EMEA Morning Briefing: Shares Set to Rise as Fed Path Remains in Focus

MARKET WRAPS

Watch For:

Services PMI data for eurozone, Germany, France, Italy, UK; no major corporate trading updates expected

Opening Call:

European stock futures advanced, tracking Asian stock indexes higher. The dollar and Treasury yields were little changed; while oil and gold futures pushed higher.

Equities:

Stock futures point to gains at the open on Wednesday, as Federal Reserve Chair Jerome Powell's comments at a conference in Portugal buoyed hopes that U.S. rate cuts may not be too far off.

Powell said he was pleased with how inflation had resumed a downtrend following a rebound at the start of the year but said it was too soon to say whether the Fed might be able to lower interest rates by the end of the summer, as investors increasingly anticipate. "I'm not going to be landing on any specific dates here today," he said.

Markets are focused on whether officials at the Fed's July meeting might lay the groundwork for a rate cut at their subsequent gathering in September.

A slate of U.S. economic data are due later today, alongside the release of the FOMC meeting minutes.

A particular focus from the June minutes is on "unpacking what has been deemed an overly hawkish shift in 'Dot Plot' headline that dialed back 2024 rate cuts from three to just one," said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank.

Forex:

Fed Chair Powell seems to have adopted a balanced tone on the monetary-policy outlook, said MUFG Bank, citing Powell's remarks overnight. With the U.S. central bank staying patient and as it may not be doing anything on rates for now, USD could continue to remain firm, MUFG said.

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Bulgaria's adoption of the euro could be pushed beyond January of next year, and possibly into 2026, Fitch Ratings said, citing the country's failure to meet the price stability criterion. But Fitch added that "it may be technically possible that Bulgaria will join the single currency at some point next year."

According to Fitch, a European Commission Convergence report published in June said Bulgaria fulfilled "all but one criterion" for euro entry. Fitch believes Bulgaria could comply with the price stability measure in 4Q 2024 at the earliest, depending on inflation developments across the EU.

Bonds:

Yields on U.S. government debt were steady early Wedneday after finishing lower overnight as the Fed's Powell said the U.S. might be back on a disinflationary path, but that officials need greater confidence before they can lower interest rates.

Investors will be watching the U.S. ADP employment report later today, followed by weekly jobless claims.

Energy:

Oil futures rose slightly in Asia amid Middle East tensions and the start of the Atlantic hurricane season, which could disrupt the supply and production of oil.

Tensions remain elevated as Israel continues its siege on Gaza, ordering Palestinians to leave the city of Khan Younis ahead of a potential attack, said TD Securities. Also, a very strong start to the hurricane season in the Americas has helped to boost oil prices, TD added.

Metals:

Gold gained early Wednesday as market participants await more clues on the Fed's monetary policy path. The FOMC meeting minutes due later today will help provide clarity on rate cuts, ANZ said. A delay in Fed cuts remains a looming risk for gold in the short term, ANZ added.

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Copper edged higher amid signs of lower inventories of the metal in China. The recent recovery in copper prices may stem from the current market focus on inventory developments, Commerzbank said.

Inventories registered on the Shanghai Futures Exchange have declined slightly for third week in a row following a sharp rise since the beginning of 2024, the bank noted.

TODAY'S TOP HEADLINES

Sudden Return of the Trump Trade Sends Treasurys Reeling

The increasing likelihood of a second Trump administration has helped spark a steep selloff in U.S. government bonds, with investors betting policies including tax cuts could drive up deficits and inflation.

Treasury yields, which rise when bond prices fall, started surging June 28, a day after a debate between President Biden and former President Donald Trump that Wall Street viewed as delivering a major blow to Biden's re-election chances. A poor showing from Biden could also help tip control of Congress to Republicans, creating more space for their budget priorities.

Powell Talks Up Progress, Putting Rate Cuts Back Into View

Federal Reserve Chair Jerome Powell said he was pleased with how inflation had resumed a downtrend following a rebound at the start of the year but said it was too soon to say whether the central bank might be able to lower interest rates by the end of the summer, as investors increasingly anticipate.

"We've made a lot of progress," Powell said Tuesday on a panel with other central bankers at a conference in Portugal. After serious shortages two years ago that sent wages up sharply, the labor market has "seen a pretty substantial move toward better balance," he said.

Is the Job Market Starting to Cool? Data on Wednesday Will Help Paint the Picture.

Initial claims for unemployment benefits are expected to have increased after several weeks of declines as investors look ahead to the release of employment data for June on Friday.

An uptick in claims, a weekly measure of the number of people filing for unemployment insurance, could be another sign that the labor market is softening as the Federal Reserve weighs when to cut interest rates.

Fed's Goolsbee makes case for rate cut in coming months, citing 'warning signs' of a slowdown

Chicago Federal Reserve Bank President Austan Goolsbee on Tuesday made the case for a cut in interest rates in coming months, saying that maintaining the current level of the policy rate as inflation keeps falling means that policy will put more downward pressure on demand.

"We are restrictive. The fed-funds rate in real terms, interest rate minus inflation, is as high as it has been in many decades. And as inflation comes down, that gets tighter," Goolsbee said during an interview with CNBC on the sidelines of a European Central Bank conference in Portugal.

World's 'Most Successful' Political Party Stares at Sweeping Defeat in U.K. Election

LONDON-By Friday, British Prime Minister Rishi Sunak will almost certainly be drummed out of Downing Street and his ruling Conservative Party facing its deepest hole in more than a century.

Polls ahead of Thursday's U.K. election show the opposition Labour Party and its leader Keir Starmer on course to win by a margin of about 20 percentage points, ending 14 years of government by the ruling Tories. The question is, What will be the scale of the defeat for the world's oldest and most successful political party, measured by years in power over the past 150 years?

The Making of the 28-Year-Old Star of France's Far Right

SAINT-DENIS, France-Six years ago, a media specialist was called to the headquarters of National Rally to groom the party's new spokesman: a clean-cut 22-year-old by the name of Jordan Bardella.

The assignment was sensitive. Bardella was the protégé of Marine Le Pen and a key part of the party's rebranding strategy.

The Underground Network Sneaking Nvidia Chips Into China

SINGAPORE-A 26-year-old Chinese student in Singapore was packing suitcases last fall to return home for vacation. Besides his clothes and shoes, his luggage included six of Nvidia's advanced artificial-intelligence chips.

A connection from college asked him to bring the chips because the U.S. restricted their export to China. Each chip was roughly the size of a Nintendo Switch game console, and the student didn't flag any suspicions at the airport.

Write to singaporeeditors@dowjones.com

Expected Major Events for Wednesday

00:01/IRL: Jun Ireland Services PMI

07:00/TUR: Jun CPI

07:00/TUR: Jun PPI

07:15/SPN: Jun Spain Services PMI

07:45/ITA: Jun Italy Services PMI

07:50/FRA: Jun France Services PMI

07:55/GER: Jun Germany Services PMI

08:00/EU: Jun Eurozone Services PMI

08:30/UK: Jun UK Official Reserves

08:30/UK: Jun S&P Global UK Services PMI

08:30/UK: Jun Narrow money (Notes & Coin) and reserve balances

09:00/EU: May PPI

09:00/CYP: Jun Registered Unemployed

10:00/IRL: Jun Monthly Unemployment

16:59/POL: Polish interest rate decision

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

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

(END) Dow Jones Newswires

July 03, 2024 00:17 ET (04:17 GMT)

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