European Midday Briefing : Investors Continue to Assess Hawkish Fed, ECB

MARKET WRAPS

Stocks:

European stocks edged higher on Friday, as investors continued to digest the central-bank decisions in the U.S. and Europe that showed policy makers aren't yet finished raising rates as underlying inflation pressures persist.

The Fed and the ECB both delivered "very hawkish outcomes" at meetings on Wednesday and Thursday respectively, CMC Markets said.

However, the Fed's main inflation indicators showed increasing evidence of disinflation and the ECB's core inflation expectations for year-end came across as too high, it added.

Meanwhile, new Bank of Japan Governor Kazuo Ueda on Friday seemed reluctant to consider paring back its easy monetary policy despite elevated core inflation, CMC said.

U.S. Markets:

Stock futures were hovering, putting markets on course to finish the week on a muted note.

Treasury yields edged higher. The yield on the 10-year U.S. Treasury note ticked up to 3.752% from 3.727%.

Friday's data calendar is light. The University of Michigan's consumer-confidence survey, due at 14 GMT, is expected to show an uptick in sentiment in June.

Stocks to Watch

Adobe stock rose 3.5% in offhours trading after Adobe posted second-quarter earnings that topped analysts' expectations.

Micron Technology gained 1% after saying it would commit another $602 million in its chip-packaging facility in the Chinese city of Xian.

Virgin Galactic rose nearly 40% premarket after the space-tourism company founded by billionaire Richard Branson said it was poised to start commercial spaceflights this month.

Follow WSJ markets coverage here

Forex:

The euro should rise further as the ECB looks set to keep interest rates higher for longer than the market expects, Commerzbank said.

The ECB is unlikely to lift rates in September but it will keep rates on hold for some time, compared to market forecasts for rate cuts next year, it said.

"Against this background we now feel even more comfortable with our projection of EUR/USD levels around 1.14 by year-end."

---

Sterling held recent gains as the market maintained aggressive interest-rate rise expectations for the Bank of England, ING said.

Sterling's sensitivity to risk has fallen this year, suggesting it shouldn't be at the forefront of a rally in risky assets, but a softer dollar environment supports GBP/USD, ING added.

For EUR/GBP, however, the European Central Bank's "hawkish" meeting Thursday strengthens the 0.8550 support level, it said.

U.K. inflation data on June 21 will be the next big driver ahead of an expected 25 basis points rate rise by the BOE on June 22, ING said.

Read Sterling's Strength Seen as Puzzling But Expected to Remain Supported

---

The dollar edged higher as investors continued to digest the Fed's rate signals.

Powell was "not as outspoken"in signalling further interest rate rises on Wednesday compared to the ECB's Lagarde on Thursday with upcoming decisions to depend on data, Commerzbank said.

The market only sees a 65% chance of a Fed rate rise in July, it said. "This might change though if the data surprises on the upside over the coming week."

Bonds:

An interest-rate rise by the ECB in July is the base case, according to current information, and since this has been priced in, bond markets are unlikely to make major reactions, MFS Investment Management said.

"Given that this is priced, this should not necessarily inspire another bout of market bearishness in our view."

Eurozone government bond spreads also remain resilient, it said, after the ECB's 25-basis-point interest-rate rise on Thursday.

Read Market Technicals Seen Driving Eurozone Bonds Near Term

Energy:

Oil prices were flattish in Europe but holding onto gains from the previous session that came after China took steps to stimulate its economy, which is outweighing economic concerns elsewhere in the world, particularly in the U.S. after the Fed hinted it was not yet done raising rates.

"The fundamental picture remains robust, but bearish macro sentiment continues to dominate price action," BMI said.

Natural Gas

European natural-gas prices tumble, reversing the prior day's sharp gains.

Temperatures in Germany are set to be as much as 7 Celsius above the norm for this time of year next week, according to data from Maxar's weather desk. That could spark extra power demand for cooling.

Meanwhile, an unexpected extension to maintenance on Norwegian pipelines has further added to the volatility, Rystad Energy said.

Metals:

Base metals and gold prices were ticking higher, with hopes of a post-Covid stimulus being introduced in China helping to negate the current downturn in demand for industrial goods.

"We expect the Mainland Chinese government to announce some support measures for the property sector in the coming weeks," BMI, a Fitch Solutions subsidiary, said.

