European Midday Briefing: Stocks Drop as Inflation Worries Mount

MARKET WRAPS

Stocks:

European stocks traded lower on Friday, shadowing Thursday's declines in U.S. stocks, as worries about inflation were rekindled when a business report showed U.S. economic activity picked up pace this month.

U.S. stock markets lost a lot of momentum after strong PMI numbers were released, leaving no hope that incipient economic weakness will cause the Federal Reserve to reconsider its wait-and-see strategy, SEB said.

Stocks to Watch

Hargreaves Lansdown could get another offer, Jefferies said after the investment platform received and rejected a takeover bid from a CVC-backed private equity group.

"Were the consortium not actively considering the possibility, no announcement would have been necessary on Wednesday evening."

Jefferies said that investors they had been speaking to suggested that a fresh offer could be sweetened to 1,400 pence. However, some doubted this price given it seems like a big leap from the second 985 pence offer, it added.

The approach provided further confirmation of wider interest in the U.K. wealth sector.

U.S. Markets:

Stock futures were rising slightly after the three major indexes declined in the previous session.

Cryptocurrencies were in focus after the SEC approved the first U.S. exchange-traded funds holding ether .

Stocks to Watch

Boeing led the Dow lower Thursday, falling 7.6% after CFO Brian West warned that free cash flow should be about as bad in the second quarter as it was in the first quarter. Boeing was rising less than 1% in premarket trading.

Nvidia rose 0.3% in premarket trading after rising 9.3% on Thursday following strong quarterly earnings. The stock closed at an all-time high of $1,037.99, and Nvidia gained $221.23 billion in market cap.

Forex:

The dollar index turned slightly lower, trimming gains made Thursday following Fed minutes and strong data ahead of a long weekend due to the U.S. Memorial Day holiday on Monday.

"We don't see a strong argument for directional changes in the dollar crosses today," ING said.

"Domestic stories should remain central amid a relatively quiet U.S. calendar and the Memorial Day break," it said, adding that U.S. durable goods orders for April due at 1230 GMT should come in "on the soft side."

The Swiss franc remained weak at over 0.91 per dollar and at around 0.99 per euro as markets anticipates a further cut in interest rates by the Swiss National Bank, UniCredit Research said.

"Another 25bp rate cut in Switzerland is now only fully priced in by September [while a move in June remains a close call]."

Bonds:

Investors are unlikely to find much conviction to increase duration in the eurozone government bond market for the time being as yields rose on the back of eurozone and U.S. data on Thursday, Commerzbank Research said, adding it sees more value in spreads than duration in this environment.

Besides the periphery, core/semi-core spreads are increasingly moving into focus amid the speculation of EU bonds' inclusion in sovereign index, it said.

Commerzbank Research said that ICE and MSCI are the first index providers considering to include EU in its sovereign indices, which track the performance of a broader range of sovereign debt.

Societe Generale Research said the ECB is motivated to deliver its first interest-rate cut in June, but the path afterwards is increasingly uncertain, given sticky inflation and wages.

Terminal rate expectations reached new highs above 2.75% and may well continue to 3.00%, driving the 10-year German Bund yield back to the 2.75%-3.00% area, it said.

"Yet, it is hard to expect much more as long as the ECB remains biased towards policy easing."

Energy:

Oil edged lower with prices likely to tread water in the run-up to the OPEC+ meeting early in June, Commerzbank said.

With just over a week to go, members of the expanded production cartel have been tight-lipped so far, helping to limit price fluctuations in recent days, Commerzbank added.

Survey-based estimates for OPEC production in May should support prices, and after the meeting, the market is likely to increasingly focus on demand again, it said.

The upcoming Memorial Day weekend marks the start of summer driving season in the U.S., and gasoline demand has already picked up, Commerzbank added.

Metals:

Gold futures edged up and Goldman Sachs said solid demand from emerging central banks and Asian households, and the prospect of eventual lower U.S. interest rates should see bullion rise to $2,700 an ounce by the year end.

Elsewhere, a structural deficit in the market on improving global manufacturing activity, rapid green demand growth and constrained mine supply should see copper prices climb to $12,000 a ton by year-end, Goldman Sachs said.

EMEA HEADLINES

Wood Group Knocks Back Sweetened $1.93 Billion Bid from Sidara

John Wood Group rejected an improved 1.52 billion-pound ($1.93 billion) takeover bid from Sidara, following two prior proposals by the Dubai group.

The Scottish energy-services provider said Friday that the offer of 220 pence a share significantly undervalues the company and its growth prospects.

U.K. Shoppers Spent Less in April as Inflation, Rain Damped Sales

U.K. shoppers held back on spending last month as consumers on both sides of the Atlantic prove reluctant to spend in stores amid still-high price inflation.

Retail sales slipped 2.3% in April compared with a month earlier, more sharply than forecast, Office for National Statistics figures showed Friday. Consumer-price inflation was higher than expected over the month, limiting spending power among U.K. shoppers.

U.K. Consumer Confidence Improves as Inflation Cools Further

Confidence among U.K. consumers rose a little in May, with easing inflation and the expectation of falling Bank of England interest rates set to boost Britons' spending power.

Research group GfK's consumer-confidence barometer climbed for a second-straight month to minus 17 in May, from minus 19 in April, in line with economists' expectations in a Wall Street Journal poll.

Boost for World Economy as U.S., Eurozone Accelerate in Tandem

Global economic growth is becoming more broad based, with surveys indicating that business activity in both the U.S. and the eurozone gained momentum in May.

The eurozone economy contracted in the second half of 2023 following a surge in energy and food prices triggered by Russia's invasion of Ukraine, and the subsequent rise in interest rates intended to tame that inflation.

GLOBAL NEWS

Expect Higher-for-Longer Interest Rates, Fed's Bostic Says

Atlanta Federal Reserve President Raphael Bostic expects to hold interest rates steady for the long haul, noting that a return to the central bank's 2% annual inflation target could be a way off.

"We have to be a little more patient and be more certain that inflation is on its way to 2% before moving," Bostic said in remarks to an M.B.A. macroeconomics class at the Stanford Graduate School of Business on Thursday.

U.S. Real-Estate Fund Details Limits to Investor Redemptions

Starwood Real Estate Income Trust detailed limits to its redemption policies for investors as it slows its real-estate asset sales amid depressed prices.

The $10 billion fund said Thursday that starting this month, it will cap investor redemptions at 0.33% of net asset value each month and 1.0% of NAV each quarter, according to a letter to its shareholders.

Senate Democrats Press Border-Security Vote as Republicans Cry Foul

WASHINGTON-Democrats sought to neutralize one of their biggest vulnerabilities headed into the fall election by forcing Republicans on the record opposing a bipartisan deal on border security, as President Biden prepares to move unilaterally to tighten asylum rules.

The vote failed as expected Thursday afternoon in the Senate, with 43 in favor and 50 opposed. The tally was well short of the 60-vote threshold required for most bills to advance under the chamber's longstanding filibuster rule.

Trump Says His Relationship With Putin Will Help Free Jailed WSJ Reporter Evan Gershkovich

Former President Donald Trump said his relationship with Russian leader Vladimir Putin would help secure the release of Evan Gershkovich, the Wall Street Journal reporter detained in a Moscow jail for more than a year.

In a post on his Truth Social platform on Thursday, Trump said that Gershkovich, whom the U.S. State Department deems wrongfully held, would be released almost immediately after the presidential election "but definitely before I assume office."

Write to ina.kreutz@wsj.com

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May 24, 2024 05:46 ET (09:46 GMT)

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