EMEA Morning Briefing : Fresh Fighting Tests Fragile U.S.-Iran Ceasefire

MARKET WRAPS

Watch For:

EU PPI; services PMI data for eurozone, U.K,. Germany, France, Italy; trading update from Inditex

Opening Call:

European stock futures edged lower early Wednesday. Asian stock benchmarks were broadly higher led by chip-related stocks; the dollar and Treasury yields edged higher; gold fell and oil futures advanced.

Equities:

Stock futures were tracking slightly lower in Europe with fresh fighting between the U.S. and Iran testing the fragile ceasefire.

The U.S. and Iran exchanged heavy fire, with Iran firing ballistic missiles at U.S. bases in Bahrain and Kuwait and the U.S. attacking a military control station and firing on an empty oil tanker that it said was attempting to breach its blockade.

Despite the heavy fire, U.S. Central Command said Tuesday night that the tenuous ceasefire was still "ongoing."

"FX, bonds and equity markets have been very subdued in the past 24 hours," NAB's Ray Attrill said. This comes "against backdrop where a key sticking point regarding the fate of a U.S.-Iran ceasefire agreement appears to be whether Israel will agree to cease its attacks on Hezbollah assets in Lebanon (and vice versa)," the head of FX Strategy said.

Forex:

The dollar was a tad stronger, supported by a U.S. growth resilience narrative that diminishes the likelihood of a Fed rate cut. Stronger-than-expected U.S. labor data released overnight reinforces this narrative, OCBC Group Research's Sim Moh Siong said.

The data also supports a shift by the Fed away from monetary-policy easing toward a more neutral stance at Chairman Warsh's first FOMC meeting in mid-June, the strategist added.

Bonds:

U.S. Treasury yields were slightly higher amid no visible progress in U.S.-Iran talks to reopen Hormuz. Crude futures are up, keeping inflation fears alive. Cleveland Fed's Hammack has suggested that an interest rate increase may be needed.

U.S. job openings increased in April, according to the JOLTS report. Economists surveyed by WSJ expect the May ADP private-sector jobs report, due later Wednesday, to tick higher to 110,000 from 109,000.

Energy:

Oil prices rose Wednesday morning amid continuing Middle East tensions that could keep supply disruptions in the region elevated. "Peace talks between the U.S. and Iran struggled to stay on track," ANZ Research analysts said.

"There are also concerns that Iran's proxy militant groups may turn to disrupting oil supplies in the Red Sea. "This would be a significant hit to the oil market, as Saudi Arabia has been able to send around" 5 million barrels a day of oil via this route, the analysts added.

Metals:

Gold prices edged lower. Geopolitical concerns over Iran have failed to generate sustained safe-haven demand, Baocheng Futures analysts said.

Resilient U.S. economic data and growing expectations of a more hawkish Fed continue to support the dollar and treasury yields, creating headwinds for the gold prices. Gold may find technical support near recent lows in the near term, but broader macroeconomic pressures remain intact, they added.

--

Aluminum prices could rise further if the Strait of Hormuz remains closed, said Commonwealth Bank of Australia analyst Vivek Dhar. "As bauxite and alumina stockpiles dwindle, more Middle Eastern aluminum supply is expected to be curtailed." That could result in roughly 8% of global output being sidelined within weeks, up from 4.5% today, he said.

Even where Gulf smelters can keep producing, exporting metal by trucking is costly. "And estimates of these overland routes to handle aluminum product volumes range widely from 40--80% of pre--war flows," Dhar added.

--

Iron ore futures edged lower. China's steel market enters its season of weak demand and shipments from Australia and Brazil are expected to rise, Bank of China International Futures analysts said.

Supply remains relatively ample, with major miners Rio Tinto and BHP reporting higher iron ore output from a year earlier despite sequential declines. Rising inventories are leaving prices squeezed between softening fundamentals and cautious macroeconomic expectations, they added.

TODAY'S TOP HEADLINES

U.S., Iran Trade Heavy Fire in Persian Gulf, Testing Fragile Ceasefire

The U.S. and Iran exchanged heavy fire after the U.S. struck an empty oil tanker that it said was attempting to breach its blockade. That set off a string of attacks by both sides, culminating with Iran firing ballistic missiles at U.S. bases in Bahrain and Kuwait.

The latest episode was among the most intense fighting in months and came at a time when diplomatic efforts have stalled.

Warsh Names Two Conservative Policy Veterans as Interim Fed Advisers

Federal Reserve Chairman Kevin Warsh has tapped two outside associates to advise him while he settles into the job, one of whom previously helped write a conservative blueprint that recommended a radical restructuring of the central bank.

One adviser is Paul Winfree, according to people familiar with the matter. He was a White House domestic policy specialist in the first Trump administration. He was the named author of the chapter on the Federal Reserve in Project 2025, the conservative policy blueprint produced ahead of the 2024 election.

America's Data Center Build-Out Is Falling Way Behind Schedule

Tech companies are earmarking unprecedented sums of money to finance the build-out of massive data centers, with a planned $80 billion equity-raise by Google parent Alphabet being the latest example.

But even as the piles of capital secured have grown ever larger, the ability to deploy it in the artificial intelligence race has become less certain. Supply-chain backlogs, permitting fights and availability of power supplies are among the issues that have caused the construction of data centers to fall behind targeted timelines, with the gap growing wider in recent months: A JP Morgan analysis last month found that more than 60% of data center capacity planned for completion in 2027 isn't yet under construction, and another 7% is delayed.

Trump and Netanyahu Are Clashing Over How to End the Iran War

President Trump and Israeli Prime Minister Benjamin Netanyahu launched the war against Iran with an unprecedented level of coordination. Now three months later, they are fighting over how to bring the conflict to a close.

Trump wants a diplomatic agreement that would reopen the Strait of Hormuz, dispose of Iran's enriched uranium and end a conflict that has driven up energy prices and divided his political base. Netanyahu faces pressure at home to intensify military operations against Hezbollah, Iran's most important regional proxy and a U.S.-designated terrorist group.

SpaceX Eyeing Roughly $1.75 Trillion Valuation in IPO Next Week

SpaceX is eyeing a valuation of around $1.75 trillion in its blockbuster initial public offering planned for next week, according to people familiar with the matter.

Elon Musk's rocket-maker is likely to sell under 5% of its shares-a much smaller portion than in a typical IPO-or roughly between $60 billion and $80 billion worth, the people said.

Greg Abel Puts His Stamp on Berkshire Hathaway With Pair of Megadeals

Greg Abel spent the past year trying to reassure investors that Berkshire Hathaway is still the willing and opportunistic dealmaker it had been under his predecessor, Warren Buffett.

He said the right things, but a prolonged slump in the company's stock showed that shareholders wanted action. In one weekend in late May, they got it.

Write to [e-mail]

Expected Major Events for Wednesday

06:00/ROM: Apr PPI

06:00/NOR: 1Q Balance of Payments

07:00/AUT: 1Q GDP

07:15/SPN: May Spain Services PMI

07:45/ITA: May Italy Services PMI

07:50/FRA: May France Services PMI

07:55/GER: May Germany Services PMI

08:00/EU: May Eurozone Services PMI

08:30/UK: May UK Official Reserves

08:30/UK: May S&P Global UK Services PMI

08:30/UK: May Narrow money (Notes & Coin) and reserve balances

09:00/LUX: May CPI

09:00/EU: Apr PPI

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

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

06-03-26 0015ET