European Midday Briefing: Fed Rate Decision, Earnings in Focus This Week

MARKET WRAPS

Stocks:

European stocks traded higher on Monday, at the start of a pivotal week for markets, with the Federal Reserve's rate decision and new employment data awaited.

"The market is currently pricing that the first rate cut by the Fed will occur after the U.S. election on November 5," SEB said.

Economic Insight

Eurozone inflation data is likely to be less impactful than usual for markets, with almost all European Central Bank members indicating that an interest-rate cut is coming in June, Monex said.

Flash estimate Spanish and German inflation data are due on Monday, followed by French, Italian and eurozone releases on Tuesday. However, this month's inflation data aren't the only input for the ECB, Monex said.

"This is just the first of two inflation reports published ahead of the June meeting, where a new set of ECB staff projections will be released and which we suspect will make it difficult for policymakers to avoid giving new guidance."

U.S. Markets:

Stock futures were higher ahead of another busy week for earnings and a Fed interest-rate decision.

Earnings season will pick up speed on Tuesday, when results from Amazon, McDonald's and Coca-Cola are due.

Treasury yields ticked lower, having settled at 4.668% on Friday, near their 2024 high.

Stocks to Watch

The FDIC said that Fulton Bank, a subsidiary of Fulton Financial, would assume the deposits of struggling bank Republic First Bancorp. WSJ reported earlier on Friday that regulators were set to seize the bank. Fulton's shares were up 8.9% premarket.

Tesla rose 5.9% after Elon Musk made a surprise visit over the weekend to China, where he pushed to unlock new driver-assistance technology for Chinese Tesla owners.

Forex:

The Japanese yen strengthened, bouncing after it briefly hit a new 34-year low of 160 against the dollar on waning expectations for near-term rate increases from the Bank of Japan.

Following the apparent lack of intervention by Japanese authorities on Friday, despite the yen's sharp depreciation, "the market appears to be losing its fear of intervention," RBC Capital Markets said.

Analysts said the lack of liquidity on a Japanese holiday had exacerbated the yen's drop .

In contrast to the recent weak performance of the Japanese yen, the euro and sterling have been rising recently against the dollar, helped because the expectation that the U.S. will cut interest rates later than the eurozone and U.K. is now priced in to markets, MUFG said.

"A rate cut is not fully priced in now in the U.S. until November compared to by July in the eurozone and September in the U.K.," it said, adding that an improving economic outlook in Europe has also helped the currencies.

Bonds:

LBBW raised its forecasts for 10-year Treasury and German Bund yields to reflect the negative momentum in bond markets which drives yields higher.

"In the short term, we believe this will weigh particularly heavily," it said, adding that LBBW continues to see potential for a "summer rally" on the major government bond markets.

LBBW sees the 10-year Treasury yield at 4.55% by midyear versus 3.95% expected before, and at 4.50% by year-end versus 4.20% previously. It expects the 10-year Bund yield at 2.50% by midyear, up from 2.10% expected previously, and at 2.30% by year-end, up from 2.20%.

With macroeconomic risks continuing to loom and with the Fed likely to bide its time, Commerzbank Research doubts that Bunds are out of the woods with the pre-weekend recovery on Friday.

Mixed euro area inflation data--due Monday and Tuesday--, subdued index extension, a patient Fed and solid U.S. payrolls lining up amid brisk supply of eurozone government bonds also suggest a bumpy trend ahead for Bunds, it said.

"We still remain cautious on duration and would use recoveries on lower core inflation to reduce duration."

Citi Research said Moody's Ratings and Fitch Ratings affirming France's credit ratings and outlooks at Aa2/stable and AA-/stable, respectively, provides significant relief for French government bonds near term.

"This is a massive near-term relief for OATs--as any change by Fitch would have opened the door to the first single-A rating for France."

Affirmed ratings and outlooks "might also increase the market's confidence in the likelihood that S&P [AA negative] as well keeps France's rating unchanged on 31 May," Citi added.

Energy:

Oil prices traded lower after the latest U.S. data reinforced prospects of higher-for-longer interest rates, but signs of a tightening physical market limited the downside.

All eyes are now on the Fed's two-day meeting on Wednesday and the April jobs report on Friday.

Meanwhile, the strength in oil timespreads--the premium of a front-month contract to the second month--suggests a deficit over the second quarter of the year, ING said.

"The Brent June/July spread traded to a high of $1.34/bbl on Friday, after trading closer to a backwardation of $0.70/bbl at the start of the week."

