MARKET WRAPS
Stocks:
European stocks traded lower on Tuesday in reaction to China cutting its 1- and 5-year lending rates by 10 basis points, which investors viewed to be modest.
Read China Cuts Borrowing Rates Again in Bid to Juice Recovery
Economists say lower borrowing costs might not be the right medicine for China's economy, however, as households and businesses have shown little appetite to borrow with debt levels already high and prospects for jobs and growth deeply uncertain.
"Rate cuts alone may not be enough," said Serena Zhou, senior China economist at Mizuho Securities in Hong Kong.
In the U.K., traders bet on further interest-rate rises by the Bank of England ahead of Thursday's meeting, pushing short-dated government bond yields higher.
"There is growing anxiety about the effect the recent rise in UK gilt yields is already having on the mortgage market, a concern that was played out in the form of weakness in house building and real estate shares yesterday, as two-year mortgage deals pushed above 6%," CMC Markets said.
Stocks to Watch
The best and more credible way for Barclays to address its share price weakness is through large-scale buybacks executed below book value, Jefferies said, pointing to media reports that the British bank hired consultants to undertake a strategy review to boost its stock.
Analysts see consistent and material capital repatriation as a great way to revive the share price and model GBP1.5 billion of buybacks this year and GBP2.2 billion for 2024 and 2025 each, as well as estimating GBP3.3 billion in dividends over the period.
"On our estimates, investors can continue to look forward to net interest income upgrades driven by the structural hedge contribution in the U.K.," Jefferies said.
U.S. Markets:
Stock futures were lower and bond yields higher as investors await housing starts data and FedEx earnings.
The yield on the benchmark 10-year Treasury note rose to 3.782%, from 3.768% Friday.
Stocks to Watch
Alibaba is replacing Chairman and Chief Executive Daniel Zhang with two successors, as it pursues a major reorganization. ADR's fell 2% premarket, amid a broader pullback in Chinese tech stocks that also weighed on PDD and https://urldefense.com/v3/__http://JD.com__;!!F0Stn7g!A2v01mO7GdPwvMhR64Aswv-bIXPwI0Hm1Q15FOVLIPNQz31_XsqEjNFkRoEL7uteN5MSxD6yBvTWkVHqKsZBA7gNfg-ijpJF6clPZNAl2DQ$ .
Intel gained 0.5% after the Israeli government said the chip maker said was investing $25 billion to manufacture semiconductors in the country.
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Forex:
The euro's upside potential might be limited in the near-term as upcoming economic data could show easing inflationary pressures and prompt European Central Bank officials to turn cautious, Commerzbank said.
"There will be a number of data publications until September and who knows what surprises these will bring."
Following recently hawkish remarks from ECB members about raising interest rates further, policymakers could make cautious remarks if the data point to easing price pressures.
Read Euro Could Fall Vs Dollar as Markets Seen Too Pessimistic About USD
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Sterling should rise if U.K. inflation data on Wednesday exceed expectations, but the gains may not last, Commerzbank said.
If the data surpass forecasts, speculation about the BOE delivering a larger 50 basis points interest-rate rise might intensify ahead of Thursday's meeting, which would likely benefit sterling, it added.
"However, we principally remain cautious as the rate expectations for the rest of the year seem excessive and we see the risk of the market having to correct its expectations," Commerzbank said.
"Short-term rate speculation might support sterling, but medium-term we expect sterling to be weaker."
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The dollar has lost upward momentum after the Federal Reserve skipped raising interest rates last week for the first time in more than a year, MUFG Bank said.
"The slower pace of hikes highlights that the Fed is becoming more cautious over the need for further hikes and wants more time to assess incoming data."
The Fed signaled it could lift rates two more times this year but there is market scepticism over the need for this given building evidence of disinflation. While there is a high chance of a July rate rise, the Fed could pause hikes by September, MUFG said.
Bonds:
The 10-year German Bund yield has so far struggled to overcome the upper limit of the recent consolidation zone near 2.57%-2.63%, denoting lack of persistent upward momentum, Societe Generale said.
"This breakout is essential to affirm [the] next leg of uptrend," SocGen added.
However, currently a pullback is under way, it said, adding that the 200-day moving average and the recent trough of 2.23% is a key support. "Failure to defend this can result in an extended down move."
