European Midday Briefing: Mood Cautious Ahead of More U.S Tech, Key Data

MARKET WRAPS

Stocks:

Reduced risk appetite weighed on European stocks on Thursday with investor focus on U.S. tech earnings and some key U.S. data, including the latest GDP print.

"A strong GDP reading would suggest that the U.S. economy is sufficiently strong to support corporate earnings, but it could also delay expectations for a Fed rate cut," Swissquote Bank said.

"Conversely, a softer-than-expected GDP figure would likely increase expectations for a rate cut, especially if earnings disappoint due to inflated expectations."

U.S. Markets:

The "Magnificent Seven" stocks are in the spotlight on Wall Street ahead of more big-tech earnings.

Microsoft and Alphabet are set to report after the market close, following results from Meta Platforms late on Wednesday and Tesla earlier this week.

Coming up, investors will also eye the advance estimate of first-quarter GDP, plus a batch of other earnings from companies including Merck and Caterpillar.

In recent trading:

Stock futures fell, with contracts tied to the tech-focused Nasdaq-100 posting the biggest losses.

Forex:

USD/JPY is in focus as it trades above the 155 level many thought would trigger intervention, ING said. Intervention need has to come from market conditions, "and one can argue we are not there yet."

USD/JPY's one-month implied volatility was 12%-15% when BOJ entered the market to sell $20 billion on a single day in September 2022, and the 20-day rate of change was 5%-8%, ING said.

The one-month volatility is now below 10% and the 20-day rate near 3% which makes it hard for officials to say they're responding to disorderly FX moves. USD/JPY at 156-157 may bring intervention closer, but those that see it happening closer to 160 also have a point, ING added.

MUFG said verbal intervention by Japanese officials is becoming less effective at slowing yen weakness.

"After Japanese officials chose not to intervene to defend the 152.00 and 155.00 levels, it has raised doubts over their willingness to intervene directly in the foreign exchange market...when U.S. yields and the dollar are continuing to adjust higher," MUFG said. Even direct intervention could prove ineffective beyond an initial yen boost, it added.

Bonds:

Bund yields edged higher after an above-forecast GfK consumer sentiment index added to the better-than-expected German data this week.

French government bonds look priced for rating risks, Citi Research said.

Fitch and Moody's are set to review France on Friday, while S&P's decision is due May 31.

"We see this [Friday] as the key rating event for OATs, as a S&P downgrade on 31 May is likely somewhat priced," Citi said.

Anything short of a rating downgrade this week is likely to drive some relief rally in OATs, which might then be followed by a sharply declining net supply in May, it added.

Treasury yields remain elevated, which means the demand for Treasurys is likely to remain robust, MFS Investment Management said.

However, "in terms of the potential for yields to go down, thereby helping the total return of fixed income, we see a stronger potential in the eurozone," it said.

MFS expects the European Central Bank to be more proactive with its easing cycle than the Federal Reserve. "In other words, our duration conviction is higher in Europe."

Energy:

Oil prices edged higher on positive demand signs after U.S. crude inventories fell for the first time in five weeks. Traders now await key U.S. economic and inflation data later this week for more cues on the Federal Reserve's monetary policy outlook.

Metals:

Base metals were mixed and gold lower before the latest U.S. GDP data.

BHP could cement its industry-leading position in copper, should the proposed takeover of Anglo American come to fruition, RBC Capital Markets said.

"The most coveted assets in Anglo's portfolio will be its Peruvian and Chilean copper assets," RBC said, citing the Collahuasi and Los Bronces mines as top-ten producing operations globally.

A merger would elevate Australian heavyweight BHP to be the largest copper producer globally, RBC said.

"In our view, the copper assets are the primary driver of a proposed transaction."

EMEA HEADLINES

BNP Paribas Confirms Guidance After Wide Earnings Beat

BNP Paribas backed its guidance for 2024 as it reported better-than-expected first-quarter earnings with strong results across its divisions that offset some weakness in its fixed income unit.

The French lender-which is the largest in the eurozone by market capitalization-said that its net profit for the three months ended March 31 slipped 2.2% on-year to 3.10 billion euros ($3.32 billion). Analysts estimates taken from a consensus compiled by Visible Alpha had the figure at EUR2.20 billion.

