European Midday Briefing: Stocks Struggle as Caution Over Inflation Weighs

MARKET WRAPS

Stocks:

Stocks in Europe struggled for direction on Tuesday as traders looked to this week's inflation data and central bank speakers for clues on the timing of interest-rate cuts.

"At the beginning of the year, the market was pricing six Fed cuts this year, six ECB cuts, and five BoE cuts," Apollo said.

"Today, the market is pricing two-and-a-half cuts by the ECB and the BoC, one-and-a-half cuts by the Fed and the BoE, and only half a cut by the RBA."

Stocks to Watch

Hermes seems to be an attractive holding in the long term, with positive brand momentum, amid an uncertain year for the luxury industry, Bernstein said, upgrading the stock to outperform from market perform.

The sector has experienced a slow start to the year and reacceleration during the second half depends on Chinese consumers. The luxury industry faces some risks including a lack of recovery among Chinese shoppers or continued moderation of demand in Western countries, Bernstein said, adding that geopolitical issues could continue after the U.S. presidential election.

Hermes is an insurance policy should risks play out, Bernstein said.

U.S. Markets:

Stock-index futures ticked up, pointing to minor gains for the S&P 500 while government bond prices also rose, pulling the yield on 10-year Treasurys slightly lower.

A big energy brawl heads to Wall Street today.

Hess shareholders are voting on its $53 billion sale to Chevron. But industry heavyweight ExxonMobil has muddied the waters. It is a partner of Hess in a huge offshore oil field in South America, and said it has a right of first refusal over that holding.

Several investors plan to abstain due to the feud. Even if shareholders give the go-ahead that wouldn't be the end of the matter. The Federal Trade Commission is investigating the merger and Exxon has filed an international arbitration claim.

Forex:

The dollar weakened as speculation grows that Friday's U.S. PCE data will show easing inflationary pressures and reignite prospects of U.S. interest-rate cuts, Swissquote Bank said.

If this indeed proves the case, then EUR/USD could extend gains and break above 1.09, Swissquote Bank said.

Expectations of Fed cuts would also boost bets on European Central Bank rate cuts, however, limiting any gains for the euro.

ING said the DXY dollar index has fallen very close to important chart support at 104.40--the lower boundary of this year's dollar rally--which, if broken, could encourage traders to take profit on their hefty long dollar positions.

"Investors [are] positioning once again for a soft U.S. landing," ING said.

EUR/CHF's medium-term uptrend may extend if key pivotal support at 0.9830 holds, based on technical charts, Oanda said.

Under such a scenario, the currency pair could undergo another potential impulsive upmove to test medium-term resistance in 1.0040-1.1000 area, which also confluences closely to the long-term descending trendline from the April 2018 high, Oanda said.

However, a break of EUR/CHF below 0.9830 would negate its bullish tone to expose medium-term support levels at 0.9680 and 0.9575.

Bonds:

France might be downgraded to AA- from AA by S&P on Friday, given a negative outlook since December 2022, Citi Research said. If a downgrade happens, Citi Research expects French agencies rated by S&P to be downgraded to the same extent.

The green premium on Germany's 2.10% April 2029 green federal note, or Bobl, has been stable at around 0.75 basis points, UniCredit Research said.

The German Finance Agency launched this green Bobl at the end of April at an auction and it will be reopened for the first time later on Tuesday. It will offer EUR1 billion in the April 2029 green Bobl and a further EUR1 billion in the 2.30% February 2033 green Bund.

Energy:

U.S. crude futures were higher, buoyed by expectations of stronger fuel demand, as Memorial Day weekend marked the start of the summer driving season.

"Early signs indicate a relatively strong level of holiday travel," ANZ Research said.

Oil was are also supported by increased geopolitical risks after an Israeli airstrike resulted in the deaths of dozens of civilians in Rafah and a cross-border clash left an Egyptian officer dead.

All eyes are now on Friday's U.S. PCE price index data and OPEC+'s upcoming output policy decision at a meeting on Sunday.

