EMEA Morning Briefing: Shares May Get a Lift on Renewed Rate Cut Hopes

MARKET WRAPS

Watch For:

EU PPI; Services PMI data for Eurozone, France, Italy, Germany; no major corporate events expected

Opening Call:

Shares were tipped to open higher in Europe on Monday. In Asia, stock benchmarks were mixed; the dollar gained; while oil and gold also ticked higher.

Equities:

European stock futures were higher at the start of the week tracking Friday's U.S. stocks rally on renewed hopes for interest-rate cuts and tech earnings.

Friday's U.S. jobs report signaled that pressure was easing in the labor market without an abrupt drop in employment.

"That's what the market wants to see," said Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management. "It doesn't want to see the jobs market break, it wants to see slowing, and slowing enough to where the Fed can start to cut rates."

This week is fairly quiet in terms of data, but the University of Michigan's preliminary consumer survey for May due Friday could be a key indicator of whether the U.S. economy continues to perform strongly. Comments by Fed policymakers will also be closely watched.

The Bank of England is likely to signal a possible June start of interest-rate cuts at its policy meeting on May 9, Danske Bank said.

"We expect the monetary policy committee to soften its communication, priming the markets for an imminent start to a cutting cycle."

Forex:

The dollar gained early Monday after a weaker-than-expected U.S. jobs report fueled expectations that the Fed would cut interest rates soon.

Net job creation was 175,000, down from March's upward-revised 315,000 and from 240,000 forecast by economists polled by The Wall Street Journal. The unemployment rate inched up to 3.9% from 3.8%.

Vishnu Varathan, Chief Economist Asia ex-Japan at Mizuho Bank said USD bears would be well-advised to show some restraint as a distinctly more dovish BOE later in the week could send cross-Atlantic tides that favor the greenback.

Bonds:

Volatility in bond markets might decline in the coming weeks as the Fed meeting and the U.S. Treasury's quarterly refunding announcements are now out of the way, Felipe Villarroel, a partner in portfolio management at TwentyFour Asset Management said.

Lower volatility could allow U.S. Treasurys, Bunds, gilts, and other G-7 government bonds to trade sideways until a new catalyst emerges, he said.

Treasury yields finished at their lowest levels in three weeks on Friday after April's official jobs report brought the potential for a Federal Reserve interest-rate cut back to the minds of some traders.

Energy:

Oil futures gained early Monday.

Crude oil has come under some pressure with easing concerns over potential supply disruptions in the Middle East, strong U.S. production, and signs of slowing demand.

Traders tied an early Friday rise in oil prices to a news report that some OPEC+ members would be willing to extend production cuts beyond the end of the second quarter.

There was also some support from the prospect of limited supply growth from U.S. producers, ANZ said.

Metals:

Gold gained in Asia. A fresh U.S. jobs report Friday showed that job growth slowed and unemployment ticked higher last month in the U.S.

Investor sentiment could be affected amid the fallout from last week's FOMC meeting, ANZ Research analysts said.

"The Fed left rates unchanged but kept the language referring to a future reduction in rates."

High inflation could lead to rates remaining higher for longer, they added.

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Iron ore prices were higher in Asia, supported by positive sentiment on China's property sector.

Chinese Politburo's meeting may signal a policy pivot to reduce oversupply in the housing sector, Daiwa said.

The positive sentiment in the property sector may have supported iron ore prices, Nanhua Futures said.

TODAY'S TOP HEADLINES

Why the Fed Is Right to Bide Its Time on Rate Moves

If you want to know the trouble with a balanced outlook, ask a tightrope walker.

The Federal Reserve has finally reached the stage of being balanced between whether interest rates are too high or too low. Unfortunately, it's a precarious balance, with exceptionally weak evidence that rates are in the right place. They might be too low or too high, but it will be hard to stay balanced for long.

Stock-market bulls face test as consumers start to show signs of stress

As questions mount around when the Federal Reserve will lower interest rates from a 23-year high, signs of consumer stress are emerging and, if continued, could spell trouble for the stock market.

Investors came into 2024 looking for around six, quarter percentage point rate cuts beginning as early as March. Instead, sticky inflation readings, a tight labor market and other data saw investors scale those expectations back significantly, with investors now penciling in only two to three cuts beginning in the fall.

Leveraged Loans Are in the Market's Sweet Spot

A weaker-than-expected jobs picture suggests the U.S. economy is continuing to grow, albeit at a slower pace. For leveraged-loan investors, that may be an ideal scenario.