Deutsche Bank Profit Lifted by Investment Banking Rebound

Deutsche Bank reported a higher profit for the first quarter due to cost controls and a rebound in investment-banking revenue that helped it offset the impact from stabilizing interest rates.

The German lender said Thursday that aftertax profit for the quarter was 1.45 billion euros ($1.55 billion), up 10% compared with the same period last year. Net profit climbed 10% to EUR1.275 billion.

Unilever Boosted by Power Brands as Consumers Trade Back Up

Dove soap owner Unilever backed its full-year guidance after reporting better than-expected turnover for the first quarter on higher volumes that were boosted by its power brands.

The Anglo-Dutch multisector retailer-which also owns consumer brands such as Cif and Domestos cleaning products-continues to expect sales to grow 3% to 5% this year and a modest improvement in operating margin, both on an underlying basis.

Nestle Sales Growth Slows Sharply as Consumer Demand Remains Weak

Nestle's organic sales growth slowed sharply in the first months of the year as consumer demand remained weak, particularly in North America, while supply-chain disruptions continued to hold back volumes.

The Swiss maker of KitKat chocolate bars and Nescafe coffee said Thursday that organic sales rose 1.4% in the first-quarter, missing a company-compiled consensus of 2.9% and compared to 9.3% in the same quarter last year.

STMicroelectronics Cuts Sales Guidance Amid Automotive Market Slowdown

STMicroelectronics lowered its sales and margin forecasts for the year after posting revenue below analysts' expectations for the first quarter as it grapples with slower demand for chips from the automotive industry.

The European chip maker said Thursday that it now expects revenue of $14 billion to $15 billion this year compared with a previous range of $15.9 billion to $16.9 billion. Meanwhile, its gross margin is now expected to be in the low 40s compared with the previously forecast low to mid-40s.

WPP Reports Revenue Hit From Tech Pullback

WPP logged in the first quarter its worst performance since late 2020, hurt by a pullback in spending by technology clients and project delays, but said it is on track to return to growth later this year.

The London-based advertising group said Thursday that its closely watched like-for-like revenue less pass-through costs fell 1.6% in the first three months of the year compared with the same period last year. Analysts polled by Visible Alpha had forecast a drop of 1.1%.

AstraZeneca Earnings, Sales Rise, Beat Forecasts

AstraZeneca posted increased first-quarter core earnings per share and sales that beat forecasts.

The Anglo-Swedish pharmaceutical giant said Thursday that its core earnings per share increased to $2.06 from $1.92 the prior-year period.

Sanofi Sales, Profit Beat Expectations

Sanofi backed its full-year guidance after first-quarter sales and profit beat analysts expectations.

The French pharmaceutical company said Thursday that its business operating profit-one of the company's preferred metrics, which strips out exceptional items-fell 15% to 2.84 billion euros ($3.04 billion). The company's profitability was hit partly by higher costs.

Hipgnosis Songs Fund Agrees to Improved Concord Offer as Takeover Battle Heats Up

Hipgnosis Songs Fund, home to the catalog of artists such as Neil Young, Shakira and Red Hot Chili Peppers, has agreed to an improved $1.51 billion takeover by Apollo-backed music company Concord Chorus, trumping a rival offer from Blackstone.

Hipgnosis said late Wednesday that accepting shareholders would get $1.25 in cash for each share held, up from Concord's previous offer of $1.16 agreed on April 18 and Blackstone's offer of $1.24 that the company had said it would be prepared to recommend to shareholders if a formal offer was made.

Swedbank Earnings Dragged by Lower Interest Income; To Integrate Operations Tackling Financial Crime

Swedbank's earnings fell on quarter in the first three months of 2024 amid lower interest income, but the bank said an improving economy should boost performance over the year as it looks to move on from tangles with regulators over money laundering.

Pretax profit fell 4% to 10.65 billion kronor ($978.8 million) compared with the last quarter of 2023, the Swedish bank said Thursday.

Dassault Systemes Backs Guidance After Revenue Increase

Dassault Systemes confirmed its full-year expectations after posting an increase in revenue for the first three months.

Reporting on a non-IFRS basis, the French software maker said Thursday that overall first-quarter revenue climbed to 1.5 billion euros ($1.61 billion) from EUR1.43 billion in the year-earlier period.

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