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European Midday Briefing: Stocks Lifted by Powell's Latest Views on Inflation

MARKET WRAPS

Stocks:

European stocks nudged up Wednesday, after Jerome Powell repeated the need for more economic data to justify cutting interest rates in a testimony before Congress on Tuesday.

"So, more of the same rhetoric, and we believe Powell is happy with keeping markets relatively quiet at this stage as some data starts to go in the right direction," ING said.

Powell gave subtle hints that the Fed is inching closer to rate cuts by adding emphasis on weakening activity and employment.

In the eurozone, data and increased political uncertainty suggest that there is room for further easing in the European Central Bank's policy stance, and a September rate cut could be well timed, according to Societe Generale Research. Beyond September is less certain.

"What remains very unclear in the current economic environment, which despite weak activity is characterized by significant labor-market tightness, is whether these indicators of underlying inflation pressure can adjust rapidly enough without a major slowdown in activity."

Stocks to Watch:

Airbus is unlikely to deliver on its near-term and medium-term guidance, and the difference between guidance and deliveries has been poor for a year, Berenberg said.

"We get the distinct sense that suppliers are not all on the same page regarding build rates yet, and in our view, there is a collective dragging of heels to accelerate investment ahead of the rest of the chain."

Berenberg initiates coverage of Danske Bank with a hold rating and DKK215 price target. However its returns and growth prospects warrant caution and Nordea's more defensive net interest income, more diverse revenue mix and superior profitability make it Berenberg's preferred Nordic bank.

U.S. Markets:

Stock index futures were broadly steady, with investors focusing on Powell once again as he heads back to Congress for a second day of testimony, this time in front of a house committee.

Nvidia shares rose. Nvidia stock has advanced more than 4% in the first two days of this week.

Tesla stock has gained for 10 straight sessions. It looked poised to extend that rally into another day, with shares rising modestly.

Forex:

The euro is at risk of falling due to ongoing political uncertainty after the French elections, ING said, adding that coalition talks will prove a lengthy and complicated process.

It could take weeks to break the gridlock and bond markets might get unnerved by such immobility.

ING said the euro currently appears comfortable trading around $1.08 against the dollar as it awaits U.S. developments.

Softer inflation data on Thursday could push it up to around $1.09, but at that point selling interest could reemerge as French political and fiscal concerns remain unresolved.

Bonds:

Markets seem to be yearning for direction after the French elections, Commerzbank Research said.

Widening in French government bond yield spreads over German Bunds on Tuesday "[underscores] our view that the next leg of the recovery will be much more difficult."

Given signs that inflation is becoming more predictable, Oxford Economics expects central banks to move away from their heightened data dependence and rely more on forecasts.

"It risks making central banks too backward-looking and prone to policy inertia, while also creating undesirable volatility in bond markets."

Morgan Stanley Research said U.S. corporate bonds aren't cheap and there are better opportunities within securitized, emerging market and European credit .

Energy:

Oil edged lower on disappointing economic data from China and easing fears over supply disruptions from Hurricane Beryl.

China's latest data showed consumer prices rose less than expected in June, raising concerns on domestic demand trends in the top oil importer.

All eyes are now on OPEC's monthly report and the EIA's weekly inventories due later on Wednesday for more insights into the demand outlook.

Metals:

Gold futures rose as hopes grow for a rate cut sooner rather than later.

Looking ahead, Thursday's U.S. consumer-price index inflation data is July's most important macroeconomic data point.

The CPI print is the Fed's preferred measure of inflation and if it comes in cooler than expected, gold will likely climb even higher as the prospect of a rate cut will rise.

Charts

A potential medium-term bullish uptrend for gold may be looming , based on charts for the precious metal and U.S. 10-year Treasury real yield, Oanda said.

Gold/Central Banks

Citi estimates a record roughly 1,100 metric tons of gold will be bought by central banks in 2024, up 5.8% on year, despite the recent pullback. The market could even "see 1,250 [tons plus] of buying in a bull-case scenario over the next year."

Silver

Silver--up 30% year-to-date--is already trading around Morgan Stanley's fourth-quarter price target of $31 a troy ounce, and the bank said there's room for prices to rise even more if demand from the solar sector strengthens and high prices fail to raise supply.

Copper

New pipeline copper projects will increasingly be outpaced by demand amid the green-energy transition, said BMI, revising its 2024 copper price forecast to $9,600/ton from $9,200/ton.

