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EMEA Morning Briefing: Stocks Seen Higher as Investors Parse Fed Powell's Comments

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Trading update from Barratt Developments

Opening Call:

European stock futures were higher in tandem with broad gains among Asian stock benchmarks; the dollar weakened slightly; Treasury yields were mixed; oil futures fell and gold edged higher.

Equities:

European stock futures were higher early Wednesday. U.S. stocks closed mixed Tuesday after Fed Chairman Jerome Powell told the Senate Banking Committee that recent employment data suggest the labor market has "cooled considerably."

He said the central bank was weighing the potential that high rates wreck the economy and cause excessive unemployment against the risk of reigniting inflation with rates cut too soon.

Powell will be making remarks before the House Financial Services Committee later today. Markets are now focusing on the U.S. inflation print on Thursday and the start of the earnings season.

Bank of America Securities analysts expect the second quarter to be the first since 2022's fourth quarter in which earnings per share grow for the companies in the S&P 500 outside of the so-called Magnificent Seven tech firms driving this year's rally.

"Growth is broadening out and so should the market," they said.

Meanwhile, data earlier Wednesday showed that China's consumer inflation remained tepid last month while factory-gate prices continued to fall, pointing to persistently lackluster demand.

Forex:

USD weakened slightly as traders assessed Fed Chair Powell's congressional testimony overnight.

His remarks might have been perceived as slightly less dovish than markets were positioning for, given recent data which had suggested the U.S. economy is slowing, Maybank analysts said.

Bonds:

U.S. Treasury yields were mixed after finishing modestly higher on Tuesday on Fed Chairman Powell's indication that more improvement on inflation was needed before officials can cut interest rates.

"This week's CPI (Consumer Price Index) will be the key data point for Fed policymakers needing more proof inflation is headed towards its 2% target in order to justify the start of rate cuts," said Mark Heppenstall, president and chief investment officer of Pennsylvania-based Penn Mutual Asset Management.

Energy:

Oil futures maintained their downward trend early Wednesday after Hurricane Beryl appeared to do little lasting damage to energy facilities following the storm's landfall on the Texas coast.

But with an active storm season expected, "it is likely that Beryl will not be the only hurricane to reach the Gulf of Mexico this year. The risk of disruptions to oil and gas production, processing and exports therefore remains," Carsten Fritsch, commodity strategist at Commerzbank wrote. "This suggests greater volatility in oil and gas prices in the coming months."

Rystad Energy said in a market update that both crude and petroleum liquids balances are expected to remain tight in the second half of this year.

Metals:

Gold edged higher on signs of demand from bullion ETFs. Inflows from these ETFs have started to emerge, and buying interest from them could become more pronounced into the quarter-end and year-end, Citi Research analysts said.

Citi remained 'constructive' on the physical uptake of gold over the next 12 months, given the potential Fed rate-cut cycle and U.S. labor-market headwinds. Its base-case target for gold price is $2,800/oz-$3,000/oz for mid-2025.

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Expectations of an even wider silver supply deficit in 2024, following three consecutive years of shortfalls, are fueling Morgan Stanley's positive view on the precious metal.

While silver--up 30% year-to-date--is already trading around MS's 4Q price target of $31/troy ounce, the bank's analysts "see good reasons for the rally" and think there's room for prices to rise even more.

Their 4Q bull case target is around $39/oz.

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Copper edged lower amid a broader selloff as Fed Chair Powell's overnight comments failed to shed light on when the Fed would make its first rate cut, ANZ Research analysts said. They added that the market is also awaiting policy decisions from China's Third Plenum later this month, which may shape copper consumption.

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Iron ore fell, extending Tuesday's declines, as inventories at Chinese ports near a two-year high, analysts at StoneX Intelligence said. Despite high shipment and arrival levels at Chinese ports, molten iron production will likely fall slightly due to blast-furnace maintenance, they added.

   
 
 

TODAY'S TOP HEADLINES

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.

   
 
 

Powell Inches the Fed Closer to Cutting Rates

Federal Reserve Chair Jerome Powell made a subtle but important shift that moved the central bank closer to lowering interest rates when he suggested Tuesday that a further cooling in the labor market could be undesirable.

