European Midday Briefing: Investors Await ECB, Lagarde Speech Key

MARKET WRAPS

Stocks:

European stocks were higher on Thursday ahead of the European Central Bank interest-rate decision.

Focus will center on Christine Lagarde's press conference with significant indecision among investors over whether there will be further easing this year, according to Scope Markets.

"With that in mind, investors are likely to be more sensitive to any changes in Lagarde's tone, alongside inflation and growth forecasts," Scope said.

Stocks to Watch

Share buybacks, recently the preferred method of shareholder returns for European financial companies, typically prop up stock prices.

This technical support is set to come to an end this month for several names as they complete their current programs, Citi said, updating its buyback tracker for the sector.

Among banks that Citi calculates will announce EUR80 billion of dividends and execute EUR47 billion in buybacks in 2024 are StanChart, Santander, SEB, NatWest and Deutsche Bank.

The brokerage estimated that insurers will announce EUR35 billion in dividends and execute EUR10 billion in buybacks this year, with AXA, Aegon, Aviva, and Allianz among those set to see the end of technical buyback support shortly.

U.S. Markets:

Stock futures were little changed as investors looked ahead to the monthly jobs report, set for Friday, which could provide clues on whether the Federal Reserve might also begin to cut rates soon.

Ten-year Treasury yields edged up, to just over 4.3%. A run of weaker economic data has fed into five straight days of declining yields.

Stocks to Watch

Lululemon Athletica said it would buy back more shares and posted better-than-expected quarterly profit and revenue. Its shares rose about 9% premarket.

Nvidia shares rose in heavy trading premarket, a day after its market valuation topped $3 trillion. Its 10-1 stock split is planned for Friday.

Forex:

The dollar could stay stuck within a relatively tight range until Friday's eagerly-awaited U.S. jobs data for May, ING said.

Having fallen early in the week, the dollar gained ground after Wednesday's stronger-than-expected U.S. ISM services data. However, a fall in Canadian bond yields after a rate cut in Canada also helped to drag down U.S. bond yields with it, limiting dollar gains, it said.

"We'll probably have to wait for tomorrow's U.S. May jobs report to see whether the dollar can break out of its trading range, which looks to be 104.00 to 104.65 for DXY."

EUR/JPY looks ready to rise despite the expected ECB rate cut, Forex.com said.

The ECB may not commit to further cuts, as recent mixed data from Europe suggest the central bank will remain data-dependent and weigh rate cuts on a per-meeting basis, it added.

If the ECB disappoints EUR bears later, EUR/JPY's bullish structure will look appealing. EUR/JPY's bias on the one-hour chart is to dip to the 20-day exponential moving average, now at 169.14, on expectations of a rise to 170.00, it said.

Bonds:

Year-to-date selloff in eurozone government bonds looks a bit overdone, Mizuho International said.

"With commodity prices dropping and the bid in USTs [U.S. Treasurys] as a tailwind, it should also provide some support to EGBs [eurozone government bonds] as well."

The strategist expects a rally to be led by the five-year maturity, and sees a good risk-reward in buying five-year bonds on the 2-5-10-year "fly."

UniCredit Research said short-dated eurozone government bond yields have room to fall in the coming months, although they are likely to remain volatile in the near term.

UniCredit forecast the two-year German Schatz yield, currently trading close to 3%, to decline by 50 basis points by the end of the third quarter, helped by its expectation that the ECB will cut interest rates this year by more than markets currently anticipate.

Energy:

Oil prices rebounded from four-month lows as market watchers viewed the recent sell-off as overdone, despite an unexpected build in U.S. crude and gasoline inventories.

Meanwhile, Saudi Arabia cut its oil selling prices to Asian customers for the first time since February amid uncertainties over demand and robust supply from non-OPEC countries.

Metals:

Gold futures rose, further reclaiming ground lost in late May.

MUFG reiterated that gold is its favorite buy this year on a trifecta of eventual Fed cuts, supportive central bank demand and gold's role as a geopolitical safe haven.

