to compensate domestic media outlets for links to their articles, a move Facebook said would force it to block access to news reports on its platform for Canadian users as it did two years ago in Australia.

Google, owned by Alphabet, also has signaled possible restrictions of news content on its search function in Canada as a result of the legislation.

TikTok's Top U.S. Executive to Leave the Company After Nearly Five Years

V Pappas, TikTok's chief operating officer and top U.S.-based executive, is leaving after nearly five years, setting up a leadership transition for the Chinese-owned video-sharing company at a pivotal time in its most important market.

In notes to employees, Pappas and TikTok Chief Executive Shou Chew said the operating chief was leaving to pursue unspecified entrepreneurial ambitions and would remain a strategic adviser to the company.

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Expected Major Events for Friday

04:30/NED: 1Q GDP - 2nd estimate

06:00/DEN: May Central Government Finance & Debt

06:00/UK: May UK monthly retail sales figures

06:00/DEN: Jun Business tendency survey

06:30/HUN: May Employment & unemployment

07:00/SWI: 1Q Balance of Payments

07:00/SPN: 1Q Final GDP

07:00/TUR: May Foreign Trade

07:15/FRA: Jun France Flash PMI

07:30/GER: Jun Germany Flash PMI

08:00/EU: Jun Eurozone Flash PMI

08:30/UK: Jun Flash UK PMI

12:00/POL: May Broad money M3

13:00/BEL: Jun Business Confidence Survey

15:59/UKR: 1Q Unemployment

16:59/SPN: 1Q Quarterly Balance of Payments

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

06-23-23 0016ET