European Midday Briefing : Caution Ahead of Fed Holds Back Stock Gains

MARKET WRAPS

Stocks:

European stocks traded in postivie territory on Wednesday although gains were modest with some caution ahead of the Federal Reserve's interest-rate decision.

"Market pricing is currently pointing towards just one more rate hike in July, so any indication there'll be more (or less) than that could lead to a big reaction," Deutsche Bank said.

Markets see a 90% probability that the Fed will leave interest rates unchanged at a range of 5% to 5.25%.

Consequently, it is the text of the Fed's accompanying statement and Jerome Powell's subsequent comments that are more likely to drive trading in the U.S. session.

Stocks to Watch

Porsche SE is trading well below its proper value, Berenberg says, starting coverage of the stock with a buy rating and a EUR76 target price.

The holding company, which owns about 32% of Volkswagen shares and 12.5% of Porsche AG shares, is trading some 45% below its value, Berenberg said, adding it sees particular upside in the Porsche brand thanks to its record order book of high-priced vehicles that can insulate margins from decreased demand.

The market is also making overly harsh assumptions about legal claims against the company totaling EUR6.5 billion, Berenberg said. While the legal issues carry risk, favorable rulings so far give reason for hope, it added.

U.S. Markets:

Stock futures were mixed ahead of the Fed announcement.

Treasury bonds recovered some ground. The yield on the benchmark 10-year Treasury note edged down, after climbing Tuesday to the highest level since March. Shorter-dated bonds also gained, with the two-year yield declining to 4.641%.

Coming up: Another gauge of U.S. inflation, the producer-price index for May, is due at 1230 GMT.

Stocks to Watch

Advanced Micro Devices unveiled its new AI chip, the MI300X, on Tuesday. Shares fell 3.6% on Tuesday but were rising 1.6% in premarket trading.

Logitech International said President and CEO Bracken Darrell will be resigning to "pursue another opportunity." Shares fell 9.2% in premarket trading.

Tesla was rising 2.2% in premarket trading after closing higher for a 13th consecutive session on Tuesday.

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Forex:

Sterling was little changed after data showed the U.K. economy returned to growth in April, as expected, but the figures are positive for the currency, Ebury said.

"The likelihood of a recession continues to fade which should give the pound a boost," Ebury said.

Read UK Economy Rebounded in April

MUFG Bank said sterling should remain lifted in the near-term by expectations for further Bank of England interest-rate rises following Tuesday's strong wage growth data.

"We already were assuming two further rate increases by the BOE to 5.00% by August and the wage data yesterday certainly makes that scenario very likely."

Read UK Rate-Rise Expectations May Maintain Sterling's Strength Vs Euro

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The dollar was flat ahead of the Fed decision, with UBS saying Tuesday's inflation data wasn't soft enough to allow the central bank to call a final end to tightening.

MUFG said the Fed looks set to pause interest-rate rises but could deliver a hawkish communication and raise its so-called dot plot rate guidance, strengthening the dollar. However, any gains are unlikely to be sustained.

"In the end, a pause is a pause and will likely be viewed ultimately as that rather than a 'skip' given the incoming data is likely to continue to warrant an end to this tightening cycle."

The Fed will probably "pause for good," although Jerome Powell may try to convince the market otherwise, MUFG said.

"Ultimately, it will mark an important point in prompting dollar weakness."

Read Fed Seen Staying on Hold for Remainder of 2023, Says UniCredit Research

Bonds:

The German Bund yield curve is unlikely to become more inverted from current levels, UniCredit Research said.

"[It] is only likely to take place if the European Central Bank raises the [deposit] rate beyond 3.75%, which we (and the market) see as the peak," it said.

UniCredit Research expects the 10-year Bund yield to trade mostly sideways in the coming months.

Energy:

Oil futures were little changed as investors awaited the latest Fed rate decision.

Commodity Research Group said the Fed is "caught between a rock and a hard place" regarding inflation with levels still remaining elevated.

Metals:

Metals prices were mixed in early trading, with investors expecting a pause in Fed rate hikes.

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Industrial Production Improved More Than Expected in April

Industrial output in the eurozone was better than expected in April, improving from a steep decline in March, providing a respite from a gloomy outlook of the bloc's manufacturing economy.

Industrial production-which comprises output from manufacturing, mining and utilities-rose 1.0% in April compared with the previous month, swinging from an upwardly revised 3.8% slump in March, according to data from the European Union statistics agency Eurostat released Wednesday.

Shell Launches New Strategy Courting Investors, Not Activists

Shell said Wednesday that it will share billions more from its record profits with investors while deepening its commitment to the oil-and-gas businesses that produce the highest returns.

In outlining new Shell Chief Executive Wael Sawan's vision, the company appealed directly to Wall Street, where he will make a presentation to investors later on Wednesday at the New York Stock Exchange.

Casino Gets Rival $1.19 billion Rescue Bid From Teract Founders

Casino Guichard-Perrachon said Wednesday that it received an offer for a capital raise of up to 1.1 billion euros ($1.19 billion) from a group of businessmen, matching an approach made by shareholder Daniel Kretinsky earlier this year.

According to the offer, businessmen Xavier Niel, Matthieu Pigasse and Moez-Alexandre Zouari would invest EUR200-EUR300 million directly via an equity raise into the French grocer, with the remainder subscribed to by other partners and interested existing creditors.

GLOBAL NEWS

Stock Market to Fed: You Haven't Done Enough

Federal Reserve officials plan to take a break from raising interest rates Wednesday because they think monetary policy is already plenty tight.

To which the markets say: no, it ain't.

Oil Demand to Peak This Decade as EVs Boom, IEA Says

Rising demand for crude oil is set to slow to a trickle within five years and peak before the end of the decade, as electric-vehicle uptake surges and developed nations rapidly transition to cleaner sources of energy, according to a prominent energy forecaster.

The International Energy Agency, a group funded by some of the world's largest oil consumers, expects demand for transport fuels derived from oil such as gasoline will be the first to peak before starting a steady decline-hastened by a sharp uptick in EVs and a long-lasting shift to remote working spurred on by the Covid-19 pandemic.

American Investment Banks Are Giving Up Some China IPO Mandates

International investors have soured so much on Chinese initial public offerings that investment banks are backing out of potential listings and even small deals have become a tough sell.

Goldman Sachs Group has given up several mandates for IPOs in Hong Kong this year, including deals for a dermatology company and an online marketplace for pharmaceutical products, according to filings with the city's stock exchange. Bank of America has left its role in the upcoming IPO of Growatt Technology, which makes inverters for solar panels.

Donald Trump Pleads Not Guilty in Documents Case, Denounces Prosecutors

Donald Trump lashed out at federal prosecutors and portrayed himself as a victim of political persecution hours after pleading not guilty in a Miami court to charges that he illegally retained and shared classified national-security documents after leaving the White House.

"Today we witnessed the most evil and heinous abuse of power in the history of our country," Trump said Tuesday night at his golf club in Bedminster, N.J., surrounded by supporters and a crush of reporters, capping an extraordinary day in which the former president and 2024 GOP front-runner sought to capitalize on the attention in the case.

In Shadow of Sanctions, Russia Courts Friends, Boasts Resilience at Flagship Economic Forum

President Vladimir Putin will attempt to present Russia as primed for investment despite economic erosion from more than a year of war and sanctions, as he addresses some of the Kremlin's remaining allies this week at the country's annual economic conference.

His aim, according to analysts, is to inspire economic confidence at home while cementing links with those abroad who haven't shunned Russia over its invasion of Ukraine.

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

(END) Dow Jones Newswires

06-14-23 0620ET