EMEA Morning Briefing: Stocks Seen Broadly Higher as Focus Shifts to Earnings

MARKET WRAPS

Watch For:

Italy balance of payments; trading updates from EssilorLuxottica, ABB, L'Oreal, EQT, Tele2, Nokia, easyJet, Rentokil Initial, Segro, Deliveroo, Investor AB

Opening Call:

European stock futures were broadly higher early Thursday. In Asia, stock benchmarks were higher; Treasury yields broadly edged slightly lower; the dollar weakened; while oil futures and gold gained.

Equities:

European shares were likely to open broadly higher as investors shift their focus to corporate earnings and continue to parse Fed officials' comments.

On Wednesday, Cleveland Federal Reserve President Loretta Mester said it will take more months of encouraging data to convince her that inflation is on a sustainable path toward the Fed's 2% annual target, and the Fed shouldn't change interest rates until then.

U.S. stocks fell Wednesday, deepening an April selloff with investors largely abandoning their expectations of imminent interest-rate cuts as a persistently strong economy led Fed Chair Jerome Powell and other central bank officials to cast doubt on that assumption earlier this week.

"We had forecast two rate cuts this year, now we're at just one in December," said Sinead Colton Grant, chief investment officer at BNY Mellon Wealth Management.

"When we think about equities overall, this is on balance probably a better buying opportunity after some consolidation," Grant said.

Forex:

Long U.S. dollar is the best way to play the risk of higher yields, TS Lombard said. It argues that tensions in the Middle East "are reminding markets that USD is the best safe haven."

The greenback "has the highest carry in G10," especially when compared with the Swiss Franc and the yen. Meanwhile, monetary policy looks likely to remain more restrictive in the U.S. than in other developed economies, "with U.S. vs. G-10 spread widening and considerable upward pressure on the dollar," they added.

Bonds:

U.S. Treasury yields were slightly lower after long-term Treasury yields dropped from their highest levels since early November on Wednesday amid a round of dip-buying in 2- through 30-year government debt.

Buying dominated the trading action a day after Federal Reserve Chair Jerome Powell confirmed that hotter-than-expected U.S. inflation data means more time is needed before borrowing costs can be lowered.

Fed-funds futures traders priced in a 71.1% likelihood that the first quarter-point Fed rate cut will arrive by September.

Energy:

Oil futures gained early Thursday. Iinvestors and oil traders remain on edge as they await Israel's next move against Iran following this weekend's historic Iranian strike on Israel.

Traders have shifted some of their focus to the latest economic data out of China, according to one analyst.

"Worries over the global demand outlook have resurfaced, thanks to the weakness of several recent economic-data releases from China," said David Morrison, senior market analyst at Trade Nation.

Metals:

Gold rose in Asia climbing back towards its record high at $2,431/oz.

Pressure from dampened Fed rate cut hopes was capping gains from safe haven demand arising from Middle East tensions, the UOB Global Economics & Markets Research said.

However, there is upside potential to around $2,500, Saxo Bank technical analyst Kim Cramer Larsson said and pegged support at $2,319. The upward trend may remain intact as long as prices don't fall below it, he added.

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Copper declined in early Asian trade. China's refined copper production data for March due later today is in focus, Westpac analysts said.

Investors may also be digesting production updates of BHP Group, which has a majority stake in Chile's Escondida operation.

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Iron ore prices advanced early Thursday. President Biden said tariffs on Chinese steel would be tripled to 25%, but the impact is likely to be minimal since Chinese steel only makes up 1% of the U.S.'s domestic consumption, ANZ Research analysts said.

Low inventories of iron ore may also support prices, Nanhua Futures analysts said, adding that iron ore may track the gains in gold and other metals.

TODAY'S TOP HEADLINES

Fed's Mester Says Recent Inflation Means Longer Wait for Rate Cuts

Cleveland Federal Reserve President Loretta Mester is the latest central bank official to talk down the likelihood of interest-rate reductions in the near future.

