EMEA Morning Briefing: Shares Seen Lower at Start of the Week

MARKET WRAPS

Watch For:

Germany Ifo Business Climate Index; trading update from Prosus NV

Opening Call:

European shares may open lower on Monday. In Asia, stock benchmarks were mostly lower; Treasury yields were mixed; the dollar gained; oil futures declined and gold gained.

Equities:

European stock futures were tracking lower early Monday. In Europe, focus this week will remain on any moves in French assets as investors remain nervous ahead of snap elections in France, with the first round set for June 30.

Polls show strong support for Marine Le Pen's far-right National Rally party, raising concerns about potential political gridlock and excessive fiscal spending.

Across the Atlantic, the Federal Reserve's preferred measure of inflation and several major corporate earnings reports will be this week's highlights.

Investors have also been monitoring economic data for clues about the path of inflation and if and when the Fed will cut interest rates this year.

Fed officials have penciled in one interest-rate cut for this year, indicating they are in no hurry to lower rates, even after an inflation report for May suggested cooling price pressures.

Forex:

The U.S. dollar edged higher in Asia, maintaining its gains following Friday's U.S. business activity data.

The S&P Global U.S. Composite Purchasing Managers Index--which gauges activity in the manufacturing and services sectors--reached a 26-month high in June, according to surveys of purchasing managers released Friday. The evidence of a rapid growth in business activity in the U.S. pushed up the greenback.

Bonds:

French bank bonds were less attractive compared to U.K. and Spanish bank bonds, UniCredit Research said. Spain's stronger fiscal position compared with France and a better rating outlook make Spanish senior bank bonds more appealing, it said.

The U.K. being outside of the European Union also favors U.K. bank bonds if EU politics become more fragmented after the upcoming French election.

"The senior bonds of U.K. banks...look attractive, as they would likely outperform bonds of euro-area banks in a more-adverse scenario," it said, adding that current U.K. spread levels look promising.

--

Treasury yields were mixed at start of the week as investors await further data on the labor market and inflation for clues to the Federal Reserve's rate path..

"The two marquee reports over the next several weeks that will have the most influence on this debate are the July 5 payrolls release and the July 11 CPI update," Ian Lyngen and Vail Hartman, strategists at BMO Capital Markets, said.

"We suspect the combination of these fundamentals will further contribute to the bond bullish tone that has developed in June. It's also consistent with the seasonal bias in the Treasury market that tends to see yields drift lower as the weather remains warm, and the days begin to shorten," they said.

Energy:

Oil futures were lower, as investors may be taking profit after oil scored a solid weekly gain last week.

Ongoing curtailments on supply should support prices, while the Israel-Hamas war hasn't as yet affected market fundamentals on the geopolitical front, ANZ research analysts said.

However, George Khoury, global head of education and research at CFI, said these tensions introduce market uncertainty and could drive more volatility in crude prices.

Metals:

Gold gained early Monday. Higher-than-expected inflation has pushed back expectations for Fed rate cuts to later this year, while prospects of a hawkish Fed stance to contain inflation and stronger USD will see gold prices consolidating near $2,300/oz in the absence of any fresh geopolitical escalation, ANZ research analysts said.

--

Copper fell in Asian trade. "While supply-side shortfalls support prices, risks from weak demand, particularly in China, loom large," analysts at StoneX Intelligence said.

Despite recent price corrections, the base metal still remains overvalued, they said, adding that higher visible inventories has reduced market tightness, and prices could remain volatile influenced by economic and industry factors.

--

Iron ore slipped on worries over China's infrastructure investment. The country's infrastructure sector has added to the negative outlook on its steel consumption, CBA analyst Vivek Dhar said. Infrastructure investment slowed last month, prompting concerns that local governments are facing challenges to boost spending, Dhar noted.

TODAY'S TOP HEADLINES

Wall Street sees corporate profit margins creeping toward 2021 levels, as three household names prep earnings

Second-quarter earnings are still a few weeks away. But results this week from package-deliverer FedEx Corp., athletic-gear giant Nike Inc. and jeans maker Levi Strauss & Co. will give us a look at how much money people have left over to buy the things they want after paying a lot more for their gas and grocery bills.

