MARKET WRAPS

Stocks:

Stocks in Europe continued to fall on Wednesday as concerns grow that the Federal Reserve may have to keep interest rates high for longer and as traders eyed crucial U.S. inflation data on Friday.

Investors were perturbed by comments from Minneapolis Federal Reserve Bank President Neel Kashkari in which he said further rate hikes can't be ruled out and cuts are not likely to come before "many more months" of benign inflation data.

"[E]ven though there was relief that consumer confidence had stopped falling, it also led investors to dial back their expectations for future rate cuts, with Treasury yields rising after the release," Deutsche Bank said.

Stocks to Watch

Fresnillo should see shares rally above 20% over the coming year as precious-metals prices continue rising, RBC Capital Markets said, upgrading its rating on the stock to outperform from sector perform and boosting its target price to 700 pence from 490 pence.

Fresnillo's recent underperformance has left it trading at a discount to silver peers, and at an historically low premium versus senior gold producers, RBC said.

The upgrade comes despite the world's largest silver producers stained track record, a declining production profile and a challenging operating environment in Mexico.

Roche is valued attractively compared with peers, but it lacks a blockbuster product in the pipeline to unlock a substantial increase in value, Berenberg said.

The firm has a pharmaceutical division that, when taken separately, is valued lower than its peers. Data on an obesity drug in development is encouraging, but it needs to be differentiated from other treatments on the market, Berenberg said.

Likewise, several upcoming pharmaceuticals could lift the company's fortunes--including a breast cancer drug receiving priority review in the U.S. today--but without a star asset on the horizon, it can only go so high, Berenberg said.

SAP's Sapphire event next week should help build investor confidence in its mid-to-long term trajectory, Citi said.

"While we do not anticipate a quantitative update, we expect management to sound increasingly optimistic on the building blocks aiding investor confidence in the further growth acceleration beyond 2025."

South African miners largely reported operational performances in line with their guidance in the first quarter, with the otherwise hamstrung platinum-metals producers boasting attractive risk-reward, Citi said.

Potential production cuts should support basket prices of platinum metals, which seem to have reached their bottom after remaining somewhat stable since last July--providing limited downside to risk, Citi said. Impala Platinum remains its top pick.

U.S. Markets:

Stock futures fell while Treasury bonds extended Tuesday's declines, with the yield on the benchmark 10-year note topping 4.57%.

Stocks to Watch

Marathon Oil jumped following a report that said ConocoPhillips was in advanced talks to buy the Houston-based company in an all-stock deal that would value Marathon Oil at slightly more than its current market value of $15 billion. A deal appeared to be imminent late Tuesday, the Financial Times reported, though there was still a risk negotiations would fall apart. ConocoPhillips shares were slightly lower premarket.

Forex:

The rise in the U.S. Conference Board's consumer confidence survey for May prevented more weakness in the dollar but left the DXY dollar index directionless just above 104.50, UniCredit Research said.

Any attempts to push the EUR/USD currency pair above 1.09 continue to fail, as does a definitive rally by GBP/USD above 1.28, it said.

UniCredit expects currencies to remain stuck within tight trading ranges as "economic data are still failing to provide major exchange rates with a clear directionality."

Bonds:

Eurozone bond duration is expected to struggle for direction for now as the European Central Bank is unlikely to commit to fresh guidance on interest-rate cut timing beyond June, Citi Research said. A 25 basis point ECB rate cut in June remains widely expected, though.

"Eventually, however, we expect a decisive steer to quicker easing from a persistent inflation undershoot into 2025."

Two-year U.S. Treasury note yields should stay around 5%, ING said, unless there is a bigger downside surprise in macro data.

Energy:

Oil prices gained as traders expect OPEC and its allies to extend their production curbs at a Sunday meeting and the start of the summer driving season in the U.S. boosts fuel consumption.

Both benchmarks have gained more than 1% from Tuesday, spurred by flared up tensions in the Middle East following Israel's deadly strikes in Rafah.

"The market has shrugged off the recent softness in physical market, with signs that the driving season has boosted demand," ANZ Research said.

According to ANZ, data suggests a relatively high number of trips have been taken over Memorial Day weekend in the U.S., while also air travel has been strong.

