EMEA Morning Briefing: Shares to Start Out Little Changed After Fed's Hawkish Minutes

MARKET WRAPS

Watch For:

Flash PMI data for eurozone, Germany, France, UK; EU flash consumer confidence indicator; trading updates from Aviva, Julius Baer, Investec, International Distributions Services, National Grid, Johnson Matthey

Opening Call:

Shares could open little changed in Europe on Thursday after minutes of the U.S. Federal Reserve's latest policy meeting raised the possibility of another rate hike. In Asia, stock benchmarks were mixed; Treasury yields were flat; the dollar consolidated; while oil and gold lost ground.

Equities:

European shares are likely to start out barely changed on Thursday, as the Fed minutes showed concerns about persisting inflation and cast more doubt on when officials might cut interest rates.

Weekly data are expected to reaffirm the resilience of the U.S. labor market, potentially supporting forecasts of a slow Fed pivot into interest-rate cutting.

Meanwhile, British Prime Minister Rishi Sunak calling a general election for July 4 didn't alleviate the market's disappointment with a higher-than-expected inflation figure, AJ Bell said.

Although Sunak said inflation was back to normal and declared brighter days were ahead, investors focused on the 2.3% figure being higher than forecasts of 2.1%, it said.

Forex:

The dollar was steady in Asia, underpinned by hawkish minutes from the FOMC's latest meeting, which sustain prospects for U.S. rates to stay higher for longer, analysts said.

These prospects may support the allure of U.S. fixed-income assets and demand for the greenback.

Market participants perceived the minutes to surprise on the hawkish side, Maybank said.

The key takeaways from the minutes include officials seeing inflation easing more slowly and various officials willing to tighten more if needed, it added.

Bonds:

Treasury yields were flat after the Fed minutes corroborated the narrative that upcoming data will determine future monetary policy moves.

"Members agreed that they did not expect that it would be appropriate to reduce the target range until they have gained greater confidence that inflation is moving sustainably," down to 2%, the minutes said.

Energy:

Oil fell, dragged by bearish data on demand, stockpiles and refining.

Data including rising oil inventories, tepid demand and refinery margin weakness continue to weigh on oil prices, Citi Research said.

Given this backdrop, OPEC+ is likely to maintain its production cuts through the third quarter and possibly for the rest of 2024 and into the first half of 2025, it added.

Metals:

Gold edged lower in Asia.

Prices are retreating after record highs earlier this week as traders take profit, SP Angel said.

Gold prices were propelled upward by powerful Asian trading and Western countries selling their reserves, it said.

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Copper prices were lower amid risk-off sentiment.

After gaining more than 22% this year, the red metal's rally has accelerated in recent weeks as investors bet on a tightening global market, ANZ Research said.

However, signs of lackluster demand in China have led some to close out bullish positions and lock in profits, it said.

Chinese copper rod producers have cut or stopped production due to slowing sales, it added, citing data from Mysteel Global.

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Iron-ore futures were lower in a possible technical correction.

The black metal has jumped to its highest level since early March amid improving sentiment, ANZ said.

China recently announced a major change of its property policy to support the sector, which could potentially boost iron ore demand.

TODAY'S TOP HEADLINES

Fed Officials Saw Longer Wait for Rate Cuts After Inflation Setbacks

Federal Reserve officials concluded at their most recent meeting they would need to hold interest rates at their current level for longer than they previously anticipated after a third straight disappointing inflation reading last month.

While officials continued to think interest rates were high enough to slow the economy and inflation, they signaled they were less certain over the degree to which rates would restrain activity and price pressures, according to minutes of the April 30-May 1 meeting, which were released Wednesday with a customary three-week delay.

Some Fed Officials Disagreed With Balance-Sheet Plans, Minutes Show

Federal Reserve officials weren't entirely in lockstep at their latest policy meeting on plans to start reducing the central bank's balance-sheet runoff, and at least a couple said they'd be willing to consider interest-rate hikes in the face of stronger inflation readings.

The publication of the minutes from the Federal Open Market Committee's April 30-May 1 meeting on Wednesday struck a more hawkish tone that dwelled heavily on the lack of progress seen in tamping down inflation during the first quarter.

Some European Countries Move to Recognize Palestinian State

Three European nations said they would recognize an independent Palestinian state, reflecting deepening international frustration with Israel's war in Gaza, where the Israeli military was moving deeper into Rafah to shore up its control of the besieged enclave's border with Egypt.