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The 10-year Italian BTP-German Bund yield spread has tightened to 158 basis points, after spending much of the year in a 170-190bps range, HSBC Global Research said.
The reasons behind are the recent strong performance of risky assets, the falling volatility of BTP spreads and significant retail purchases, it added.
The wholesale market hasn't felt the impact of increased issuance volumes, large due to the size of 2023's retail offerings, HSBC Global Research said.
However, "as a relatively risky asset, we would expect BTP spreads to feel the pressure from supply if an increase were to become apparent in the wider market."
Read Bond Yield Curves Seen Consistent With Central Banks' Hawkish Message
Energy:
Oil prices were largely unchanged, showing little reaction to a rate cut from China's central bank which was widely expected.
Metals:
Base metals prices were mixed with gold a touch lower as the macroeconomic outlook remained uncertain.
"The bullish macro mood has lost some momentum," Peak Trading Research said.
Peak noted that China's central bank cut interest rates yesterday--a bearish signal for the yuan, which is the number one importer currency.
Peak added that the market will be looking to Powell's speech on Wednesday, with markets looking for signals as to how many more rate hikes we are likely to see this year.
Read Global Steel Trade at Multidecade Low Vs. Demand
DOW JONES NEWSPLUS
EMEA HEADLINES
Europe Aims to Cut China Risks, Not China Ties
BRUSSELS-Europe says it wants to push back against China's economic might. Its resolve faces an early test.
Stellantis, Foxconn Team Up to Sell Chips for Auto Industry
Auto maker Stellantis and tech giant Foxconn are joining forces with the creation of a new business that will sell semiconductors to the automotive industry, where demand remains high amid automation and the switch to electric vehicles.
The business will be called SiliconAuto and will be owned equally between Stellantis, which makes Jeeps and Chryslers, and Foxconn, the Taiwan-based tech group best known for assembling Apple Inc.'s iPhones in mainland China.
Lanxess Shares Slide After Slashing 2Q, 2023 Earnings Expectations
Lanxess shares dropped in early trading Tuesday after the German chemical company downgraded its year-end earnings expectation and said that it expected a weak second-quarter.
At 0725 GMT, shares traded 16% lower at EUR26.55.
UBS faces hundreds of millions in fines over Credit Suisse's Archegos: report
Credit Suisse's relationship with family office Archegos Capital is set to hit UBS following investigations by UK, Swiss and US regulators.
Hundreds of millions in potential penalties could come just days after UBS UBS CH:UBSG completed its acquisition of its beleaguered Swiss rival in a landmark deal backed by the Swiss government, the Financial Times reported.
GLOBAL NEWS
Today's Rate Hikes Threaten to Push Up Tomorrow's Housing Costs
Central banks in the West are fighting inflation today at the risk of boosting inflation in the future.
The Federal Reserve, European Central Bank and policy makers in other developed countries are trying to stop surging price growth by raising short-term interest rates, something that pushes mortgage rates higher. But these efforts threaten to choke off construction and worsen housing shortages. That could push up inflation in the years ahead through higher rents and home prices.
Stock-Market Rally Costs Bears $120 Billion
Investors have been ramping up bets against stocks-and they are getting burned.
Total short interest in the U.S. market topped $1 trillion this month, hitting the highest level since April 2022, according to data from S3 Partners. That is up from $863 billion at the start of the year and represents about 5% of all shares that are available to trade.
Xi Jinping Meets Antony Blinken as U.S., China Resume High-Level Engagement
China and the U.S. took steps to halt the downward spiral in relations, with Secretary of State Antony Blinken meeting Chinese leader Xi Jinping, though the two powers might have trouble keeping their global rivalry from swamping the tentative rapprochement.
During two days of meetings in Beijing, Blinken and senior Chinese foreign-policy officials agreed to more high-level talks, continuing a thaw after months of near-frozen contacts. They also promised to find common ground on increasing flights between the two countries and combating the flow of fentanyl into the U.S.
Beijing Plans a New Training Facility in Cuba, Raising Prospect of Chinese Troops on America's Doorstep
WASHINGTON-China and Cuba are negotiating to establish a new joint military training facility on the island, sparking alarm in Washington that it could lead to the stationing of Chinese troops and other security and intelligence operations just 100 miles off Florida's coast, according to current and former U.S. officials.
(MORE TO FOLLOW) Dow Jones Newswires
06-20-23 0630ET
