EMEA Morning Briefing: Stocks May Rise as Easing U.S. Inflation Raises Rate Cut Hopes

MARKET WRAPS

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No major economic data expected; trading updates from Siemens, Deutsche Telekom, Swiss Re, Zurich Insurance, Sage Group, BT Group, easyJet, United Utilities Group

Opening Call:

Stock futures were tracking higher on renewed rate cut hopes following soft U.S. inflation data. In Asia, stock benchmarks rose; Treasury yields fell; the dollar edged lower; while oil gained and gold weakened.

Equities:

European shares were set to open higher after U.S. stock indexes advanced to record highs Wednesday. Easing consumer prices in April offered relief to investors and the Federal Reserve after a run of economic data at the start of the year revealed simmering price pressures.

This is a very comforting report and consistent with the view of a soft landing, said Erica Groshen, a senior economic adviser at the Cornell University School of Industrial and Labor Relations.

Minneapolis Federal Reserve President Neel Kashkari said Wednesday that he expects central bank policymakers will need to keep interest rates unchanged "a while longer."

"To get inflation in that 2% lane-and reliably in that 2% lane-you really need everything to go perfectly," said Lara Rhame, chief U.S. economist at FS Investments. "We're still not in that world."

Forex:

The dollar edged lower in Asia, after U.S. inflation eased in April, raising market expectations of the Fed cutting interest rates in the coming months which would undermine the allure of U.S. fixed-income assets and demand for the greenback.

The weaker inflation and retail sales readings out of the U.S. overnight were what the greenback needed to move lower, Maybank analysts said. Markets now expect around 50bps worth of Fed rate cuts this year, they added.

Bonds:

U.S. Treasurys yields maintained their downtrend after consumer inflation came in below expectations for April.

"The first downside surprise in inflation since the turn of the year will be a relief to the niggling concerns that inflation was starting to trend upwards again," said Seema Shah, chief global strategist for Principal Asset Management.

"However, the weaker-than-expected retail-sales number needs to be watched - cooling consumer spending is good, but if that transitions into a deeper slowdown it could herald some economic problems that markets would not welcome," Shah said.

Energy:

Oil futures rose, buoyed by a second straight weekly decline in U.S. crude supplies, as a slowdown in the U.S. inflation lifted prospects for interest-rate cuts and the potential for stronger energy demand.

"A shift to a modest easing bias should help demand as we head into the peak demand season for the Northern Hemisphere in the summer," Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

"Improving economic data from Europe and China should lift global activity and demand," he added.

Metals:

Gold edged lower in Asia. While CPI did fall marginally to 3.4%, inflation is proving too sticky to suggest when interest rate cuts might begin, said Lindsay James, investment strategist at Quilter Investors.

Higher interest rates for longer are typically a headwind for non-interest bearing bullion. The data meeting market expectations indicates the Fed might cut rates once this year, but the picture remains incredibly volatile, James added.

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Copper rose, paring some gains after hitting a record high overnight. The rally earlier this year, triggered by mine closures, has been boosted by rising competition from end users for critical minerals, and the U.S. tariffs on Chinese imports, ANZ Research said.

U.S. government data at the end of April showed that there has been rising investor interest as non-commercial speculative investors amassed the biggest net long position in the metal since 2021, it added.

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Iron ore gained amid better investor sentiment.

A slew of recent property stimulus policies in China's Tier-1 and Tier-2 cities have boosted the anticipation for better demand in infrastructure and real estate sectors, Guotai Junan Futures analysts said.

TODAY'S TOP HEADLINES

Fed's Kashkari Sees Rates on Hold for Longer

Minneapolis Federal Reserve President Neel Kashkari said Wednesday that he expects central bank policymakers will need to keep interest rates unchanged "a while longer," until they are confident about the underlying path of inflation.

In a discussion at the Williston Basin Petroleum Conference, Kashkari reiterated that he has been surprised at the resilience of the U.S. economy in the face of higher interest rates so far.

Netanyahu Rejects U.S. Calls for Postwar Plan in Gaza

For days, senior Biden administration officials have pressured Israel to plan for postwar Gaza as the long-anticipated Rafah offensive gets under way. Israeli Prime Minister Benjamin Netanyahu finally delivered his response: Not so fast.

On Wednesday, Netanyahu rejected the U.S. demands, arguing that it would be "just chatter" while Hamas remains intact.

Russia Launched Research Spacecraft for Antisatellite Nuclear Weapon Two Years Ago, U.S. Officials Say

WASHINGTON-Russia launched a satellite into space in February 2022 that is designed to test components for a potential antisatellite weapon that would carry a nuclear device, U.S. officials said.

The satellite that was launched doesn't carry a nuclear weapon. But U.S. officials say it is linked to a continuing Russian nuclear antisatellite program that has been a growing worry for the Biden administration, Congress and experts outside government in recent months. The weapon, if deployed, would give Moscow the ability to destroy hundreds of satellites in low-Earth orbit with a nuclear blast.

Aflac Is Buying a Stake in a Direct Lender, Getting a Piece of the Private Credit Boom

Aflac is acquiring a 40% stake in Tree Line Capital Partners, a private-credit shop focused on lending to small and medium-size companies, according to people familiar with the matter.

IBM Selling Cloud Security Software to Palo Alto Networks in Broader Cyber Strategy Shift

International Business Machines is selling its cloud-based QRadar cybersecurity software to Palo Alto Networks as the two technology companies deepen their partnership in jointly selling and developing artificial intelligence-powered security products.

Neither company disclosed the price of the sale, which is subject to regulatory approval and expected to close by the end of September.

Warren Buffett's Berkshire Reveals Its Mystery Stock: Chubb

Warren Buffett's Berkshire Hathaway unveiled a big investment in Chubb, resolving a mystery that has intrigued followers of the Omaha, Neb., company.

Berkshire's stake in the insurer was worth $6.7 billion at the end of March, according to a regulatory filing made public after the market closed Wednesday. It gave Berkshire ownership of 6.4% of Chubb, according to Dow Jones Market Data. Berkshire amended earlier filings to show it had been building the position in the second half of 2023.

Soros Fund Management dumps New York Community Bank stake

Soros Fund Management, the family office founded by billionaire trading legend George Soros, eliminated its stake in New York Community Bank in the first quarter, according to a regulatory filing on Wednesday.

Soros Fund Management sold more than 1.476 million shares of the lender NYCB, eliminating its stake as of March 31.

Bill Ackman's Pershing Square dumps stake in Lowe's, keeps Google

Hedge-fund manager Bill Ackman's Pershing Square Capital Management liquidated its shares of Lowe's Cos. in the first quarter, according to a regulatory filing Wednesday.

Pershing Square previously owned about 1.2 million shares in the home-improvement retailer, valued around $277.2 million as of mid-February.

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Expected Major Events for Thursday

04:30/NED: Apr Unemployment

06:00/NOR: Mar Monthly GDP

07:00/SVK: Mar New orders in industry

08:00/ITA: Apr CPI

08:30/UK: 1Q Mortgage and landlord possession statistics

09:00/ITA: Mar Foreign Trade EU

10:00/FRA: Mar OECD Harmonised Unemployment Rates

10:00/IRL: Mar Goods Exports and Imports

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May 16, 2024 00:16 ET (04:16 GMT)

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