European Midday Briefing: Focus Shifts to U.S. Economic Data; China's Slow Recovery

MARKET WRAPS

Stocks:

European stocks traded mixed on Tuesday as optimism following a deal on the U.S. debt ceiling gave way to ongoing concerns about further Federal Reserve interest-rate increases.

"Market expectations around a June Fed hike continue to rise," IG said. "This week's U.S. jobs data, culminating as ever in the payrolls report, could be key to the Fed's next move."

Also affecting sentiment was concerns over the economic recovery in China, as the country is facing deep, structural problems in its economy. Read more here .

Stocks to Watch

Siltronic's future looks bright despite a slowdown expected to hit wafer demand this year, Jefferies said.

Negative news around the sector is priced in as wafer manufactures expect a recovery towards the end of this year, it said, adding that Siltronic's new Singapore facility will support higher profitability from 2024.

"Initial signs of a possible bottoming of the cycle, capacity expansion at semi manufacturers ahead of wafers, growing silicon content in semis, and the production start at Siltronic's new Singapore facility make a great case for the next 12 months."

Jefferies raised its rating to buy from hold and the target price to EUR95 from EUR75.

Economic Insight

This week's inflation data in Europe will play a major role in how European rates trade into the European Central Bank's June meeting, ING said.

"A pick-up in Fed hike expectations for June or July has also opened some upside for EUR rates but the domestic swap curve already discounts a path for ECB policy rates that is consistent with its communication."

This comes against a backdrop of soggy hard economic data and a softening of sentiment indicators, "which should also prevent European markets from getting too upbeat," ING added.

Read Spain's Inflation Rate Falls Much Faster Than Eurozone Peers

U.S. Markets:

Stock futures ticked up after a tentative deal was struck to raise the debt ceiling.

The next step is for the legislation to be passed by Congress, which could run into procedural hurdles and opposition from lawmakers.

Stocks on the Move

Ford stock rose 3% after it was upgraded to buy from hold at Jefferies. Read more here .

HP shares rose 1%. The computer maker is slated to report fiscal second-quarter earnings after the bell on Tuesday.

Nvidia shares rose 3% ahead of the open. It recently bolstered its earnings estimates on artificial-intelligence demand and announced a flurry of new products over the weekend. AI excitement also bolstered shares of companies including Palantir Technologies, Advanced Micro Devices and https://urldefense.com/v3/__http://C3.ai__;!!F0Stn7g!A3nudxgDSfaEXi0B5mwMG4FQg4VxM7xNovDIArz7bEwgZOU5Bz6g8yIcUYASWEIbEWZ4M9GsfJaXlO1k0eaPQm2JveNPntOPzLAtCYRcVGI$ .

On the data front are the consumer confidence numbers for May.

Follow WSJ markets coverage here

Forex:

The dollar rose to a 10-week high against a basket of currencies as agreement on the debt ceiling allows markets to focus on Friday's U.S. jobs data and prospects of the Fed raising rates further, MUFG said.

"Assuming that U.S. politicians don't surprisingly reject the deal, market attention should switch back to the health of the U.S. labor market in the week ahead."

Another strong jobs report would reinforce expectations for a rate increase in July and strengthen the dollar in the near term, MUFG added.

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U.K. money markets are pricing in 100 basis points of interest-rate rises from the Bank of England by November and this should support sterling in the near-term, ING said.

"Our team's view is that such an amount of tightening is highly unlikely and that the usually reticent BOE may try and verbally push back against it," ING added.

Upcoming U.K. labor market and inflation data will be key in determining whether the market reins in its aggressive rate expectations but until then EUR/GBP could fall further while GBP/USD will better resist a stronger dollar, it said.

Read Turkish Lira Hits Record Low, Could Fall Further After Erdogan Wins Election

Bonds:

Spanish government bonds could benefit from more fiscal prudence after snap elections in July, Citi said.

Following regional elections, polls for the national vote on July 23 suggest a PP-Vox government, but it remains unclear as to whether the opposition center-right PP will benefit from its surprisingly strong showing in Sunday's regional elections or lose centrist votes given its need for a coalition with far-right Vox to form a government, Citi said.

"Overall, however, the shift of government from center-left supported by far-left to center-right supported by far-right might be a small positive for Bonos [Spanish bonds] due to implications of more fiscal prudence."

