European Midday Briefing: Stocks Steady as Powell Suggests Rate Hike Unlikely

MARKET WRAPS

Stocks:

European shares fluctuated between minor gains and losses on Thursday, as investors expressed some relief that the Federal Reserve's latest monetary policy meeting passed without a shift to notably more hawkish rhetoric.

Speaking at a press conference on Wednesday that followed the Fed's decision to leave rates unchanged at a 23-year high for the sixth meeting in a row, Jerome Powell said he thought it "unlikely that the next policy rate move will be a hike."

Markets are now pricing in a 91.1% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on June 12th, according to the CME FedWatch tool.

"While the [FOMC] added a hawkish acknowledgment of the 'lack of further progress' on inflation so far this year to its statement, Powell offered a dovish message in his press conference," Goldman Sachs said.

"We have left our forecast unchanged and continue to expect two rate cuts this year in July and November," it added.

Corporate newsflow remained heavy, with a mixed bag of earnings updates from Shell, Standard Chartered , Novo Nordisk and Hugo Boss among others.

U.S. Markets:

Stock futures were higher in the aftermath of the Fed with benchmark Treasury yields a little lower.

Earnings season zooms on: ConocoPhillips and Amgen are among those due to post earnings this morning, while Apple's coming results will be the focus after the market close.

Forex:

The dollar fell after the Federal Reserve appeared to rule out the possibility of raising interest rates, instead reiterating that it would take longer to gain confidence that inflation has fallen sufficiently to be able to cut rates.

This leaves the focus firmly on Friday's U.S. monthly jobs data, ING said.

"There is a school of thought building that if the unemployment rate finally responds to slowing labour demand and pushes up to say 4.2% by September, the Fed can cut rates," ING said.

A rise in the yen has stirred talk of intervention again, Maybank said, noting a suspicious move down by the USD/JPY after the Fed's announcement.

Peak to trough, the magnitude of the move was about Y5, in line with previous suspected and confirmed episodes of intervention, Maybank said.

The move was suspicious given its timing, which could be strategic as it came when FX liquidity would be thinner than normal post-FOMC and as most major markets would be closed or yet to open, "allowing the use of less reserves to achieve a desired move."

Japan currency official Kanda has said intervention data will be disclosed at month's end, a hint that more intervention may come, Maybank added.

Bonds:

Eurozone government bond yields declined, tracking the fall in Treasury yields on Wednesday in the wake of the Federal Reserve's meeting.

"Expectations of a rate cut by the Fed strengthened slightly, with 35 basis points of cuts priced in for 2024," Natixis Research said.

This confirms a slightly dovish market perception of the FOMC meeting after numerous sessions with Treasury selloffs, when the U.S. economic resilience was the market mover, Natixis said.

MUFG said Bund yields are expected to decline only slowly in the coming quarters as numerous survey data point to increasing optimism over strong growth ahead in the eurozone.

That would likely mean the European Central Bank can be more cautious in cutting interest rates, especially if the U.S. resilience continues, it added.

MUFG expects the ECB to cut by 100 basis points by the end of March 2025, one cut per quarter, most likely at the forecast update meetings. It forecasts the Bund yield to ease to 2.45% in the second quarter, to 2.30% in the third, to 2.20% in the fourth and 2.10% in the first quarter of 2025.

Brandywine Global said the only surprise at the Federal Reserve's meeting came on the quantitative tightening side of policy by cutting the pace of reduction in Treasurys.

"This adjustment doesn't mean QT is ending anytime soon, only that a smoother ride is likely," it said.

At the Fed's June meeting, it will be important to see the projections for the longer-term equilibrium fed funds rate, since it has implications for where the 10-year Treasury rate ends up, Brandywine Global.

Energy:

Oil was close to 1% higher on a likely technical rebound and helped by a weaker dollar.

The timing of Fed rate cuts remains unclear, bringing some headwinds to the oil market as higher-for-longer rates dampen demand for the commodity.

Metals:

Base metals and gold gained after the Fed comments came in softer than expected.

Gold is MUFG's most bullish call this year for commodities, and the year-end estimate of $2,350 an ounce now looks modest.

The precious metal stands to gain on a trifecta of eventual Fed rate cuts, supportive central-bank demand and bullion's role as hedge of last resort in times of geopolitical tension, MUFG said.

