EMEA Morning Briefing: Fed Officials Urge Patience on Cuts

MARKET WRAPS

Watch For:

U.K. CPI, PPI; trading update from Berkeley Group Holdings

Opening Call:

European stock futures were tracking mixed in light trade early Wednesday. In Asia, stock benchmarks were mostly higher; the dollar was steady; oil was mixed and gold declined.

Equities:

European shares could see a mixed opening in what is expected to be a quiet session with U.S. markets closed for the Juneteenth holiday.

U.S. markets have been calm in recent weeks as investors parse data about the U.S. economy. Fresh reports provided mixed signals on Tuesday, with May retail sales rising less than expected while manufacturing production revved up. Meanwhile, Fed officials continued to urge patience on rate cuts.

St. Louis Fed President Alberto Musalem said it could take months or even longer for conditions to emerge that would warrant cutting interest rates.

Richmond Fed President Tom Barkin said more data was needed before any changes to policy interest rates.

Boston Fed President Susan Collins said, "We should not overreact to a month or two of promising news."

On tap today is U.K. inflation data which could provide clues on the rate outlook ahead of the BOE's decision Thursday. Analysts see a possibility that headline annual CPI inflation could fall back to the BOE's 2.0% target in May.

Forex:

The dollar was steady in Asia. Although the greenback dropped overnight because of weaker-than-expected U.S. retail sales data, the U.S. has a public holiday today so the greenback could have a quiet day and night ahead, said Kristina Clifton, senior economist and senior currency strategy at CBA.

While many Fed officials gave speeches and interviews overnight, the general theme of their comments was patience and watching data, Clifton added.

Bonds:

Treasury yields retreated on Tuesday as bond traders digested another disappointing retail sales report and other economic data, as well as comments by Fed officials ahead of the Juneteenth holiday. Official data showed retail sales increased by 0.1% in May, missing the median forecast of economists polled by the Wall Street Journal, which had forecast sales to climb by 0.2%.

"The takeaway is that consumers are finally beginning to feel the pressure of elevated prices and higher borrowing costs," strategists at BMO Capital Markets said.

Energy:

Oil futures settled at their highest level in seven weeks on Tuesday, buoyed by upbeat prospects for global crude demand.

"Evidence of strong domestic demand at the start of the U.S. summer driving season, rising geopolitical tensions overseas, and renewed hopes for a perfectly executed [economic] soft landing" by the Federal Reserve have also contributed to oil's price rebound," said Tyler Richey, co-editor at Sevens Report Research.

However, uncertainty around the outlook for crude demand, particularly from China, could give traders pause following the rebound, analysts have said.

Metals:

Gold was lower early Wednesday. Traders are watching U.S. economic data like "hawks," and the weak retail sales data released overnight has provided the precious metals complex with a boost, said TD Securities.

While macro investors have remained under-positioned in gold relative to a typical rate-cut cycle, as a trend of weakening data starts to build, these investors will be more likely to enter the market, which could be the next catalyst needed for another leg higher, McKay adds.

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Copper rose in Asia with a broader risk-on tone likely supporting prices, especially given concerns about supply issues, ANZ Research analysts said. Copper production will likely fall around 30% at Anglo American's Los Bronces copper mine in Chile due to plant maintenance, they said.

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Iron ore edges higher with prices likely driven by better steel demand, says the ANZ Research team in a note. China's steel output rose in May, boosted by domestic manufacturing demand and robust steel exports despite the weak property-related demand, analysts at StoneX Intelligence note.

However, the "outlook for steel remains cautious amid ongoing economic headwinds in property and infrastructure sectors," they caution.

TODAY'S TOP HEADLINES

Fed's Barkin: More data is needed before any changes are made to interest rates

Richmond Federal Reserve Bank President Tom Barkin on Tuesday said more data is needed before the U.S. central bank can make any changes to its policy interest rates.

During a livestreamed interview with news outlet MNI, Barkin described the outlook for the U.S. economy as uncertain and said the Fed should keep its benchmark rate steady until a clearer picture emerges of the path of inflation and the labor market.

Nvidia's Ascent to Most Valuable Company Has Echoes of Dot-Com Boom

Nvidia has become the U.S.'s most valuable listed company because of the demand for its artificial-intelligence chips, leading a tech boom that brings back memories of one from earlier this century.

Nvidia's chips have been the workhorses of the AI boom, essential tools in the creation of sophisticated AI systems that have captured the public's imagination with their ability to produce cogent text, images and audio with minimal prompting.

Vodafone to Raise Over $1 Billion Via Stake Sale in India Tower Business

SINGAPORE-Vodafone Group plans to raise as much as $1.1 billion by selling part of its stake in an Indian telecom tower operator, according to a term sheet seen by The Wall Street Journal.

The U.K. telecom operator plans to sell 268.0 million shares, representing a 9.94% stake in Indus Towers, the term sheet showed.

TikTok Faces New FTC Claim of Violating Children's Privacy

The Federal Trade Commission on Tuesday recommended a civil lawsuit against TikTok for alleged violations of a law designed to protect the online privacy rights of children.

The FTC said it had been investigating TikTok's compliance with an earlier legal settlement it reached with the government, and found what may be new violations of the law. It referred its findings to the Justice Department, which has authority to enforce the Children's Online Privacy Protection Act, known as COPPA. The Justice Department has 45 days to decide whether to pursue a case against TikTok.

Write to singaporeeditors@dowjones.com

Expected Major Events for Wednesday

06:00/UK: May UK producer prices

06:00/UK: May CPI

06:00/SWE: May Labour Force Survey

08:00/EU: Apr Euro area balance of payments

08:30/UK: Apr UK House Price Index

09:00/EU: Apr Construction output

09:00/ITA: Apr Balance of Payments

17:59/POR: Apr Balance of Payments

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(END) Dow Jones Newswires

June 19, 2024 00:15 ET (04:15 GMT)

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