Energy:

Oil prices dipped in early trading on concerns that Joe Biden's debt-ceiling deal could struggle to win congressional support, while focus was also on the upcoming OPEC meeting.

OPEC "will want more evidence of the impact of its lower output quotas before making further changes" despite recent hints from Saudi Arabia indicating they are considering another output cut, ANZ said.

Metals:

Base metals and gold prices are falling with the macroeconomic environment sending mixed signals at the start of the week.

"U.S. bond markets are pricing another 25 basis point hike by the end of July, a hawkish shift that's good for the U.S. dollar but bad for risk assets and commodity prices," Peak Trading said.

Peak added that markets will be watching how debt ceiling talks progress as well as U.S. job numbers this week, and their effect on the dollar.

Copper Prices

Copper prices have fallen sharply through May amid wavering demand from China, however a price bounce could be on the horizon, Morgan Stanley said, noting that prices have slipped 11% in the last four weeks and 15% from its year-to-date high.#

However, there are some "green shoots," MS said. Chinese property completions are up 18% YTD and 5% higher than 2019 levels, while grid spend is up 10% YTD and electric-vehicle sales are up 44%.

"On top, although refined copper imports are down 11% YTD, copper ore and concentrate imports are up 6%, refined production is up 14%, and semis output is up 12%. If we add production to net imports, we imply China's 'apparent consumption' ex inventories to be up 9%."

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Economic Sentiment Fell More Than Expected in May

Confidence among businesses and consumers in the eurozone sank in May by more than expected, indicating that the economic revival after 2022's energy-price shock has started to fade.

The eurozone's economic sentiment indicator-an aggregate measure of business and consumer confidence-fell to 96.5 in May from a downwardly revised 99.0 in April, data from the European Commission showed Tuesday.

UK Shop-Price Inflation Loses Steam in May on Lower Food Prices, Report Says

Shop-price annual inflation in the U.K. slightly rose in May as lower energy and commodity costs started to ease some of the staples prices, the latest report by NielsenIQ and the British Retail Consortium said Tuesday.

Prices at U.K. stores in the period May 1 to May 7 were 9.0% higher on year, slightly up from an 8.8% increase in April, and above the 3-month average rate of 8.9%. Despite losing pace, the price inflation reached a new record high, the report said.

Daimler Truck, Toyota Motor Sign Agreement With Intent to Create New Tokyo-Listed Company

Daimler Truck and Toyota Motor have entered into a legally non-binding memorandum of understanding Tuesday with the intent to combine their respective group companies, Mitsubishi Fuso Truck and Bus Corporation and Hino Motors.

Mitsubishi Fuso Truck and Bus Corporation and Hino Motors would be grouped together under a holding company whose shares are to be listed on the Prime Market of the Tokyo stock exchange, Daimler said.

WPP, Nvidia Team Up to Build AI-Enabled Content Engine

U.K. advertising-holding company WPP is teaming up with U.S. chip giant Nvidia to develop a content engine that uses generative artificial intelligence for digital advertising, the companies said Monday.

WPP and Nvidia said that, by integrating 3D tools with generative AI, the engine will allow creative teams to produce commercial content such as images or videos faster. The tool is based on Nvidia's Omniverse Cloud platform, the companies said.

Turkish lira descent has further to run as dollar hits record, Morgan Stanley says

The dollar has been rising versus the Turkish lira since it became apparent that Turkey was heading for an election runoff that President Recep Tayyip Erdogan would be likely to win, and analysts at Morgan Stanley say there's much further room to run now that the 69-year-old has triumphed.

The dollar USDTRY traded as high as 20.3586 lira on Tuesday, a new record. The greenback has soared 9% this year and has climbed 25% from its lows of last June.

Erdogan's Next Focus: Turkey's Place on the World Stage

ISTANBUL-After seeing off his biggest election challenge, Turkish President Recep Tayyip Erdogan is turning his attention to fixing Turkey's place on the map as an aspiring global power.

Erdogan has repeatedly raised memories of Turkey's Ottoman past in recent years, including during the campaign for Sunday's presidential vote. As one of the world's most prominent Islamist leaders, he has competed with Saudi Arabia and Iran for sway over the worldwide Muslim community. He has also worked to extend Turkey's political influence across the Middle East and into Central Asia, built up its weapons industry and played a key role in the crisis surrounding Russia's invasion of Ukraine and the wars in Syria, Iraq and Libya.

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May 30, 2023 06:07 ET (10:07 GMT)

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