MUFG also said copper is central to decarbonization-and its time is now-given acute fundamental shortfalls reflecting a persistent green-transition demand strength and a cyclical recovery in manufacturing.

Uranium

A planned U.S. ban on Russian uranium is "a definite tailwind" for prices of the nuclear fuel, Citi said. The Senate passed legislation to ban low-enriched uranium from Russia this week.

Still, it is not clearly known how the ban will be implemented and waivers for enriched uranium products could create a loophole for imports, Citi added.

"Retaliation by Russia and a potential export ban would be more destabilizing for uranium prices, included in our bull case scenario with prices averaging $121/pound and $151/pound in 2024 and 2025, respectively."

Citi has a $95/pound estimate on prices for the second quarter.

EMEA HEADLINES

OECD Sees Room for Rate Cuts as Inflation Cools, But Warns of Oil-Price Threat

The global economy is likely to avoid an anticipated slowdown this year, but could yet suffer a significant setback if an escalation of conflict in the Middle East were to push oil prices sharply higher, the Organisation for Economic Co-operation and Development said Thursday.

In its quarterly report on the outlook for the world economy, the Paris-based research body raised its forecasts for growth this year and next. It now expects the global output of goods and services to increase by 3.1% in 2024, having previously forecast an expansion of 2.9%, which would have marked a slowdown from 2023. It sees a pickup in growth to 3.2% in 2025.

Rio Tinto Declines Comment on Whether Considering Rival Anglo American Bid

The chair of Rio Tinto on Thursday declined to comment on whether the world's second-largest miner by market value is weighing a bid for Anglo American, the target of a recent $39 billion bid by BHP Group.

"We don't speculate or comment on M&A activity," Dominic Barton said in response to a question at a shareholder meeting on whether Rio Tinto is considering a takeover proposal for London-listed Anglo American.

Maersk Raises Guidance as Red Sea Disruption Set to Persist

A.P. Moeller-Maersk says disruption in the Red Sea could continue for the rest of the year, as it reported a sharp drop in earnings.

Still, the Danish shipping giant raised the lower end of its full-year guidance as a result of the robust container market and after strong volumes and tightened rates amid the first-quarter disruptions.

ING Groep to Buy Back EUR2.5 Billion of Shares to Boost CET1 Ratio

ING Groep plans to buy back up to 2.5 billion euros ($2.68 billion) of shares to bring its common equity Tier 1 ratio toward its target.

The Dutch lender said Thursday that it will buy back shares through Oct. 29. Its CET1 ratio-a key measure of balance-sheet strength-at the end of the first quarter was 14.8% and its target is for around 12.5% by 2025.

ArcelorMittal Earnings Beat Expectations After Prices, Volumes Improve

ArcelorMittal reported a decline in earnings for the first three months of the year, but which exceeded expectations after volumes and prices improved.

The Luxembourg-based steelmaker said it made $938 million in net profit for the quarter compared with $1.1 billion a year ago, on revenue that fell 12% to $16.28 billion.

Pandora Raises Revenue Guidance After Strong Start to Year

Pandora raised its revenue guidance after reporting a market beating result for the first quarter which was boosted by like-for-like growth and network expansion.

The Danish jeweler said Thursday that the second quarter of the year has got off to a healthy start with high single-digit like-for-like growth.

Universal Music Artists to Return to TikTok After New Licensing Agreement

Universal Music Group's artists and song catalogs will return to TikTok after the world's largest music company and the social-media platform agreed on a new licensing contract.

The deal comes after the companies failed to reach an agreement by the time their previous licensing contract expired at the end of January, prompting Universal to pull all of its artists' songs off TikTok at the beginning of February.

GLOBAL NEWS

Fed Chair Jerome Powell Projects Optimism, But Inflation Data Are in the Driver's Seat

Federal Reserve Chair Jerome Powell tried to keep the central bank's options open Wednesday by sticking with his view that interest rates are restrictive and that inflation was likely to resume its decline.

But a string of disappointing readings on price and wage pressures have led investors to put less weight on the central bank's outlook and more attention on how the economic data unfold.

Europe Takes Radical Steps to Boost Production; 'There Is No Other Option'

FLAMANVILLE, France-Early this year, a top European Union official made an eye-catching proposal: A EUR100 billion public fund that would curb Europe's reliance on U.S. defense manufacturers, who make nearly two-thirds of Europe's military hardware.

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May 02, 2024 05:03 ET (09:03 GMT)

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