Axis Securities said that any negative surprises in U.S. nonfarm payrolls data due Friday could prompt a shift in the Fed's hawkish tone, potentially driving up bullion prices.

Gold prices, confined to a tight range over the past 10 days, surged after softer ADP jobs data ignited hopes for an imminent rate cut by the Fed, it said. Resistance is firmly established around the $2,380 level, with support positioned at the $2,310 level, Axis said.

EMEA HEADLINES

German Manufacturing Orders Declined Unexpectedly in April

German manufacturing orders unexpectedly fell in April, reflecting the persistent difficulties in the industrial sector even as Europe's largest economy gradually recovers.

Orders were 0.2% lower than the prior month, German statistics office Destatis said Thursday, compared with the 0.6% rise expected by a consensus of economists polled by The Wall Street Journal.

U.K. Businesses See Wage Rises Slowing, BOE Survey Finds

U.K. businesses expect wages to rise at a slower pace over the coming 12 months, a finding that will help reassure policymakers at the Bank of England that inflation has been tamed.

A survey of 2,317 businesses carried out by the BOE during May found that the average expected rise in wages eased to 4.5% from 4.8% in April. Those businesses reported that wages were 6% higher in the three months through May than in the same period a year earlier.

Remy Martin Sees Tough Year Ahead as U.S. Slowdown Drags on

Remy Cointreau expects efforts to clear out excess inventory in the U.S. to stretch into its new fiscal year amid a market slowdown, as the company seeks to pave the way for a return to sales growth.

The maker of Remy Martin cognac and Cointreau orange liqueur on Thursday called fiscal 2025 a year of transition, during which it aims to deliver a gradual recovery in sales and to protect profitability as it finishes a prolonged inventory-reduction process in the Americas that weighed on its results.

Atos Pushes Financial Rescue Package Deadline to Early Next Week

Atos has pushed its decision on accepting rival rescue packages to early next week as the debt-laden French IT firm negotiates to improve some terms that it received Monday.

Atos said the move comes as the conciliator of the company's financial restructuring process has also requested for more time to determine which of the two proposals the company's financial creditors prefer.

GLOBAL NEWS

ECB Poised to Beat Fed to Rate-Cut Punch. Why the Timing Is Awkward.

The European Central Bank is widely expected to get ahead of the Federal Reserve on Thursday and deliver its first interest-rate cut since the Covid-19 pandemic unleashed a surge of inflation.

It won't be the first central bank to cut since-Canada pulled the trigger on a reduction Wednesday, and Switzerland and Sweden moved earlier this year.

BOJ's Nakamura Says Appropriate to Maintain Monetary Policy for Time Being

Bank of Japan policy board member Toyoaki Nakamura said Thursday that he is still not fully confident that wages and inflation will keep growing, adding that it is appropriate for the bank to maintain its current monetary policy for the time being.

"I am not confident about the sustainability of wage increases," Nakamura said in a speech to business leaders in the northern prefecture of Hokkaido.

Israel Strikes U.N. School and Shelter in Gaza, Says Hamas Was Operating There

The Israeli military struck what it says was a Hamas facility located in a United Nations school compound in the Gaza Strip, where Palestinian officials say dozens of displaced people sheltering there were killed.

Rescue teams worked to recover bodies overnight into Thursday, according to Wafa, the official news and information agency of the Palestinian Authority, which said that at least 32 people were killed.

Europe's Ascendant Right-Wing Parties Want to Remake the EU. They Can't Agree on How.

Right-wing nationalist parties look set to surge in elections across Europe this week, but the shock wave will travel slowly due to rifts among the political forces.

Many of the parties see former President Donald Trump as a model. They pledge to peel back Brussels' power and shift European Union policy on hot-button issues including migration and climate policies.

Write to ina.kreutz@wsj.com

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

(END) Dow Jones Newswires

June 06, 2024 06:18 ET (10:18 GMT)

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