All three companies are cutting costs and staff, and Wall Street has been hoping for a stronger rebound in demand. FedEx FDX over the last two years has faced a slump in industrial production and online shopping, translating to slower shipping demand. Meanwhile, Nike NKE and Levi's LEVI continue to deal with price cuts from rivals, and have tried to throw new products at uninspired consumers.

Stocks are having their best election year since 1976. What the rally needs to continue.

U.S. stocks have posted an impressive election-year rally so far in 2024. But as investors question whether that rally will continue, they're watching inflation and economic-growth data to gauge the Federal Reserve's potential interest-rate path, as well as corporate earnings in the second half of this year.

The S&P 500 SPX is on pace for its best first-half performance during an election year since 1976, as well as the second-best performance in an election year in its history, according to Dow Jones Market Data.

The Rise of Chinese EVs Is Dividing the West

America and Europe are heading down different roads in response to China's emergence as an electric-vehicle juggernaut.

The U.S. is closing its borders to Chinese EVs before they even launch. The Biden administration last month raised the total tariff rate to 102.5% on Chinese EVs, despite extremely low imports. Canada, whose car industry is tightly integrated with the U.S., is considering new tariffs too, Bloomberg reported on Friday.

Prudential Plans $2 Billion Share Buyback

U.K. insurer Prudential PLC is planning a $2 billion share buyback as part of its efforts to boost shareholder returns.

Under the program, shares worth $700 million will be repurchased under the first tranche, the insurer said Sunday.

Terrorist Attacks in Russia's Dagestan Target Synagogue, Churches, Police

Gunmen killed at least nine people in attacks Sunday on a synagogue, police station and two churches in Russia's restive North Caucasus republic of Dagestan, the latest incidents in a trend of rising violence across Russia in the past year.

Dagestan's Interior Ministry said assailants with automatic rifles opened fire on houses of worship in Dagestan's capital of Makhachkala and the city of Derbent, in apparently coordinated attacks. Russian authorities said the attacks were carried out by followers of an international terrorist organization, without giving further details, the TASS state-run news agency reported. Seven of the dead are police officers.

Russian Saboteurs Behind Arson Attack at German Factory

BERLIN-As fire swept through a sprawling factory owned by a company that manufactures air-defense systems, thick, dark smoke spread through a neighborhood of luxury villas and diplomatic residences. Police warnings blared, ordering people to shelter indoors.

In the aftermath of last month's blaze on the outskirts of the German capital, German investigators said the cause was likely an accident. But Western security officials now say the fire was set by Russian saboteurs trying disrupt shipments of critical arms and ammunition to Ukraine.

UPS Sells Freight-Brokerage Operation to RXO

United Parcel Service is selling its freight-brokerage business to rival middleman RXO for $1.025 billion.

The sale of Coyote Logistics announced Sunday falls far short of the $1.8 billion UPS paid for the business in 2015, but it advances UPS CEO Carol Tomé's strategy of shedding the delivery giant's less-profitable business units to streamline the company's structure.

Prudential Plans $2 Billion Share Buyback

U.K. insurer Prudential PLC is planning a $2 billion share buyback as part of its efforts to boost shareholder returns.

Under the program, shares worth $700 million will be repurchased under the first tranche, the insurer said Sunday.

Write to singaporeeditors@dowjones.com

Expected Major Events for Monday

04:30/NED: May House Price Index

04:30/NED: 1Q GDP - 2nd estimate

05:00/FIN: May PPI

07:00/SWI: 1Q Balance of Payments

07:00/CZE: Jun Business cycle survey (consumer/business confidence)

08:00/POL: May Retail Sales

08:00/GER: Jun Ifo Business Climate Index

09:00/MLT: May Registered Unemployed

10:00/UK: Jun CBI Industrial Trends Survey

12:00/POL: May Broad money M3

13:00/BEL: Jun Business Confidence Survey

All times in GMT. Powered by Onclusive and Dow Jones.

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

June 24, 2024 00:16 ET (04:16 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.