Mester said Wednesday that the first three months of 2024 were a bump in the road in the fight against inflation, and the Federal Reserve should take a patient approach to changing interest rates until more data comes in.

Wall Street's 'fear gauge' surges as volatility reawakens across markets

After a protracted lull, volatility across markets has reawakened in April as Wall Street's "fear gauge" has surged to its highest level since Halloween.

The Cboe Volatility Index VIX, known as Wall Street's "fear gauge," traded as high as 19.56 on Tuesday, its highest intraday level since Oct. 31, bringing it to within a whisker of its long-term average of 19.60.

Gold may benefit from 'powerful tailwind' when Fed pivots to rate cuts, says Wells Fargo

Gold has room to rise after reaching record highs this year, as a "shifting interest-rate landscape could be a particularly powerful tailwind," according to Wells Fargo Investment Institute.

While it's "no secret" that the Federal Reserve may cut rates later this year should it gain confidence that U.S. inflation is falling durably to its 2% annual target, "not as well known is the fact that some of gold's strongest past performances have come during Fed rate-cut cycles," analysts at Wells Fargo Investment Institute said in a note dated April 15.

China Denounces U.S. Probe Into Shipbuilding Sector

Beijing said it opposes a U.S. probe into China's shipbuilding industry, calling the investigation a politically driven move full of "false accusations" and threatening to take further action.

The U.S. Trade Representative said Wednesday that it will open an investigation into China's policies and practices in the maritime, logistics and shipbuilding sectors, a move that came after five national labor unions filed a petition to Katherine Tai's office.

EP Corporate Says Royal Mail Owner IDS Rejected Takeover Proposal

EP Corporate Group said International Distribution Services rejected an approach about a possible offer for the Royal Mail owner.

The private industrial group controlled by Czech billionaire Daniel Kretinsky said Wednesday that it made a nonbinding indicative proposal to the board of IDS seeking its recommendation for a possible cash offer.

Inside Amazon's Secret Operation to Gather Intel on Rivals

For nearly a decade, workers in a warehouse in Seattle's Denny Triangle neighborhood have shipped boxes of shoes, beach chairs, Marvel T-shirts and other items to online retail customers across the U.S.

The operation, called Big River Services International, sells around $1 million a year of goods through e-commerce marketplaces including eBay, Shopify, Walmart and Amazon.com under brand names such as Rapid Cascade and Svea Bliss. "We are entrepreneurs, thinkers, marketers and creators, " Big River says on its website. "We have a passion for customers and aren't afraid to experiment."

Oracle to Invest $8 Billion in Cloud Services in Japan

Oracle plans to invest more than $8 billion in Japan over the next decade to meet the growing demand for cloud computing and artificial intelligence infrastructure in the world's fourth-largest economy.

The U.S. computer technology company said late Wednesday the investment will enlarge the footprint of its cloud infrastructure business in Japan and "significantly expand" its operations and support engineering teams to address digital sovereignty requirements in the country.

United Airlines strikes compensation deal with Boeing for Max groundings, delays

United Airlines Holdings Inc. has struck a deal with Boeing Co. to get compensation for Max jet groundings and delays, the airline said in a filing Wednesday.

The terms of the deal are confidential, United UAL said in the filing. The airline said it stems from damages incurred in the first quarter due to the groundings of Boeing's BA 737 Max 9s and certification delays for the 737 Max 10 aircraft.

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Expected Major Events for Thursday

04:30/NED: Mar Unemployment

06:00/EU: Mar New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

06:00/NOR: 1Q Business tendency survey

06:00/SWI: Mar Trade Balance

07:00/SPN: Feb Industrial Orders & Turnover

08:00/EU: Feb Euro area balance of payments

09:00/ITA: Feb Balance of Payments

09:00/EU: Feb Construction output

17:59/POR: Feb Balance of Payments

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

(END) Dow Jones Newswires

April 18, 2024 00:15 ET (04:15 GMT)

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