Metals:

Gold futures fell back slightly after commentary from several Federal Reserve officials poured cold water on hopes for monetary policy easing.

Bullion was being dragged down by a modest recovery in the dollar, after Minneapolis Fed President Neel Kashkari said Tuesday that interest rates would be held steady as long as needed-or even hiked if necessary.

Copper prices are likely to stay elevated throughout 2024, thanks to supply constraints and limited inventories, RBC Capital Markets said.

RBC has raised its forecast for 2024 to $4.39 per pound from $4.25 per pound. However, RBC's view is tempered by expectations for improving supply into 2025 and tepid demand in China.

RBC maintains its 2025 copper-price forecast of $4.50 per pound as it expects the market to be roughly in balance.


EMEA HEADLINES

BHP Seeks Another Extension to $50 Billion Takeover Talks With Anglo American

Australian mining giant BHP said a further deadline extension is needed before it can reach an agreement with Anglo American on a $50 billion takeover of its London-based rival.

BHP, the world's largest miner by market cap, on Wednesday outlined a range of measures aimed at addressing Anglo's concerns about the structure of the proposed deal.


Royal Mail Owner IDS Agrees to $4.6 Billion EP Takeover

Royal Mail owner International Distribution Services said Wednesday that it has agreed to the improved 3.57 billion pound ($4.56 billion) takeover proposal from Daniel Kretinsky's EP Corporate Group as flagged on May 15.

Under the proposal, accepting shareholders would get 370 pence for each share held, a 73% premium to its closing share price of 214.20 pence on April 12, the day before EP's previous offer proposal was made public.


German Consumer Confidence Continues to Rise

German consumer confidence continues to rise, increasing for a fourth month in a row, as purchasing power is set to improve with easing inflation, a monthly survey said.

The forward-looking consumer-climate index for Germany, published Wednesday by research group GfK and the Nuremberg Institute for Market Decisions, forecast confidence to rise to minus 20.9 in June from minus 24.0 this month.


Hannon's Take: A Soft Landing From the Putin Shock

The European Central Bank will likely cut its key interest rate next week, setting the eurozone economy on a course for what policymakers hope will be a soft landing from the Putin shock.

Soft landings are relative, of course, and taming inflation hasn't been costless. The eurozone economy has stagnated for much of the last two years, and food prices are much higher than they were before Russia invaded Ukraine in February 2022. Nobody is expecting a speedy return to rapid growth.


Bouygues Telecom Says La Poste Telecom Deal Could Be Delayed by Dispute

Bouygues Telecom said differences between La Poste Telecom owners SFR and La Poste regarding a proposed sale of the business to Bouygues could delay the completion of the deal.

La Poste implemented a dispute-resolution mechanism following unsettled differences regarding the terms and conditions of the transaction, Bouygues said Wednesday.


GLOBAL NEWS

IMF Raises China Economic Growth Forecasts

China's economic outlook seems brighter after a strong first-quarter performance and recent policy stimulus, the International Monetary Fund said as it raised growth forecasts for the country.

The IMF said it now projects 2024 gross domestic product growth at 5%, up from its prior forecast of 4.6% made in April. That puts the organization's estimate in line with the official China GDP growth target of around 5%.


China's Biggest Cities Continue to Ease Home-Buying Policies

More of China's biggest cities are easing home-buying policies, after top leaders recently signaled a shift to aggressive measures to resolve the country's ongoing property crisis.

Guangzhou and Shenzhen, two of China's four Tier-1 cities, on Tuesday reduced the down payments required for first-home purchases by 10 and 15 percentage points, respectively. They also lowered mortgage rates for second homes and trimmed banks' loan prime rates.


Israeli Tanks Close In on Central Rafah as Global Uproar Grows

Israeli tanks advanced farther into Rafah on Tuesday, according to witnesses, as the Israeli military said it was expanding operations in the southern Gaza city amid growing international condemnation.

The tanks passed near the Al-Awda mosque, a central Rafah landmark, Palestinians in the city told The Wall Street Journal. The Israeli military didn't comment on the specifics of its push into Rafah, but Israel's Army Radio said the military had added a brigade to the five operating in the city and troops were engaging in close-quarters combat with Hamas.


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05-29-24 0540ET