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EMEA Morning Briefing: Agreement on Infrastructure Deal to Boost Sentiment


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Eurozone M3; Germany GfK Survey; Italy Business/Consumer Confidence Surveys, Foreign Trade non-EU; U.K. Capital Issuance, CBI Distributive Trades Survey, BOE Quarterly Bulletin; updates from Wacker Chemie, Steinhoff, Gazprom, Tesco

Opening Call:

European shares should rise on Friday following Wall Street's rally that came after Joe Biden announced a bipartisan agreement on infrastructure spending. In Asia, stocks made broad gains along with commodities, while the dollar and Treasury yields were little changed.


European shares should add to Thursday's gains on Wall Street's advance, after President Biden and a group of senators agreed on a $1 trillion infrastructure plan.

The Dow rose 300 points, while the S&P 500 and Nasdaq scored fresh records after the president said he had reached a bipartisan deal.

"Investors liked what they saw, and stocks moved higher on the news, although the proof will be in the pudding, if the full House and Senate are able to get it across the finish line and the president can sign it into law," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

An agreement in principle before lawmakers departed for the July 4 break had been seen as a possibility, "but as long as the package sits in the summer sun, the more it will attract opposition," said Greg Valliere, chief U.S. policy strategist at AGF Investments. "It will take weeks to iron out all of the details, and then the suspense will rise - could this attract 60 votes in the Senate, avoiding a filibuster?" he wrote.


The dollar was broadly flat against its major peers in Asia trading, while the yen weakened on improved risk appetite driven by the infrastructure deal news.

IG said overall, the breakthrough suggests that some willingness to compromise is in the picture and that may be deemed positive for markets.

The pound's fall versus the dollar after the Bank of England's latest policy decision may not last, said TD Securities. The BOE's policy statement Thursday didn't provide "much of a directional impulse" for sterling so that leaves the market's attention on the dollar leg in GBP/USD, said TD forex strategist Ned Rumpeltin. "On that basis the immediate knee-jerk sell off may not have especially long legs."

GBP/USD will, however, struggle to rise to the key 1.41 level due to a challenging positioning backdrop, the prospect of an uneven U.K. economic recovery and uncertainty over the latest uptick in U.K. coronavirus cases, he said.

BOE officials have imitated the Federal Reserve's recent tone about inflation, which should justify pushing back a potential first interest rate rise to August 2022, instead of June 2022, said Saxo Markets' Olivier Konzeoue. Such a move would help "avoid undermining recovery by a 'premature tightening in monetary conditions'."

Like the Fed, the BOE's Monetary Policy Committee said an expected peak in inflation in excess of 3% was likely to be temporary in nature and flagged the uncertainty around the labor market outlook with close to 1.5 million people still receiving wages through the furlough scheme.

GAM Investments agreed that markets have pushed back the expected date for a first rate rise. "Forecasts in the market for the first interest rate move higher have now been pushed back a few months to August 2022," said Charles Hepworth, investment director.

"The transient inflation narrative that we have become used to from central banks the world over is played again by the BOE, noting that inflation will temporarily drive over 3%," he said, adding that "lower for longer continues."


The 10-year Treasury note yield edged up in Asia after a relatively muted U.S. session on Thursday, as St. Louis Fed President James Bullard warned that inflation may be stronger than Fed officials had anticipated, gaining momentum in the fall as the economic reopening from Covid expands.

"Inflation may surprise still further to the upside as the reopening process continues, beyond the level necessary to simply make up for past misses to the low side," Bullard said.

Meantime, a recent survey has shown almost one third of fixed income managers expect the Fed to start tapering its asset purchase programme as soon as the fourth quarter of 2021, but the consensus puts the most likely timing in the first quarter of 2022.

According to Russell Investments' latest quarterly survey of fixed income managers, about 80% of respondents expect the next Fed rate increase won't be before 2023, increasing from 36% in the first-quarter 2021 survey. The survey also found that after lift-off, 80% of managers expect between two to four interest-rate rises per year.


Oil futures extended gains in Asia, as investors gauged signs of strengthening demand and kept an eye on any potential response to recent price rises by OPEC+.

Oil has been "holding up well in recognition that underlying energy demand continues to rebound as the economy continues to reopen," Colin Cieszynski, chief market Strategist at SIA Wealth Management, told MarketWatch. "Recent big U.S. weekly drawdowns continue to help provide support as well."

