EMEA Morning Briefing: Shares Set to Rise on Revived Hopes for Fed Rate Cuts

MARKET WRAPS

Watch For:

UK GDP, trade, industrial production, business investment; trading updates from International Airlines Group, AngloGold Ashanti, Sibanye-Stillwater, Rightmove

Opening Call:

Shares could be off to a positive start in Europe on Friday on renewed expectations for potential Fed rate cuts later this year. In Asia, stock benchmarks were mixed; Treasury yields were flat after earlier losses; the dollar consolidated; while oil and gold both rose.

Equities:

European shares are poised for a higher open on Friday, as investors grow more confident that the U.S. Federal Reserve will begin cutting rates this year, following a rise in U.S. weekly jobless claims.

Markets could also likely track strong U.S. gains overnight, with the Dow Jones Industrial Average logging its longest winning streak of the year on renewed optimism from healthy corporate profits and cooler economic data.

Interest-rate futures markets are now pricing in a roughly 50% chance that the U.S. central bank will cut rates at its September meeting, according to CME Group.

Forex:

The dollar consolidated in Asia after jobless claims data reinforced hopes of a Fed rate cut this year.

Fed rate-cut prospects undermine the appeal of U.S. fixed-income assets and demand for the dollar.

Meanwhile the dollar could gain momentum against sterling after the Bank of England indicated that it is on course to cut rates over the coming months, potentially as soon as June.

Two out of nine members of the Bank of England's Monetary Policy Committee voted to cut rates, up from just one at the previous meeting.

Bonds:

Treasury yields were barely changed, following previous declines after a higher-than-expected weekly jobless claims report increased the perception that the Fed isn't about to raise interest rates and may still start cutting them in late summer.

Markets keep mostly pricing an initial 25-basis point rate cut in September and no more than two trims this year, according to CME data.

Inflation data coming next week is likely to affect the monetary policy outlook.

Energy:

Oil futures rose in Asia amid risk-on sentiment, supported by strong Chinese crude oil imports data showing higher demand, ANZ Research said.

Ongoing tensions in the Middle East, together with U.S. data showing a fall in oil inventories, are also likely bosting prices, it said.

The oil market could find support in the U.S. government's plans to boost the Strategic Petroleum Reserve, while the Organization of the Petroleum Exporting Countries could maintain its production cuts to support prices, said brokerage Tickmill. OPEC will next meet on June 1.

Metals:

Gold edged higher, supported by prospects of Fed rate cuts, which have been spurred by U.S. data overnight showing initial jobless claims jumped to their highest level in nine months.

The Fed is likely to lower rates this year, but has said it needs to see more evidence of inflation easing first, said ING.

Inflation data due out next week will offer further insights into the U.S. economy, it added.

---

Copper rose, with prices expected to remain volatile in the short term as the market reacts to the challenging economic backdrop, ANZ Research said.

Prices have rallied nearly 20% this year after a series of supply disruptions and better-than-expected demand in China, it said.

Prices of the base metal may remain well-supported due to a huge supply shortfall amid rising demand to feed the emerging energy transition, it added.

TODAY'S TOP HEADLINES

Fed's Mary Daly Sees 'a Really Healthy Labor Market'

San Francisco Fed President Mary Daly believes the U.S. economy is normalizing, and that includes the labor market. But it's far from weak.

"There's a sense that the economy is on a more stable footing," Daly said at an event at George Mason University's Mercatus Center. There's a difference in the U.S. labor market "getting softer and being weak," Daly said, acknowledging that initial claims rose in the latest report released Thursday and that April's jobs report came in weaker than expected.

The Fed Is in a Holding Pattern. That Could Be Good for Stocks.

The Federal Reserve's current choice to hold interest rates steady is turning out to be the proverbial pause that is refreshing the stock market. The longer it keeps them at the current level, the better it could be for investors.

The S&P 500 is up more than 13% since the Fed's latest rate increase on July 26. That is a 288-day pause...and counting. Traders are pricing in slim odds of a rate cut at the Fed's June 12 meeting and only a little more than 30% probability of easing when policymakers gather at the end of July. The most likely scenario, as of now, is that the Fed makes a move to lower rates on Sept. 18.

Salvatore Ferragamo Revenue Dragged by Weakness in China Market

Salvatore Ferragamo booked lower revenue for the first quarter, weighed by a weak consumer environment in China and the soft performance of its wholesale channel.

The Italian maker of luxury footwear and leather goods posted revenue of EUR226.97 million ($244 million) compared with EUR277.95 million in the year-earlier period.

Write to singaporeeditors@dowjones.com

Expected Major Events for Friday

06:00/SWE: Mar New orders & deliveries in industry

06:00/SWE: Mar Industrial Production Index

06:00/NOR: Apr CPI

06:00/NOR: Apr PPI

06:00/ROM: Mar International trade

06:00/DEN: Apr CPI

06:00/UK: Mar UK trade

06:00/UK: Mar Index of production

06:00/UK: Mar Index of services

06:00/UK: 1Q Business investment in the UK: provisional results

06:00/UK: Mar Monthly GDP estimates

06:00/UK: 1Q First quarterly estimate of GDP

06:30/HUN: Apr CPI

07:00/CZE: Apr Unemployment data

07:00/SVK: Mar Industrial production

07:00/TUR: Mar Employment / Unemployment

07:00/AUT: Mar Production Index

07:00/TUR: Mar Industrial Production Index

07:00/SVK: Mar Construction production

08:00/BUL: Mar Industrial Production

08:00/ITA: Mar Industrial Production

09:00/GRE: Mar External Trade (provisional data)

09:00/LUX: Mar Industrial Production

09:00/CYP: Mar Foreign Trade (provisional)

09:00/GRE: Mar Industrial Production Index

09:00/MLT: Mar International Trade

09:00/MLT: Mar Industrial Production Index

10:00/ITA: Feb Industrial turnover

10:00/POR: Mar International trade statistics

11:30/UK: Apr NIESR Monthly GDP Tracker

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

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

May 10, 2024 00:20 ET (04:20 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.