The outlook for the second half is instead less clear and depends on OPEC+'s output policy.

Metals:

Gold futures slipped on easing safe-haven demand as geopolitical tensions moderated and markets turned their attention to U.S. inflation.

Uranium

It's difficult to see what will cap the upside to the uranium price in the short term, Shaw & Partners said.

"In our view the uranium price is likely to continue moving higher with U.S. and European utilities not covered for their fuel requirements from 2026-2028 and limited new supply in that timeframe."

Shaw assumes a multi-year price spike to $150/lb, before settling to its long-term U3O8 realized price assumption of $76/lb in 2030.

EMEA HEADLINES

Philips Agrees to $1 Billion U.S. Ventilator Settlement, Backs Guidance

Royal Philips said it has reached a $1.1 billion settlement in the U.S. related its Respironics ventilators, and backed its full-year guidance.

The Dutch health-technology group said Monday that the agreement relates to the personal-injury litigation and medical monitoring class action in the U.S. but that Philips Respironics hasn't admitted any fault or liability, or that any injuries were caused by Respironics devices.

BMW Plans $2.8 Billion China Factory Update to Boost EV Production

BMW will invest $2.76 billion to adapt one of its major Chinese factories to produce more electric vehicles, part of plans to roll out its newest full-electric offerings in the world's largest EV market.

The German automaker will spend 20 billion yuan ($2.76 billion) on its plant in Shenyang, China, to ready it to produce its coming Neue Klasse series electric-vehicle models, with production targeted for 2026.

Hipgnosis Songs Fund Agrees to Improved $1.57 Billion Blackstone Offer

Hipgnosis Songs Fund, home to the catalog of artists such as Neil Young, Shakira and Red Hot Chili Peppers, agreed to an improved $1.57 billion takeover by Blackstone, trumping a rival bid from Apollo-backed music company Concord Chorus.

Hipgnosis said Monday that accepting shareholders will get $1.30 in cash for each share held compared with $1.25 under the Concord offer agreed to on Wednesday, and Blackstone's previous offer of $1.24.

BBVA Raises Net Profit Target After Beating Expectations in First Quarter

BBVA raised its profit target for the year after first-quarter net profit and earnings beat consensus expectations.

The Spanish lender said Monday that it now expects to post double-digit growth in full-year net profit compared with previous expectations of single-digit growth.

GLOBAL NEWS

Yen Rebounds After Hitting 34-Year Low of 160 to Dollar in Thin Trade

The Japanese yen strengthened sharply in afternoon trading in Asia, bouncing after it briefly hit a new 34-year low of 160 against the dollar on waning expectations for near-term rate increases from the Bank of Japan.

The yen rebounded to 155.07 to the dollar Monday afternoon after earlier touching its weakest level since April 1990. Trading volumes were thin as it was a public holiday in Japan. The yen was 158.34 to the dollar late Friday in New York.

Stocks risk a wild week with Big Tech earnings, Fed's faceoff with inflation

Wild swings in "Magnificent Seven" stocks are once again acting as a driver of volatility across U.S. equities. Investors could face more turbulence this week as the Federal Reserve takes center stage and Wall Street gears up to tackle another batch of Big Tech earnings reports.

Stocks on Friday ended a volatile week upbeat, with the S&P 500 index SPX and Nasdaq Composite COMP posting their best week of gains since early November, according to Dow Jones Market Data. The rally was helped along by Alphabet's over 10% post-earnings gain on Friday, following a selloff in megacap tech heavyweights in the previous session.

Even If the Fed Cuts, the Days of Ultralow Rates Are Over

Amid the debate over whether and when the Federal Reserve cuts interest rates, another important argument is unfolding: where do rates settle in the long run?

At issue is the neutral rate of interest: the rate that keeps the demand and supply of savings in equilibrium, leading to stable economic growth and inflation.

Iran's Attack on Israel Has Deepened Concerns About Its Nuclear Program

Iran's decision to launch more than 300 missiles and drones in its first direct attack on Israeli soil earlier this month showed an appetite for risk that is putting renewed focus on Tehran's nuclear program and whether it will continue to refrain from developing a bomb.

Close observers of Iran's nuclear development have long believed the country's top leaders have calculated that the costs of building a bomb outweigh the benefits. As a threshold nuclear power with weapon capabilities within reach, Iran already enjoys considerable deterrence power without risking the war that could come if an attempt to build a bomb is detected.

Biden Continues Push for Gaza Cease-Fire in Call With Netanyahu

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April 29, 2024 06:27 ET (10:27 GMT)

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