European Midday Briefing: Cautious Tone Dominates as Traders Await U.S. Jobs Report

MARKET WRAPS

Stocks:

European stocks edged lower on Friday but remained just off record highs, as traders held back ahead of the latest U.S. jobs report.

The data could provide fresh clues about the strength of the U.S. economy and the likelihood that the Federal Reserve will begin to cut interest rates soon. The central bank's rate-setting committee is scheduled to meet next week.

"A slew of recent economic data has pointed to easing labor market conditions, increasing the importance of the jobs report in reinforcing or contradicting that narrative," IG said. Unexpectedly strong data could shock markets, potentially dashing prospects of a U.S. rate cut in September, IG added.

Economic Insight

The Bundesbank has lowered its forecasts for Germany's economic growth for both 2024 and 2025, with inflation set to be a little hotter. The Bundesbank now sees gross domestic product rising 0.3% this year, followed by 1.1% in 2025, down from 0.4% and 1.2%, respectively, in forecasts made in December.

U.S. Markets:

Stock futures edged higher with the jobs report in focus.

Economists forecast that 190,000 positions were created last month. The unemployment rate is seen holding at 3.9%.

Stocks to Watch

Braze raised its full-year revenue outlook on higher sales last quarter. Its shares rallied 14%.

DocuSign failed to impress investors with its first-quarter results. Shares fell over 6%.

GameStop rose roughly 30%. Thursday, Keith Gill's Reddit account shared a new portfolio update suggesting that the investor hasn't sold any of his position since his update on Sunday. Gill, a.k.a. "Roaring Kitty," has scheduled a livestream video on YouTube for around noon ET.

Vail Resorts cut its full-year profit guidance, after warm weather continued to hit visits to some resorts. Shares dropped 6%.

Moody's has placed the long-term debt ratings of Old National Bancorp and several other U.S. regional banks on review for downgrade amid concerns over commercial real-estate exposure.

Forex:

The European Central Bank's data-dependency guidance will certainly increase the sensitivity of bond and currency moves around key data releases, MUFG said, as investors await U.S. payrolls data for May at 1230 GMT.

MUFG has a bias towards a stronger euro against the dollar. The euro edged higher against the dollar following the ECB's well-anticipated 25 basis point interest-rate cut but whether it could test the $1.1000 level will very much depend on the U.S. jobs report, MUFG said.

UniCredit Research said the data could potentially affect the likely timing of an interest-rate cut by the Fed, and will be key for the dollar.

UniCredit expects a steady net jobs creation figure of 180,000 and a steady unemployment rate of 3.9%, which would probably leave the dollar little changed against the euro. More solid jobs creation of at least 200,000 would be needed to drive the euro lower, although it should stay above $1.08, UniCredit added.

Bonds:

Terminal rate expectations matter for 10-year German Bunds more than what the ECB does from one meeting to the other, Societe Generale Research said.

The ECB's widely expected 25 basis point interest-rate cut on Thursday wasn't enough to drive Bund yields lower, as eurozone yields edged higher.

"Shifts in policy rate expectations for the subsequent two years or so explain the bulk of moves in long-maturity rates."

Citi Research said holding long positions in eurozone peripheral government bonds looks an attractive way to bet on rising eurozone bond prices and falling yields during the summer.

Citi continues to expect eurozone government bond yield spreads over German Bunds to tigthen further, and particularly favors Italian bonds, or BTPs.

"Periphery spreads have displayed patience during the year-to-date pricing out of ECB rate cut expectations for 2024," Citi said, adding that reduced rate-cut optimism has been offset by broader strength in risky assets.

Energy:

Oil prices were broadly stable but still on track for weekly losses after a selloff sparked by OPEC+'s decision to gradually bring some barrels back into the market later this year.

Gas

Norway's Nyhamna gas processing plant restarted exports on Friday after operations were unexpectedly shut down earlier this week, although the plant's available capacity currently stands at 45 million cubic meters per day against total process capacity of 79.8 mcm/day.

Metals:

Gold futures continued to trade in a tight range ahead of the nonfarm payrolls, with investors hoping the data will comes in weaker than expected, supporting the case the Fed will be able to start easing monetary policy sooner rather than later.

EMEA HEADLINES

German Industrial Production Fell Unexpectedly in April

German industrial production ticked lower for a second straight month in April, reflecting that hurdles to a sustained rebound remain for the sector, despite an upswing at the start of this year.

Output of production in manufacturing, energy and construction fell 0.1% compared with the previous month, on a seasonally and calendar-adjusted basis, from a 0.4% decrease in March, according to data published Friday by German statistics office Destatis.

German Trade Surplus Narrows

Germany's trade surplus in goods narrowed a little in April as import growth outstripped exports, pointing to rising domestic demand.

The country's adjusted trade surplus-representing the difference between exports and imports of goods- shrank to 22.1 billion euros ($24.06 billion) in April from EUR22.3 billion in March, according to official figures published Friday.

Ipsen to Pay Marengo Therapeutics Up to $1.2 Billion Under Expanded Cancer Research Partnership

French pharmaceutical company Ipsen is expanding its oncology research partnership with Marengo Therapeutics and will pay the group up to $1.2 billion for the use of its TriSTAR platform.

The precision T cell engager technology platform developed by the U.S. clinical-stage biotech company will be used by both companies to research potential in 'cold' tumors which are traditionally more difficult to treat, they said Friday.

GLOBAL NEWS

India Central Bank Keeps Rate Unchanged After Election Raises Fiscal Policy Uncertainty

India's central bank held its policy rate steady as Prime Minister Narendra Modi's election setback raised uncertainty over the country's future economic and fiscal policies.

Reserve Bank of India Gov. Shaktikanta Das said Friday that the monetary-policy committee decided to maintain its policy repo rate at 6.50%. The committee also decided to remain focused on withdrawal of accommodation, he said.

China's Exports Picked Up Pace in May

China's exports grew at a faster rate in May, thanks to resilient global demand, while import growth slowed.

Outbound shipments rose 7.6% from a year earlier in May, up from the 1.5% increase in April, the General Administration of Customs said Friday. The result topped the 4.8% growth expected by economists in a survey by The Wall Street Journal.

Its Risk-On in the Market. Traders Count on a 'Fed Put.'

Imaging you had your own personal bodyguard ready to step in if anybody threatened you. How much bolder would you be?

That's the mind-set of traders in the current bull market. There's an expectation that the Federal Reserve, the world's biggest central bank in assets, will step in to provide support when the economy needs it.

Gold Prices Are Sky-High. Will Gold Miners Follow?

Gold miners aren't shining in the same way as the precious metal they dig up. Could predictions of an eye-watering rally in prices ahead change that?

While gold prices are already 20% higher than a year ago, after a record-breaking rally, a benchmark gold-mining index is up by just half that.

Hamas Leader Sinwar Holds Firm on Demands for Gaza Cease-Fire With Israel

Hamas's leader in Gaza told Arab negotiators that he would accept a peace deal only if Israel commits to a permanent cease-fire, affirming the militant group's position in his first response to a proposal introduced by President Biden to end the eight-month war.

"Hamas will not surrender its guns or sign a proposal that asks for that, " Arab mediators said Hamas leader Yahya Sinwar told them in a brief message they received Thursday, as two top U.S. officials, including Central Intelligence Agency Director William Burns, hold talks in the region aimed at jump-starting long-stalled negotiations.

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June 07, 2024 05:30 ET (09:30 GMT)

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