On Friday, the Bureau of Labor Statistics reported the U.S. added 175,000 jobs in April. While basically solid, the figure was below the 235,000 economists had been looking for. For Wall Street, the slowing job market meant a bigger chance the Federal Reserve might begin cutting short-term rates this fall after all. Bonds rallied in response, with 10-year Treasury yields declining to 4.5% from 4.57%

Latest Cease-Fire Talks Falter as Israel Shuts Al Jazeera and Hamas Attacks Crossing

Talks over a cease-fire deal in Cairo ended on Sunday without progress, said Arab mediators, after Hamas failed to formally respond to an Israeli-Egyptian proposal to pause the fighting in exchange for a release of hostages.

Meanwhile, Israel closed one of two major border crossings used for humanitarian-aid distribution to Gaza on Sunday after Hamas attacked it, killing three soldiers, and Israel shut down Al Jazeera's local operations. Both events further threatened the viability of already precarious negotiations.

China's Xi Shouldn't Expect an Easy Ride in Europe This Time

Chinese leader Xi Jinping's first visit to Europe in nearly five years is shaping up as a test of the continent's willingness to confront Beijing over its support of Russia's invasion of Ukraine as well as Chinese trade policies that have eviscerated critical European industries.

European leaders tend to tread lightly with Beijing, not wanting to jeopardize ties with a major trade partner. But French President Emmanuel Macron, who is set to meet with Xi on Monday on the first leg of the six-day trip, has cast the Ukraine war and China's trade practices as an existential threat to Europe.

Bondholders to Push Ukraine to Resume Debt Payments After Hiatus

Ukraine's lenders said Kyiv could wait to pay them back after Russian troops stormed into the country two years ago. Now, their patience is starting to run out.

A group of foreign bondholders including BlackRock and Pimco plans to press Ukraine to start paying interest on its debt again as soon as next year, according to people familiar with the matter.

Investors Were Burned by European Banks for Years-Until Now

After years in the doldrums, European banks have cleaned up their balance sheets, cut costs and started earning more on loans.

The result: Stock prices have surged and lenders are preparing to hand back some $130 billion to shareholders this year. Even dealmaking within the sector, long a taboo topic, is back, with BBVA of Spain resurrecting an approach for smaller rival Sabadell.

Howard Schultz Urges Starbucks to Fix its U.S. Business

Former Starbucks boss Howard Schultz said the coffee giant needs to renew its focus and own its shortcomings after the chain delivered disappointing earnings results last week.

Schultz said in a LinkedIn post Sunday that Starbucks should start by improving its U.S. operations, which were "the primary reason for the company's fall from grace."

Boeing's Big Space Test: Using Starliner to Ferry NASA Astronauts

A new Boeing spacecraft is set to carry astronauts for the first time this week, a major test of whether the much-delayed project is ready to handle NASA missions.

Starliner, the name of Boeing's gumdrop-shaped ship, is scheduled to blast off Monday at 10:34 p.m. ET, ferrying astronauts Sunita Williams and Barry Wilmore to the International Space Station. The vehicle is slated to return them to Earth about a week after docking with the facility, landing in the western U.S. under parachutes.

The Google Antitrust Verdict Looms. Here's What to Look For.

WASHINGTON-U.S. District Judge Amit Mehta heard two days of closing arguments last week in the government's landmark antitrust case against Google. Mehta lobbed skeptical questions toward lawyers for both sides, along the way dropping hints about how he'll rule when he hands down his long-awaited written decision.

Here's what we learned during the hearings:

Write to singaporeeditors@dowjones.com

Expected Major Events for Monday

06:00/DEN: 1Q Consumer credit

06:30/HUN: Mar Preliminary External Trade

07:00/SPN: Apr Unemployment

07:15/SPN: Apr Spain Services PMI

07:30/EU: Apr EuroCOIN indicator of euro area economic activity

07:45/ITA: Apr Italy Services PMI

07:50/FRA: Apr France Services PMI

07:55/GER: Apr Germany Services PMI

08:00/EU: Apr Eurozone Services PMI

09:00/EU: Mar PPI

10:00/FRA: Mar OECD CPI

23:01/UK: Apr BRC-KPMG Retail Sales Monitor

23:01/UK: Apr Scottish Retail Sales Monitor

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May 06, 2024 00:15 ET (04:15 GMT)

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