Also, talk of OPEC+ "steadily increasing production is a positive sign as long as supply increases continue to more or less match demand increases," said Cieszynski. "If OPEC+ continues the same trend of monthly increases into August, the market may take it in stride."

Care Ratings said oil demand in the second-half is likely to be supported by overall improvements in pandemic containment efforts globally as well as seasonal summer demand. In Asia, China and India will likely be key demand drivers due to a rise in industrial fuel demand, it said.


Gold prices were steady in Asian trade after they pulled back slightly on Thursday as U.S. stock markets strengthened. OCBC expects some bearish pressure on the precious metal in the short term as overall market sentiment improves.

Adrian Ash, director of research at BullionVault said "anyone focused on the inflation outlook as a reason to buy or sell gold right now is missing the stock market's big warning signs."

He said "valuations are as stretched as any time since the tech stock bubble," and while gold is "far from guaranteed to jump when equities dive," gold prices on a longer-term horizon, have shown strong gains when the S&P 500 has fallen.

Base metals were also higher, buoyed by progress on the U.S. infrastructure plan. However, ANZ said investors may be concerned about the Fed tightening monetary policy sooner than expected, citing recent comments by Dallas Fed President Robert Kaplan about tapering bond purchases.

ANZ added that nickel and aluminum could be supported by supply concerns, after Russia said it plans to impose export taxes on the metals from August to year-end.

Recently, the three-month LME copper contract was up 0.4% at $9,452.50 a metric ton, aluminum gained 0.2% to $2,445.50 a ton and nickel rose 0.6% to $18,515 a ton.



Biden, Senators Agree to Roughly $1 Trillion Infrastructure Plan

WASHINGTON-President Biden and a group of 10 centrist senators agreed to a roughly $1 trillion infrastructure plan Thursday, securing a long-sought bipartisan deal that lawmakers and the White House will now attempt to shepherd through Congress alongside a broader package sought by Democrats.

Mr. Biden and Democratic leaders said that advancing the deal on transportation, water and broadband infrastructure will hinge on the passage of more elements of Mr. Biden's $4 trillion economic agenda. The two-track process sets up weeks of delicate negotiations to gather support for both the bipartisan plan and a separate Democratic proposal, a challenging task in the 50-50 Senate and the narrowly Democratic-controlled House.


Fed Gives Big Banks Clean Bill of Health in Latest Stress Test

WASHINGTON-The Federal Reserve gave large U.S. banks a clean bill of health as they emerge from the coronavirus crisis, paving the way for the lenders to boost their payouts to investors after June 30.

In a vote of confidence for the banks, including Goldman Sachs Group Inc. and Wells Fargo & Co., the Fed on Thursday said it would end temporary limits on dividend payments and share buybacks after all 23 firms performed well in annual stress tests.


Fed's Williams Says More Progress Needed Before Rate-Hike Shift

Federal Reserve Bank of New York President John Williams reiterated Thursday he doesn't see a case to raise rates any time soon given that the job market remains far short of the strength the central bank wants to see.

When it comes to lifting rates, "it is not the time now because the economy still is far from maximum employment," Mr. Williams said in a virtual appearance. As for when the Fed may raise rates, "the answer, which you might not like, is that it depends" on how the economy performs, he said.


Europeans Split Over Russia After Biden's Summit With Putin

European leaders rebuffed a proposal from Germany and France to hold formal talks with Russian President Vladimir Putin, following President Biden's summit with him last week.

EU leaders released a statement after a meeting in Brussels calling for "selective engagement" with Russia but without explicit reference to a summit, a rare defeat for German Chancellor Angela Merkel.


U.K. Car Manufacturing Suffers from Global Supply Shortages

U.K. car manufacturing rose in May compared with the same month last year when the country was in its first coronavirus lockdown, but is still 53% below the May 2019 figure, an industry body said Friday.

The Society of Motor Manufacturers and Traders said that production is being hurt by global supply shortages, notably of semiconductors.


U.K. Consumer Confidence Stabilizes in June

Consumer sentiment in the U.K. leveled off in June following four months of gains amid the gradual reopening of the economy.

(MORE TO FOLLOW) Dow Jones Newswires

June 25, 2021 00:23 ET (04:23 GMT)

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