"Elevated inflation is not the only risk we face," Powell told the Senate Banking Committee during the first of two days of testimony Tuesday. "We've seen that the labor market has cooled really significantly across so many measures....It's not a source of broad inflationary pressures for the economy now."

   
 
 

Berkshire Hathaway Equity Portfolio Tops $400 Billion. The Stock Is Lagging.

Berkshire Hathaway's equity portfolio has moved above $400 billion led by a recent surge in the company's largest holding, Apple, which hit a record high Tuesday.

The rising value of the Berkshire equity portfolio, which is tracked by CNBC based on the most recent filings, hasn't done a lot for Berkshire's share price. It is up about 1% so far this quarter, below where it stood at the end of the first quarter.

   
 
 

Russia Seeks to Boost Trump in 2024 Election, U.S. Intelligence Officials Say

WASHINGTON-The Russian government has launched a "whole-of-government" effort to influence the outcome of the U.S. presidential election and favors Republican candidate Donald Trump in the race, senior U.S. intelligence officials said Tuesday.

The officials didn't mention Trump by name, but said that Russia's current activity-described as covert social-media use and other online propaganda efforts-mirrored the 2020 and 2016 election cycles, when Moscow also favored Trump and sought to undermine Democratic candidates, according to U.S. intelligence agencies.

   
 
 

Novo Nordisk's stock slumps after study finds Wegovy lags Lilly's Mounjaro in speed and scale of weight loss

The stock of Danish biotech Novo Nordisk was down 2.2% Tuesday, after a study found that the company's obesity drug Wegovy lags its main rival, Eli Lilly & Co. Inc.'s Mounjaro, in speed and magnitude of weight loss.

The study, published in the prestigious journal JAMA Internal Medicine, used health-record data linked to dispensing information from U.S. healthcare systems to compare weight loss in adults with overweight or obesity taking tirzepatide, the active ingredient in Lilly's LLY Mounjaro and Zepbound, and semaglutide, the active ingredient in Novo Nordisk's NVO DK:NOVO.B Wegovy and Ozempic, a diabetes treatment.

   
 
 

Samsung Electronics Union Launches Indefinite Strike

Samsung Electronics unionized workers have decided to launch an indefinite strike in South Korea, pressing harder for their demands around wages and work conditions.

The National Samsung Electronics Union's decision came on Wednesday, the final day of a three-day walkout that it said failed to bring management back to the negotiating table.

   
 
 

xAI Appears to Confirm Ended Talks With Oracle Over Expanded AI Chips Agreement

Elon Musk appeared to confirm that xAI has ended talks to expand an existing arrangement with Oracle to rent Nvidia chips as his AI company builds a data center in Memphis, Tenn.

Musk on Tuesday posted on X that the decision to end the talks, first reported by The Information, comes as xAI builds "the most powerful training cluster in the world by a large margin."

   
 
 

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Expected Major Events for Wednesday

04:30/NED: May Manufacturing output

05:00/FIN: May Industrial Production

06:00/NOR: Jun CPI

06:00/NOR: Jun PPI

06:00/ROM: May International trade

06:00/DEN: Jun CPI

07:00/AUT: May Production Index

07:00/SVK: May Industrial production

07:00/TUR: May Employment / Unemployment

07:00/TUR: May Industrial Production Index

07:00/CZE: Jun CPI

07:00/CZE: May Import & export price indices

08:00/BUL: May Industrial Production

08:00/BUL: Apr Trade with EU Member States - preliminary data

08:00/BUL: May Trade with third countries - preliminary data

08:00/ITA: May Industrial Production

08:00/EU: Jun Long term interest rates statistics

09:00/GRE: May Industrial Production Index

09:00/LUX: May Industrial Production

09:00/MLT: May International Trade

09:00/CYP: May Foreign Trade (provisional)

10:00/POR: May International trade statistics

10:00/POR: Jun CPI

16:59/AUT: Jul OPEC Monthly Oil Market Report

23:01/UK: Jun RICS Residential Market Survey

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

 

(END) Dow Jones Newswires

July 10, 2024 00:15 ET (04:15 GMT)

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