European Midday Briefing: Stocks Buoyed by Some Solid Earnings

MARKET WRAPS

Stocks:

European shares moved higher on Wednesday, as investors cheered some strong corporate earnings.

AB InBev , Alstom and Siemens Energy were among a number of solid gainers after their results were well received by investors.

"Investors and traders continue to support riskier assets, while the focus among them is very much on earnings and economic data," Zaye Capital Markets said.

U.S. Markets:

Stock futures and Treasury yields were slightly higher.

Bond yields climbed off a four-week low after a Federal Reserve official warned the central bank's next move may be to raise borrowing costs.

Minneapolis Fed President Neel Kashkari said he can't rule out that the next move from the central bank will be a rate hike.

Currently markets are pricing in very little chance that the Fed will cut interest rates from the range of 5.25% to 5.50% after its next two meetings in June and July, according to the CME FedWatch tool.

Wednesday will be another busy one for earnings. Uber is due to report ahead of the market open, along with Shopify, among others. Results from Arm and Airbnb will be in focus after the market close.

Forex:

The dollar was firmer as FX traders shrug off the impact of last week's Federal Reserve meeting where policymakers raised the bar for a rate hike and left prospects of a rate cut more likely, Swissquote Bank said.

The dollar's recovery "makes sense in the context of diverging policy outlook between the Fed and the European Central Bank."

The Swedish krona fell after the Riksbank cut its key policy rate by 25 basis points, as expected, and said that if the outlook for inflation stays the same, rates can be cut two more times during the second half of the year.

It pointed to an uncertain inflation outlook and said Swedish GDP growth had been weak but should rise gradually.

Low volatility in forex markets is one where carry trades is likely to come back into sharp focus, Pepperstone said.

"Given that carry trades...aim to primarily profit from the yield differential, such a strategy tends to benefit in times of lower volatility."

This is primarily due to the reduced risk of an adverse market move eliminating any carry earned and it therefore encourages a greater number of participants to take such positions, Pepperstone said.

Bonds:

The term premia on Treasurys-the yield premium investors demand to hold a longer-dated bond rather than a shorter-dated one-is too low to compensate investors, especially given abundant supply, Indosuez Wealth Management said.

"We believe that the condition to make this part of the curve attractive [in the absence of recession] is a positive yield curve slope with a higher term premia."

Indosuez has a positive view on the short end of the Treasury curve, expecting two-year yields to remain around 5% for the time being. Indosuez' fair value estimate on the 10-year yield is around 4.75%-versus the current market level of 4.474%, with upside risks.

Energy:

Oil prices were more than 1% lower, with Brent still below $84 a barrel, on a stronger dollar and reports of a weekly build in U.S. crude inventories.

U.S. crude stocks grew 0.5 million barrels in the week ended May 3, according to reports citing the American Petroleum Institute, signaling lower demand in the top consumer ahead of official data from the Energy Information Administration due later on Wednesday.

Meanwhile, the physical market is showing signs of easing supply tightness, with the premium of Brent's front-month contract to the second month-known as prompt timespread-softening from a backwardation of more than $0.80 a barrel at the beginning of last week to $0.64 a barrel on Thursday's close, ING said.

U.S. Oil Reserves

The U.S. Energy Department is again seeking bids to refill the Strategic Petroleum Reserve as oil prices move back below the $79-a-barrel cap it set itself for the replenishment.

The DOE announced solicitations for up to 3.3 million barrels to be delivered in October. The DOE said it has bought 32.3 million barrels of oil for an average price of $76.98, and accelerated nearly 4 million barrels of exchange returns, compared with $95 a barrel it received from the 2022 emergency sales.

Metals:

Gold slipped, with trading in a narrow band, but with prices were supported by demand from central banks, which has been the strongest on record for the first quarter of the year.

China's central bank expanded its reserves of the precious metal for an 18th straight month in April, adding 1.9 metric tons-bringing its total up to 2,264.3 tons, ING said.

EMEA HEADLINES

BMW Backs Guidance Despite Drop in Automotive Profitability

BMW's key automotive unit reported slightly lower-than-forecast profitability in the first quarter as manufacturing costs rose, but the group maintained full-year guidance.

The German luxury-car maker's operating margin was 8.8% in the division, short of a company-compiled consensus of 9.2%.

Continental Backs Outlook Despite Net Loss

Continental backed its 2024 outlook, despite posting a net loss for its first quarter.

The German car-parts company on Wednesday confirmed both its preliminary figures for the quarter ended March and also backed its full-year outlook, despite posting a net loss of 53 million euros ($57 million) compared to a net profit of EUR382 million for the same period the prior year.

Munich Re Backs Profit Guidance After Wide Quarterly Beat

Munich Re confirmed its net profit guidance for the year after reporting a much better-than-expected first quarter given below-average major-loss expenditure, better return on investment and good operational performance.

The German reinsurer on Wednesday posted net profit for the first three months of 2024 of 2.14 billion euros ($2.30 billion), in line with preliminary figures. This compares with EUR1.27 billion reported for the same period the previous year and beat estimates taken from a company-compiled consensus of EUR1.48 billion.

Bertelsmann Confirms Outlook After Revenue Drop

Bertelsmann confirmed its forecast for 2024 after a drop in revenue for the first quarter due to last year's sale of a stake in outsourcing company Majorel.

The German media group said revenue was 4.3 billion euros ($4.62 billion), down 9% compared with the same period last year.

Fresenius Lifts Guidance On Net Profit Beat

Fresenius lifted its full-year guidance on rising net profit that beat expectations in the first quarter, which was boosted by an improved performance at its core businesses Fresenius Kabi and Fresenius Helios.

The German healthcare company said Wednesday that it now expects full-year organic group revenue growth between 4% and 7%, from a previous guidance between 3% and 6%. Its group earnings before interest and taxes at constant currency are now expected to grow between 6% and 10%, which were previously expected at between 4% and 8%.

Puma Posts Lower Earnings After Sales Suffer Currency Headwind

Puma reported a decline in first-quarter earnings after sales were hit by unfavorable currency effects.

The German sporting-goods company said it made 87.3 million euros ($93.9 million) in net profit for the period, compared with EUR117.3 million a year ago, on sales that fell 3.9% on year to EUR2.1 billion.

GLOBAL NEWS

German Industry Awaits Sustained Rebound After Decline in March

Germany's industrial production in March declined on month for the first time this year, a signal that a rebound in the sector could be fragile amid the country's gradual economic recovery.

Output of production in manufacturing, energy and construction fell 0.4% compared with the previous month, on a seasonally and calendar-adjusted basis, from an downwardly revised 1.7% increase in February, according to data published Wednesday by German statistics office Destatis. March's decline was the first since December.

Profits Are Booming-and That's Shielding the Economy

Job growth took a step down in April, as reported in Friday's employment numbers. But there is a world of difference between a slightly weaker labor report and the types of job losses that could push the economy into a recession.

With corporate profits on an upswing, a major downturn in the economy could be far away.

U.S. Pauses Weapons Shipment to Israel Over a Possible Rafah Offensive

In Washington's first formal rebuke to Israel's campaign against Hamas in Gaza, the Biden administration said late Tuesday that it has paused a shipment of weapons including 2,000-pound bombs destined for its top Middle East ally, as Israel mounted new operations in Rafah in southern Gaza.

U.S. officials said they were conducting a review of other weapons sales amid Israel's operations in Rafah, launched late Monday, even after Hamas agreed to the rough outlines of a deal that could release hostages for a cease-fire.

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May 08, 2024 05:04 ET (09:04 GMT)

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