EMEA Morning Briefing: Stock Futures Fall as Traders Push Back Fed Cut Bets

MARKET WRAPS

Watch For:

Germany GDP; France monthly business survey; UK retail sales; no major corporate updates expected

Opening Call:

European stock futures were lower early Friday. Asian stock benchmarks tracked Wall Street lower; the dollar steadied; Treasury yields edged lower; oil futures were little changed; while gold fell slightly.

Equities:

Stock futures declined early Friday, tracking Wall Street and Asia lower.

"Underneath the hood, the market has a really risk-off tone," said Adam Phillips, managing director of investments at EP Wealth Advisors.

In recent months, investors have been recalibrating their expectations on inflation in the U.S. and when the Federal Reserve might cut interest rates. A string of hotter-than-expected inflation reports dashed investors' hopes for as many as six or seven rate cuts this year, but more encouraging information in recent weeks has kept hopes alive for cuts in 2024.

On Thursday, worries about inflation were rekindled when a business report showed U.S. economic activity picked up pace this month. The S&P Global Flash U.S. Composite PMI rose to 54.4 in May from 51.3 in April, its highest level in more than two years.

Forex:

The dollar is boosted by reduced bets for Fed rate cuts. Latest U.S. data suggests the country's economy has remained resilient, said MUFG Bank. Together with sticky U.S. core services inflation and hawkish Fed minutes, the U.S. central bank probably won't be lowering rates anytime soon, MUFG added.

Bonds:

Treasury yields rose overnight after data showed the U.S. economy continued to expand in May. A pair of S&P surveys found that the economy gained speed even though inflation persisted.

"We had long been expecting weakness to develop in the labor market as a consequence of a pullback amongst inflation-fatigued consumers that would motivate businesses to lay off workers in pursuit of lower costs and margin recovery. It is now clear to us that this simply isn't happening," said economist Thomas Simons of Jefferies.

Energy:

Oil steadied in Asia amid reduced bets for Fed rate cuts. Strong U.S. PMI data released overnight has been the driver, said National Australia Bank. Fed rate-cut expectations have been trimmed, with a full cut now not priced until December and 35 bps worth of cuts priced to end-2024, NAB added.

A "reintroduction of interest-rate increases, if inflation rises, would hurt demand," said Hargreaves Lansdown.

Metals:

Gold continued its pullback in early Asian trade. Although the market has "sold off rather drastically" in the last few days, Fx Empire said the precious metal market is bullish.

"The market continues to enjoy central bank buying with it coming out and supporting it," Fx Empire said. Investors still want hard assets and Fx Empire doesn't see this changing in the short-term. "So gold should continue to appreciate in value," it added.

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Copper edged lower amid demand worries. Chinese fabricators are likely to reduce run rates at factories to 66% of capacity this month, according to a survey conducted by Shanghai Metals Markets, ANZ said.

Softness in demand is also occurring in inventories, with stockpiles at warehouses monitored by Shanghai Futures Exchange hitting their highest level for this time of the year, ANZ added.

TODAY'S TOP HEADLINES

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.

SEC Widens Accessibility of Crypto Investing With Approval of ETFs for Ether

The Securities and Exchange Commission approved the first U.S. exchange-traded funds holding ether, the largest cryptocurrency behind bitcoin, in an about-face that surprised the crypto community.

The new funds, known as spot ether ETFs because they buy and sell the digital currency itself, will allow mainstream investors to buy and sell ether as easily as stocks or mutual funds. Ether is the in-house token on the Ethereum blockchain, an open software platform for developers to build and operate crypto applications, much like iOS or Android.

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.

Big Tech Moves More AI Spending Abroad

As Big Tech ramps up spending on artificial intelligence, companies are increasingly looking overseas, investing billions of dollars to build out AI infrastructure.

So far this year, Microsoft and Amazon have earmarked more than $40 billion combined for investments in AI-related and data center projects worldwide.

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Expected Major Events for Friday

05:00/FIN: Apr PPI

06:00/SWE: 1Q Industrial inventories

06:00/DEN: May Business tendency survey

06:00/GER: 1Q GDP - Detailed breakdown

06:00/UK: Apr UK monthly retail sales figures

06:00/SWE: Apr PPI

06:30/HUN: Apr Employment & unemployment

06:45/FRA: May Monthly business survey (goods-producing industries)

07:00/CZE: May Business cycle survey (consumer/business confidence)

07:00/SPN: Apr PPI

09:00/MLT: Apr Registered Unemployed

09:00/LUX: Mar Trade

12:00/POL: Apr Broad money M3

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

(END) Dow Jones Newswires

May 24, 2024 00:16 ET (04:16 GMT)

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