European Midday Briefing: Markets Steady as U.S. Inflation Data, Fed Awaited

MARKET WRAPS

Stocks:

Stocks steadied in Europe on Tuesday as traders turned their attention to this week's key U.S. inflation data and the Federal Reserve's interest rate decision.

The central bank is widely expected to hold its benchmark interest rate steady, investors will focus on whether officials pencil in one or two rate cuts for later this year.

Elsewhere, Christine Lagarde said the European Central Bank may leave its key rate unchanged for more than one meeting as it awaits confirmation that inflation is on a path to its target.

"We've made the appropriate decision, but it doesn't mean interest rates are on a linear declining path," Lagarde said in an interview with newspapers. "There might be periods where we hold rates again."

Stocks to Watch

Porsche's challenges in China should give pause to investors in the short and medium terms, Baader Europe/AlphaValue said.

The car maker faces competition in the Chinese market that will compound with expected tariffs to erode margins, Baader said.

Baader Europe/Alpha Value has lowered sales, EBIT, EBIT margin and cash flow estimates for 2024, 2025, and 2026.

U.S. Markets:

Stock futures edged lower, after the S&P and Nasdaq both closed at record highs on Monday.

As well as the Fed, investor focus is on the looming inflation data in the wake of Friday's stronger-than-expected jobs report.

Forex:

The DXY dollar index was steady at around 105, as the Fed starts its two-day meeting, while the euro remained below $1.08, with the prospect of early parliamentary elections in France later this month adding pressure, UniCredit Research said.

"Today's light economic calendar is set to bring more range-bound activity, with the series of European Central Bank officials scheduled to speak throughout the day probably just reiterating that there is still a long way to go until eurozone inflation is defeated."

UBS Global Wealth Management said the dollar remains "richly valued" but it should peak in the third quarter.

"We maintain our view that the dollar should top out in the third quarter, with periods of strength offering opportunities to engage in volatility-selling strategies to pick up additional yield and reduce dollar exposure ahead of rate cuts later this year."

UBS also said the euro is likely to recover later in the year as the eurozone's economy improves, reaching $1.09 by the end of 2024 and $1.11 by March 2025.

"While political uncertainty could prove a near-term headwind for the euro, an improving growth outlook should help the currency later this year," UBS said.

Bonds:

Uncertainty in the run-up to French elections could keep OATs under pressure, but any widening in 10-year OAT-Bund spreads above 55 basis points is an attractive level to buy French bonds, UBS said.

"Widening in 10-year OAT spreads over Bunds above 55 bps should offer an attractive tactical buying opportunity, in our view," UBS said.

Swissquote Bank said it remains to be seen how France will respond to Emmanual Macron calling early elections, but any political turmoil in the next few weeks could lead to higher and wider spreads across EU yields. The latest anxiety comes when the European Central Bank is at a crossroads due to a renewed uptick in inflation, it added.

Gilt yields fell after U.K. labor market data showed an increase in the unemployment rate, keeping intact expectations that the Bank of England could cut interest rates in the coming months, although wage growth remained high.

UniCredit Research said it expected pay growth "to ease materially in the coming months."

Meantime, Pantheon Macroeconomics said the BOE will probably shy away from trimming interest rates while average pay, boosted by an increase to the minimum wage, continues to rise apace.

"Cutting rates with pay growth as strong as this would be unusual."

Energy:

Oil prices eased lower following Monday's rally as investors awaited key U.S. inflation data and the Federal Reserve's policy meeting outcome for more clarity on the path of rate cuts and how that will affect demand.

Metals:

Gold futures continued to struggle to trade outside a recent narrow band.

After stronger-than-expected U.S. jobs data lowered Fed rate-cut expectations, and China's central bank halted its gold purchases the precious metal's price has drifted from its all-time high of $2,450 an ounce in May, ING said.

It said that if the Fed continues its cautious approach to monetary policy easing, gold risks a price pullback, and trading is likely to remain volatile in the coming months as the market reacts to macroeconomic drivers.

Given geopolitical safe-haven demand is also factored into the price, ING expects gold to fall slightly from current levels.

Gold Charts

Gold may rise ahead of this week's FOMC meeting and U.S. CPI report, based on charts, FOREX.com and City Index said.

Gold seems to be holding above support at 50% and 38.2% Fibonacci retracement levels and bullish divergences appear to have emerged on the daily and four-hour relative strength index charts.

A double-bottom pattern formed on the 4-hour chart at $2,286/oz, and prices have pulled back toward these lows after a move higher from double bottom. Bulls could seek to enter long positions around current levels on expectations for gold's rise into the key events.

China Aluminum

China's aluminum sector may see strong margin expansion this year, HSBC Global Research said, with the base metal up 10% year to date on the LME, supported by robust demand.

However, HSBC said there may be downward pressure when Yunnan province, an aluminum producing hub in China, capacity restarts completely.

EMEA HEADLINES

French IT Firm Atos Accepts Rescue Bid From Onepoint Consortium

Atos accepted a financial-restructuring proposal from a consortium including key shareholder Onepoint to salvage the debt-laden French IT firm, outgunning a rival bid from a group led by Czech billionaire Daniel Kretinsky.

The rescue package comes after several tumultuous years for a company with contracts in France's military and nuclear industry that is also the cybersecurity provider for this summer's Paris Olympics.

Budget Computer Maker Raspberry Pi Soars in Opening Trade

Shares of U.K. low-cost computers maker Raspberry Pi rose as much as 36% above their targeted price during their initial trading day, a boost to the London stock market after a string of recent defections.

The company on Tuesday set its share price at 280 pence, the top end of its 260 pence to 280 pence range, implying a market capitalization of around 541.6 million pounds ($689.6 million).

GSK Says Individual Plaintiff in Latest Zantac Case Dropped Claim

GSK said that a plaintiff in an Illinois lawsuit against the company voluntarily dismissed her case, one of many legal disputes alleging its discontinued drug Zantac caused cancer.

The British pharmaceutical giant said late Monday that the trial was scheduled to start yesterday in Illinois, adding that it didn't reach a settlement nor made any payments in exchange for the voluntary case dismissal.

GLOBAL NEWS

Investors on Tenterhooks for Fed's Latest Rate-Cut Projections

Investors will obsess Wednesday over whether Federal Reserve officials pencil in one or two interest rate cuts this year.

For policymakers, difficult decisions and looming divisions over whether and when to cut interest rates are a problem for later-not right now. Instead, the fixation on the quarterly rate projections obscures remarkable cohesion among rate-setters over their wait-and-see stance.

Blinken Pushes Peace Plan on Middle East Tour Despite Skepticism From Israel and Hamas

Secretary of State Antony Blinken began a three-day tour of the Middle East on Monday, meeting with leaders in Egypt and Israel to push a cease-fire plan promoted by President Biden that has been met with skepticism by Hamas and Israel.

Blinken spoke with Israeli Prime Minister Benjamin Netanyahu in Jerusalem after an afternoon meeting with Egyptian President Abdel Fattah Al Sisi in Cairo. Between those meetings, Blinken signaled that his main task would be to prod Hamas toward a deal.

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

(END) Dow Jones Newswires

June 11, 2024 05:33 ET (09:33 GMT)

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