That support, BMI said, should boost prices for industrial metals, given the weakness in goods like copper which is down just under 8% from its peak of $9,365 a ton on January 23.

DOW JONES NEWSPLUS

EMEA HEADLINES

Tesco 1Q Group Retail LFL Sales Rose 8.2%, Backs FY 2024 Guidance

Tesco on Friday said its like-for-like group retail sales grew 8.2% in the first quarter of fiscal 2024 boosted by volumes and inflation, and reiterated its guidance for the full year.

The British grocer posted 14.83 billion pounds ($18.98 billion) in group retail sales excluding value-added tax and fuel for the 13 weeks ended May 27. Including Tesco Bank and retail, total sales were GBP15.17 billion, it added.

Generali Buys Liberty Seguros From Liberty Mutual in $2.5 Bln Deal

Assicurazioni Generali said Thursday that it has agreed to buy Liberty Seguros from Liberty Mutual Group in a 2.3 billion-euro ($2.49 billion) deal that expands its European footprint.

The Italian insurer said the deal will strengthen its position in the property-and-casualty segment in Spain and Portugal and allow it to enter that market in Ireland and Northern Ireland. Liberty Seguros is profitable and will contribute more than EUR1.2 billion in premiums, predominantly in the property-and-casualty segment, Generali said.

'Mines Everywhere': Ukraine's Offensive Is Proving a Hard Slog

BLAHODATNE, Ukraine-A few miles south of this village, at the tip of the deepest advance of Ukraine's counteroffensive, a platoon from the Ukrainian 68th Jaeger Brigade fought at close range with Russian marines.

The Ukrainians took casualties from mortar and small-arms fire, but they inflicted more, and the Russians retreated.

GLOBAL NEWS

BOJ Keeps Ultralow Interest Rates Unchanged

TOKYO-The Bank of Japan kept its ultralow interest rates unchanged Friday, affirming Gov. Kazuo Ueda's policy of trying to nurture sustainable inflation.

The BOJ decided to maintain its cap on the 10-year Japanese government bond yield at 0.5% and kept short-term interest rates at minus 0.1%.

The Global Economy Looks Like It's Out of Sync

In just 24 hours this past week the central banks of the world's three biggest economic blocs came to starkly different conclusions, with the eurozone raising rates, the U.S. on hold and the Chinese cutting. It's getting harder for investors to understand the global economy-and potentially getting harder for the Federal Reserve to put a lid on inflation.

The conflicting moves are caused by economies increasingly moving to local rhythms. Europe is in a technical recession, but the central bank expects inflation to last. China has no inflation problem but is suffering from the aftermath of its extended lockdowns and property bubble. The U.S. economy is doing surprisingly well, and inflation has plunged, but underlying price increases remain stubbornly high.

Drilling Stocks Plunge on Bets for Oil Price Slump

Oil prices are sliding. Some investors are betting they haven't hit bottom.

Shares of the four largest onshore drilling companies have plunged by 32% on average this year, while the S&P 500 energy index is down just 8.2% and the broader S&P 500 is up 15%. The steep fall for drilling stocks comes after a wave of recent rig idlings, which investors fear could signal a coming drop in oil demand amid a slowing economy.

Pay Could Be Seized From Failed Banks' Executives Under Senate Bill

WASHINGTON-Key Democratic and Republican senators have agreed to a bipartisan bill that would help regulators claw back the compensation of executives deemed responsible for a bank failure.

The deal between Senate Banking Committee Chair Sherrod Brown (D., Ohio) and South Carolina Sen. Tim Scott, the top Republican on the panel, comes after the failures of three midsize banks this year sent tremors through the industry. The collapses prompted calls from the White House and lawmakers in both parties for tougher punishments for executives at failed institutions.

New Ports Contract Would Raise Pay 32%, Bring Dockworkers $70 Million in Bonuses

West Coast dockworkers won a 32% pay increase through 2028 and will get a one-time "hero bonus" for working through the pandemic under a tentative contract agreement reached with port employers, according to people familiar with negotiations.

The agreement announced late Wednesday, which must be ratified by employers and dockworkers, includes improvements in benefits and other provisions reached after more than a year of contentious negotiations that led some importers to divert shipments away from West Coast ports and led to fears of greater impact on U.S.-Asia trade flows.

Write to [e-mail]

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

06-16-23 0628ET