Metals:

Metal prices were higher as investors pivoted their attention to this week's inflation dataset release.

Bauxite, Alumina

China's reliance on imported bauxite and alumina is rising, Morgan Stanley said, and reckons the global alumina market is now especially vulnerable to disruptions and could experience spikes in prices. "Contrary to market perceptions, bauxite and alumina [supply] is tight in China."

Domestic bauxite output year-to-date is down 20% on a year earlier, weighing on alumina output. As a result, imports from Australia and Guinea are climbing, at a time when global alumina supplies are also facing headwinds.

EMEA HEADLINES

Asahi Kasei Makes $1.1 Billion Bid For Swedish Calliditas Therapeutics

Japanese conglomerate Asahi Kasei made a $1.1 billion takeover bid for Swedish pharmaceutical company Calliditas Therapeutics as it looks to bolster its pipeline of specialty drugs and broaden its geographic footprint.

The company is working to expand its healthcare business through specializing in immunology, transplantation, and adjacent diseases as part of a broader plan to drive growth.

ABN AMRO to Buy Private German Bank for $730 Million

ABN AMRO Bank has agreed to acquire a private bank in Germany for 672 million euros ($729.7 million), solidifying its position as one of the country's top three wealth-management firms.

The Dutch bank is acquiring Hauck Aufhauser Lampe, or HAL, from Chinese conglomerate Fosun International, ABN AMRO said Tuesday.

U.K. Shop-Price Inflation Eases Further on Slowing Food Prices

Annual U.K. shop-price inflation eased further in May for the 13th consecutive month, helped by slowing food inflation, according to a report published Tuesday.

Price inflation at U.K. stores eased to 0.6% on year in May from 0.8% in April, below the three-month average rate of 0.9%, the report by NielsenIQ and the British Retail Consortium showed. This is the lowest level since November 2021.

GLOBAL NEWS

China Courts U.S.'s Top Asian Allies on Trade, but Will It Succeed?

China sought to drive a wedge on trade between the U.S. and its Asian allies, using a rare exchange with the leaders of Japan and South Korea to champion a multipolar world without economic discrimination.

Chinese Premier Li Qiang, on a two-day visit to Seoul, touted the merits of harmonizing economic ties between the three Asian countries, as Washington has moved to raise tariffs on Chinese electric vehicles and curb China's high-tech ambitions. Chinese leader Xi Jinping carried a similar message on his recent trip to Europe.

China Raises $48 Billion for Semiconductor Fund to Bolster Chip-Making Capabilities

SINGAPORE-China raised about $48 billion in its third installment of a national semiconductor fund, aiming to increase its chip-making capabilities in the face of an escalating technology competition with the U.S.

This latest financing round is the largest for the state-owned National Integrated Circuit Industry Investment Fund, created in 2014. Commonly known as the "Big Fund," it directs state support to build up the country's semiconductor-supply chain and has played an outsize role in its development.

Netanyahu Says Killing of Civilians in Israeli Strike Was 'Tragic Mistake'

Prime Minister Benjamin Netanyahu of Israel called the deaths of civilians in an airstrike in the southern Gaza city of Rafah a "tragic mistake," pledging an investigation as international condemnation mounted against the attack that Palestinian officials said killed dozens.

Israeli and Egyptian officials also held urgent talks on Monday after a rare cross-border clash between the two countries' forces left an Egyptian officer dead, as they tried to prevent the situation from spiraling out of control.

Biden Administration Presses Allies Not to Confront Iran on Nuclear Program

BERLIN-The Biden administration is pressing European allies to back off plans to rebuke Iran for advances in its nuclear program, even as it expands its stockpile of near-weapons-grade fissile material to a record level, according to diplomats involved in discussions.

The U.S. is arguing against an effort by Britain and France to censure Iran at the International Atomic Energy Agency's member-state board in early June, the diplomats said. The U.S. has pressed a number of other countries to abstain in a censure vote, saying that is what Washington will do, they said.

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

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May 28, 2024 05:26 ET (09:26 GMT)

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