Norway, Spain and Ireland said on Wednesday that they were taking the necessary steps to bring into effect their recognition of a Palestinian state and expected other countries to follow in the coming weeks. The move runs counter to Washington's long-held position that a future state comprising the Gaza Strip, the West Bank and East Jerusalem should come about through a negotiated solution to the Israeli-Palestinian conflict.

Justice Department Opts Not to Charge Merck KGaA Subsidiary Over Export Controls Scheme

The Justice Department said Wednesday that it won't bring charges against life-sciences and electronics company Merck KGaA's North American unit after it proactively disclosed information about a scheme by a company insider and others to export sensitive biochemicals to China.

Instead, according to federal prosecutors, two of the men involved in the scheme had pleaded guilty to wire fraud conspiracy charges.

Oaktree Capital Takes Control of Inter Milan, Italy's Soccer Champions

U.S. investor Oaktree Capital has seized control of FC Inter Milan after the owners of the Italian champions failed to repay a rescue loan, marking Wall Street's latest foray into European soccer.

Oaktree is capitalizing on a loan it made at the height of the Covid pandemic to take over from a Chinese conglomerate that used the borrowed money to keep the team afloat.

Ukraine, U.S. Say Russia Is Deploying Banned Toxic Gas in Battle

KYIV, Ukraine-The Ukrainian soldiers were hunkered down last month in a front-line dugout and under siege from Russian drones dropping grenades. They were relieved at first when bomblets landed that didn't explode. Then a strong smell of chlorine filled the air: The grenades were seeping poisonous gas.

The Ukrainians felt their skin sting, eyes water and lungs fill with smoke, provoking a hard cough. They rushed to wet rags with water and place them over their faces as the heavy gas filled the air around them. One of the fighters left the protection of the dugout to distract the enemy drones, allowing his compatriots to escape.

British Leader Sunak Calls Snap Election as His Party Trails in Polls

LONDON-British Prime Minister Rishi Sunak called a surprise summer election for July 4, a gamble by the British leader to galvanize his restive Conservative Party as it trails the opposition Labour Party by double digits in the polls.

Sunak, standing in drenching rain outside 10 Downing Street on Wednesday, said he had spoken to King Charles and asked for Parliament to be dissolved, setting the stage for a brief campaign before the vote. "Now is the moment for Britain to choose its future," he said.

Justice Department to Sue Live Nation, Seek Breakup of Concert and Ticketing Giant

The Justice Department and a group of states plan to sue Live Nation on Thursday, alleging the entertainment giant has used its ticketing monopoly to suppress competition and should be broken up, according to people familiar with the matter.

The lawsuit, to be filed in a New York federal court, would seek changes to the company's business practices, including by asking a judge to effectively undo the 2010 merger of Live Nation and Ticketmaster. The Justice Department during the Obama administration allowed the merger to close despite concerns it would create an indomitable live-entertainment giant.

Nvidia's Sales Triple, Signaling AI Boom's Staying Power

Nvidia delivered a record quarter and signaled that the AI boom is still going strong, driving its already meteoric stock up Wednesday evening above $1,000 a share.

The chips made by Nvidia have powered the rise of artificial intelligence, which is threatening to disrupt virtually every major industry. Chief Executive Jensen Huang declared the beginning of a new industrial revolution where Nvidia was helping turn $1 trillion of data centers into "AI factories."

Rio Tinto Faces Class Action Over Bougainville Mine Impact

A class action against Rio Tinto has been filed in a Papua New Guinea court in relation to a long-shuttered copper mine that it offloaded in 2016 and was at the center of a decadelong civil war.

Mining at the Panguna copper pit on the South Pacific island of Bougainville ended in 1989 when militants forced the operation to shut down. Nearly three decades later, Rio Tinto handed over its almost 54% holding in operator Bougainville Copper to be distributed between Papua New Guinea and Bougainville.

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Expected Major Events for Thursday

04:30/NED: May Consumer confidence survey

06:00/DEN: May Consumer expectations

06:00/DEN: 1Q Labour force survey

07:15/FRA: May France Flash PMI

07:30/GER: May Germany Flash PMI

08:00/POL: Apr Agricultural prices

08:00/POL: Apr Retail Sales

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May 23, 2024 00:15 ET (04:15 GMT)

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