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EMEA Morning Briefing: More U.S. Data Eyed After Fed Strikes Cautious Tone

MARKET WRAPS

Watch For:

EU Industrial Production; trading updates from Halma, Fuller Smith & Turner

Opening Call:

European stock futures were tracking lower as markets digested the softer U.S. CPI data and the Fed's projection for one rate cut this year. Asian stock benchmarks were mixed; the dollar edged higher; Treasurys steadied; while oil and gold futures declined.

Equities:

Stocks in Europe were headed to a lower open as the market digested the Fed's dot plot pointing to one rate cut this year. The Fed held interest rates steady as expected.

Overall Powell was "disciplined and vague" and "optimistic and cautious" during his press conference, a former top Fed staffer said.

The S&P 500 and the Nasdaq Composite climbed to new records on Wednesday after easing inflation data prompted traders to bolster bets that the Fed will cut rates this year. Traders are still betting on two cuts in 2024 after the Fed's projections were released.

"Having that acknowledgment by the committee that inflation is coming down, moving in the right direction and toward the Fed's 2% target is important," said Quincy Krosby, chief global strategist for LPL Financial.

The markets get to parse more U.S. data with the PPI and the weekly jobless claims due later in the day.

Forex:

HSBC Global Research said it expected the USD to remain strong, underpinned by supportive yields, their forecast of just one rate Fed cut this year, and monetary easing outside of the U.S.

However, the scale of any USD gains was likely to be constrained by the buoyant level of risk appetite and signs of improving economic growth outside the U.S., it added.

Bonds:

The coming U.K. elections are expected to have very little impact on U.K. government bonds, or gilts, HSBC said. "While the election is a near-term distraction, we expect its impact on gilts to be minimal."

Investors' attention is likely to be on macroeconomic data ahead of the Bank of England policy meeting in August when the central bank could start cutting interest rates, it said.

Markets have priced in 11 basis points BOE cut in August, and 31bps rate reduction in November, according to Refinitiv data. "We think markets are significantly under-pricing the likelihood of action at [the August] meeting," it added.

Energy:

Oil futures gave up gains after government data showed unexpected increases in U.S. crude and gasoline inventories.

The Energy Information Administration said U.S. crude oil inventories rose 3.7 million barrels in the week ended June 7.

The "good news" for bulls was that the report showed demand managed to rise back above 9 million barrels a day last week, said Robert Yawger, executive director for energy futures at Mizuho Securities.

Metals:

Gold edged lower in Asia as markets weighed U.S. inflation data and the outcome of the FOMC meeting.

U.S. core CPI showed signs of slowing down in May, but the Fed signaled that only one rate cut is likely this year after it kept rates unchanged, ANZ Research said.

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Copper fell in Asia. A collective bargaining process was poised to start in Chile's copper industry, ANZ Research's commodity strategists said. This should indicate workers' demands and what mining companies are prepared to concede, the strategists said but cautioned that the gap between the two sides could widen.

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Iron ore prices were higher amid better investor sentiment. Supply and demand fundamentals are neutral, but expectations of further housing stimulus policies at the Communist Party's third plenum in July could continue to provide support for iron-ore prices in the short term, Guotai Junan Futures analysts said.

   
 
 

TODAY'S TOP HEADLINES

Stung by Past Mistakes, a Wary Fed Takes Its Time

Federal Reserve Chair Jerome Powell's approach to cutting interest rates based on forecasts that inflation will continue moving lower could be summed up by the phrase "Trust, but verify."

On Wednesday, officials held rates steady and offered little evidence that they were prepared to begin lowering interest rates soon, as their counterparts in Canada and Europe began doing last week.

   
 
 

Fed Projects Just One Cut This Year Despite Mild Inflation Report

Federal Reserve officials penciled in just one interest-rate cut for this year, indicating most are in no hurry to lower rates, even after a widely watched report Wednesday showed inflation improved last month.

   
 
 

Italy's Prime Minister Shows How Far-Right Parties Can Go Mainstream

A few days ago, Italy's right-wing prime minister, Giorgia Meloni, was campaigning for votes as a scrappy underdog, presenting herself as "that bitch Meloni."

Now she is preparing to ascend the pinnacle of the global elite: hosting President Biden and other leaders of Group of Seven major advanced economies at a summit in southern Italy.

   
 
 

How an Iranian-Backed Militia Ties Down U.S. Naval Forces in the Red Sea

ABOARD THE USS LABOON-It was just after 9 p.m. when radar operators aboard this U.S. Navy destroyer in the Red Sea spotted a tiny arrow on their screens: a missile hurtling toward them at five times the speed of sound.

   
 
 

Biden's Alliance-Building Tested by Trump at Home and Abroad

FASANO, Italy-President Biden has been a coalition-builder on the world stage. But as he seeks re-election, he is facing the re-emergence of the far right-and the specter of the strongman-both at home and abroad.

Biden's ability to hold together a Western alliance, central to the defense of Ukraine in its war against Russia, was at the forefront when he arrived Wednesday in southern Italy's Puglia region for the Group of Seven industrialized nations summit.

   
 
 

Musk Says Vote on His Pay Winning by 'Wide Margins'

Tesla Chief Executive Elon Musk said late Wednesday on X that preliminary voting results show shareholders currently backing proposals to ratify his pay package and reincorporate the company in Texas by "wide margins."

In the post, he included line graphs showing the cumulative "for" votes on both resolutions above the line needed for approval. The post came ahead of the company's annual shareholders meeting Thursday, at which the final results are expected to be announced.

   
 
 

Microsoft's Nadella Is Building an AI Empire. OpenAI Was Just the First Step.

Chief Executive Satya Nadella bet the future of Microsoft on the potential of artificial intelligence when he forged a groundbreaking partnership with OpenAI, the creator of ChatGPT.

But Nadella is not content to simply rely on OpenAI to dominate in this new era. In recent months, he's been spreading his bets, turning the world's biggest company into the world's most aggressive amasser of AI talent, tools and technology. He has hunted down new partners around the globe and invested in a range of AI startups, including pouring $1.5 billion into an Abu Dhabi-based firm in April.

   
 
 

Elon Musk's Tesla pay package gets another 'no' from a major shareholder

The largest public pension fund in the U.S. just came out against Tesla Inc. Chief Executive Elon Musk's $56 billion pay package, this time officially.

The California Public Employees' Retirement System, known as CalPERS, said late Wednesday the compensation package is "exorbitant" and "at odds with CalPERS' longstanding views on executive pay."

   
 
 

Write to singaporeeditors@dowjones.com

   
 
 

Expected Major Events for Thursday

06:00/GER: May WPI

06:00/ROM: Apr Industrial production

06:30/SWI: May Import Price Index

06:30/SWI: May PPI

07:00/SPN: May CPI

07:00/SVK: Apr Employment and average monthly wage in selected branches

07:00/SVK: Apr Turnover in selected branches of economy, incl Industry & Construction

08:00/ITA: 1Q Labour Cost Index

08:00/CZE: 1Q Quarterly Balance of Payments

08:00/CZE: Apr Monthly Balance of Payments

09:00/CRO: May PPI

09:00/EU: Apr Industrial Production

10:00/FRA: Apr OECD Harmonised Unemployment Rates

10:00/IRL: May CPI

12:00/POL: Apr Balance of Payments

All times in GMT. Powered by Onclusive and Dow Jones.

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

 

(END) Dow Jones Newswires

June 13, 2024 00:16 ET (04:16 GMT)

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