European Midday Briefing: Stocks Rise on Renewed Fed Rate-Cut Hopes

MARKET WRAPS

Stocks:

European stocks traded higher on Friday on renewed hopes for potential Federal Reserve interest rate cuts later this year.

Equity markets were supported by U.S. data showing an unexpectedly high number of jobless claims--another indication that the labor market is starting to slow, which is needed to pave the way for Fed cuts later this year, SEB said.

The U.K. economy returned to growth in the first three months of the year, a sign that the country is beginning to recover from the damage caused by Russia's invasion of Ukraine.

However, Ebury said the stronger-than-expected GDP data hasn't shifted markets' expectations of a 50/50 chance of a Bank of England interest-rate cut in June.

Stocks to Watch

The Bank of England's rate-path comment doesn't alter JPMorgan's positive view on the country's lenders . U.K. banks such as NatWest, Lloyds Banking Group and Barclays have relatively low sensitivity to short rates compared to long rates, so the steepness of the yield curve will be the key focus throughout the rate cycle, JPM said.

Siemens Energy shares' upside potential seem much more limited now after the company delivered solid 2Q results and raised its guidance, making it a good time for investors to take profit, Barclays said, cutting its share rating to equalweight from overweight.

U.S. Markets:

Stock futures were rising modestly, extending a rally that has been boosted by strong earnings and data that support the belief that the Fed might be able to cut interest rates this year.

Stocks to Watch

Novavax was rising 36% after signing a co-exclusive licensing agreement with French drugmaker Sanofi for its Covid vaccine starting in 2025.

TSMC revenue in April soared 60% on the year. Its ADRs rose 3%. Nvidia, Advanced Micro Devices, and Micron Technology rose premarket after TSMC's results.

Forex:

Two-year gilt yield and sterling edged higher after the latest U.K. GDP data came in stronger than forecast.

"We suspect that [the GDP data] puts a notable dent in the calls for a June start to policy easing, even in spite of [Thursday's BOE] communications," Monex said.

Energy:

Oil prices were on track for weekly gains, driven by persistent geopolitical risks in the Middle East and positive demand signals from top consumers the U.S. and China.

A weekly fall in U.S. crude inventories and China's latest trade data showing higher crude imports in April supported oil markets this week, suggesting a recovery in demand.

Metals:

Gold rose to its highest price since late April's crash on renewed hopes for Fed interest-rate cuts.

Inflation data due next week will offer further insights into the U.S. economy, BMI said.

"We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy," it added.

Copper

With the pace of copper demand from electric vehicles now tipped to be slower than previously envisaged, there's a rising focus on how much of that slack could be picked up by growth in metal-intensive data centers and associated infrastructure, Bank of America said.

"Estimating the impact of data centers on copper demand is tricky, because the sector is evolving fast."

BofA estimates copper demand directly from data centers could be around 200,000 metric tons a year between 2025 and 2028.

Investment in electricity to feed data centers could fuel further demand of at least 500,000 tons annually, although that could be as high as 1 million tons a year to 2026, it added.

EMEA HEADLINES

IAG Says It Is Well Positioned for the Summer as Earnings Rose

International Consolidated Airlines Group reported an increase in operating profit and said that it was well positioned for the summer after strong demand boosted revenue for the first quarter of the year.

The airline group, whose companies include British Airways, Iberia and Vueling among others, said it made 68 million euros ($73.3 million) in operating profit in the period, compared with EUR9 million a year prior.

Novo Nordisk Sets Sights on a Long-Lasting Successor to Its Weight Loss Blockbuster

Novo Nordisk has ridden the monster wave of enthusiasm over Wegovy, its once-weekly obesity shot, to become Europe's most valuable company. Now, it says it is beginning work on a follow-up weight loss medicine that would last longer and could be manufactured more easily.

On Thursday, the company unveiled a research project aimed at adding up to two more obesity treatments to its large pipeline, which already includes a long list of experimental obesity drugs being tested in clinical trials.

Salvatore Ferragamo Revenue Dragged by Weakness in China Market

Salvatore Ferragamo booked lower revenue for the first quarter, weighed by a weak consumer environment in China and the soft performance of its wholesale channel.

The Italian maker of luxury footwear and leather goods posted revenue of EUR226.97 million ($244 million) compared with EUR277.95 million in the year-earlier period.

Saudi Arabia's Economy Isn't Just About Oil. 4 Stocks to Consider.

The war in Gaza drives home the image of a Middle East stagnating amid bloody, irresolvable conflicts. Not everywhere, though.

Former conservative bulwark Saudi Arabia has become one of the world's fastest-changing societies, with economic ambitions to match. Under the de facto leadership of Mohammed bin Salman, female employment has doubled, and formerly nonexistent entertainment and leisure industries have sprung to life.

GLOBAL NEWS

The Dow Is a Terrible Index. But It Is Telling Us Something Important.

The Dow Jones Industrial Average is a relic. It is also having its worst period of underperformance of the S&P 500 since the dot-com bubble, and before that, the soaring inflation and interest rates of the late 1970s and early 1980s. The Dow's terrible performance could be a sign that we're at another turning point for the markets.

In one sense, it definitely is a turning point. The Dow is a measure of companies that used to be considered great, while the S&P is dominated by companies that are currently considered great. In times of change, the two move apart, as the S&P rebalances toward the newest companies, and the Dow doesn't.

Fed's Mary Daly Sees 'a Really Healthy Labor Market'

San Francisco Fed President Mary Daly believes the U.S. economy is normalizing, and that includes the labor market. But it's far from weak.

"There's a sense that the economy is on a more stable footing," Daly said at an event at George Mason University's Mercatus Center. There's a difference in the U.S. labor market "getting softer and being weak," Daly said, acknowledging that initial claims rose in the latest report released Thursday and that April's jobs report came in weaker than expected.

House Democrats' Surprise Campaign Play: Embracing Border Security

WASHINGTON-Some House Democrats are leaning into border security on the campaign trail after years of playing defense against Republican criticism, hoping to defuse a top political liability headed into the fall elections.

The party now argues that Democrats in competitive races can run on fixing the border, while painting Republicans as obstructionists for rejecting the Senate's bipartisan border deal, according to a memo from House Democrats' campaign arm. Republicans currently have a 217-213 majority in the House, and the fight for control of the chamber is seen as a tossup.

Biden's Threat to Freeze Some Weapons Deliveries Raises Alarm in Israel

TEL AVIV-President Biden's threat to withhold some weapons deliveries to Israel set up a high-stakes showdown with Prime Minister Benjamin Netanyahu and raised alarms in the country about a rupture in relations with its most important international supporter.

Israeli officials and analysts said Biden's warning appeared to be a political message that in the short term wouldn't affect Israel's ability to wage war. But the country's long-term ability to fight on several fronts could be threatened if the U.S. president followed through on his threat to pause more weapons deliveries if Israel launches a major assault in the southern Gaza city of Rafah. More than one million Palestinians are sheltering there from the war.

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

(END) Dow Jones Newswires

May 10, 2024 06:08 ET (10:08 GMT)

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