"In the longer term, we expect prices to reach $17,000/ton in 2033, as the structural deficit persists due to a strong demand outlook as the green transition accelerates."

   
 
 

EMEA HEADLINES

Trade War Continues With EU Tariffs on China. Here's How China May Respond.

The European Union this week placed tariffs on Chinese-made electric vehicles, just weeks after the U.S. unveiled its own tariffs on China. Now, investors are looking to China for the next salvo in the trade war.

China's response may not take shape until after the U.S. election-and may not come in the form of tariffs.

   
 
 

Volkswagen Cuts 2024 Sales Forecast on Possible Audi EV-Plant Closure in Brussels

Volkswagen lowered its sales forecast for the year Tuesday, saying the possible closure of an Audi electric-vehicle plant in Brussels would have a significant effect on Volkswagen's results.

The German car manufacturer trimmed its guidance for 2024 operating return on sales to a range of 6.5% to 7% from 7% to 7.5% due to the potential closure and other unplanned expenses.

   
 
 

Hapag-Lloyd Lifts Earnings View on First-Half Momentum

Hapag-Lloyd raised its full-year outlook after a better-than-expected performance in the first half of 2024.

The German shipping company on Tuesday said it expects the second half to be above expectations thanks to recent strong demand and increased short-term freight rates.

   
 
 

Why Oil Refinery Stocks' 'Famine' Could Turn Into a 'Feast'

Major oil companies have been sounding an alarm this week: The refinery business is in trouble.

BP and Exxon Mobil both warned investors that their refining results were relatively weak in the second quarter. Refineries have been pumping out too much fuel while drivers and truckers are using less of it. The news sent BP stock down 4% on Tuesday morning.

   
 
 
   
 
 

GLOBAL NEWS

China Consumer Inflation Stays Tepid, Factory-Gate Prices Continue to Fall

China's consumer inflation remained tepid last month while factory-gate prices continued to fall, pointing to persistently lackluster demand despite Beijing's efforts to juice up consumption.

The country's consumer-price index rose for a fifth consecutive month in June, edging up 0.2% from a year earlier, the National Bureau of Statistics said Wednesday. That missed the 0.4% rise expected by economists in a Wall Street Journal poll and compared with May's 0.3% increase.

   
 
 

Hopes for cooling inflation are stifled by Wall Street's expectations for Trump 2.0

Just as many investors and traders remain sanguine about the prospects of cooling U.S. inflation when Thursday's consumer-price index for June comes out, Wall Street is pointing to the potential inflationary impacts of a second presidency under Republican Donald Trump. What's emerging ahead of the CPI report's release in a few days are two contradictory notions about where U.S. inflation is likely to be headed in the months and years ahead - complicating the Federal Reserve's analysis of the most appropriate path for interest rates, which remain at 23-year highs of 5.25% to 5.5%. Major U.S. stock indexes DJIA SPX COMP closed mostly higher on Tuesday, sending the S&P 500 and Nasdaq Composite to more record closes, despite a selloff in U.S. government debt that pushed up 10- and 30-year Treasury yields for the first time in five sessions.One train of thought is that inflation will probably keep easing as U.S. growth slows - giving the Federal Reserve the ability to cut interest rates as soon as September. Economists expect the annual headline CPI inflation rate to fall to 3.1% in June from 3.3% in the previous month, and inflation traders envision the rate continuing to drop toward 2% through May 2025.The other line of thinking is that inflation could rear its head again if Trump is elected to the White House due to his proposals on trade and immigration. Parts of the financial market expressed worry about Trump 2.0 via a two-day rise in Treasury yields on June 28 and July 1, even with four months left to go before Americans cast their votes. "For good reasons, traders like to link Trump's policy agenda with inflation," said Thierry Wizman, a New York-based global FX and rates strategist at the financial-services group known as Macquarie. "They see policy rates being higher than otherwise under Trump 2.0."Trump is leading President Joe Biden in polls almost two weeks after their June 27 televised debate, putting the focus on the Republican challenger's proposals for 10% duties on all imports and minimum 60% tariffs on Chinese goods. To be fair, Biden has also taken the brunt of the blame for the run-up of U.S. inflation that began in 2021 and peaked in 2022, following his Covid-relief plan that led to an additional $1.9 trillion of federal spending.Last week, Jan Hatzius, chief economist of Goldman Sachs GS, said in a

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July 10, 2024 05:49 ET (09:49 GMT)

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