European Midday Briefing : Traders Await Key U.S. Inflation Data This Week

MARKET WRAPS

Stocks:

European shares traded lower on Monday as investors awaited U.S. inflation data later in the week.

"Much hinges on the U.S. April inflation report, with a lower reading boosting odds of a Fed rate cut as soon as July, while a higher print could push a rate cut out past September," IG said.

Stocks to Watch

There's an estimated $4.1 billion-$6.8 billion in benefits, or so-called synergies, from a proposed takeover of Anglo American by BHP , according to RBC Capital Markets. It reiterated a cautious view on the proposed transaction and a sector perform rating on BHP.

Citi has raised its profitability estimates for Maersk to account for the recent spike in ocean freight rates, now expecting 2024 group adjusted Ebitda of $5.6 billion, from $5.1 billion previously.

U.S. Markets:

Stock futures nudged higher as investors awaited key inflation data and earnings reports from major retailers.

Stocks to Watch

Bristol Myers Squibb's trial of a combination of cancer treatments missed its primary endpoint of progression-free survival, the company said. The stock declined 1.3% in premarket trading.

GameStop was rising 17% in premarket trading as Keith Gill, the investor who posts on Reddit, X, YouTube, and other social media networks as Roaring Kitty, made his first social media post on the X platform in three years.

Forex:

The sterling was steady as investors awaited the U.K. labor market report due Tuesday.

Both average weekly earnings and weekly earnings excluding bonuses are expected to decline slightly, Monex Europe said, citing consensus estimates.

There is a risk the data could be stronger than forecast due to the recent rise in the National Living Wage, Monex added.

"In our view either an in line print or an upside beat on wages should be sterling positive."

The dollar is showing signs of fatigue amid weaker U.S. economic activity, buoyant risk appetite, and China and Japan's FX policies inhibiting local currency weakness, HSBC said.

Through most of the past year, USD has tracked changes in Fed rate expectations closely but the ability to price out additional cuts could be difficult unless the surprise scenario of the Fed needing to hike comes to fruition, it said.

U.S. inflation, retail sales and industrial production data are points to watch this week, HSBC added.

If these surprise to the downside, that could put USD in a more challenging position by bringing more Fed easing back into play.

Energy:

Oil prices edged higher as traders assessed China's inflation data and ahead of key U.S. readings this week.

China's consumer-price index rose for a third straight month in April, signaling a recovery in domestic demand in the top oil consumer.

Investors now await the U.S. PPI reading for April, due on Tuesday, and the closely watched CPI report on Wednesday for more cues on the interest-rate outlook.

Meanwhile, OPEC and the IEA are set to release their monthly oil market reports this week, offering a snapshot of global demand and supply expectations for this year and next.

OPEC+

OPEC+ risks losing market share to other oil producers if it doesn't start raising production, Capital Economics said.

The cartel and its allies extended their voluntary output curbs earlier this year in a bid to avert a surplus and prop up prices, and are now set to decide on their next policy move at their upcoming meeting in June.

Yet, Brent crude's recent fall below $84 a barrel suggests the oil market isn't as constrained as OPEC+ would hope it to be, Capital Economics said.

"Members may not feel now is the right time to start increasing production," it said.

"However, by not doing so the group runs the risk of ceding further market share as non-members scale up production."

Metals:

Gold futures fell, giving way to a stronger dollar ahead of key U.S. inflation data this week.

If inflation proves sticky, the Fed may keep interest rates higher for longer, a headwind for the noninterest-bearing bullion.

EMEA HEADLINES

Sanofi to Spend $1.08 Billion to Boost Drug Production in France

Sanofi will spend more than 1 billion euros ($1.08 billion) on ramping up production capability in France.

The French pharmaceutical company said Monday that the bulk of the investment will double the capacity to produce monoclonal antibodies, which are key in developing an array of pharmaceuticals, at its Vitry-sur-Seine site.

Russia's Bombardment of Ukraine Is More Lethal Than Ever

Ukraine is shooting down a far smaller proportion of Russian missile attacks than it was earlier in the war.

The worsening performance of Ukraine's air defenses comes as Russia increases drone and missile attacks, and fires more harder-to-hit weapons, such as ballistic missiles. Kyiv is also running low on ammunition for the Western-supplied Patriot systems that have been its best defense against such attacks.

Russia's Putin Replaces Defense Minister in Security Shake-Up

Russian President Vladimir Putin on Sunday replaced his defense minister Sergei Shoigu, a longtime ally, nominating an economist to take his place in the most substantial shake-up to the military's command structure since Moscow launched its war on Ukraine in February 2022.

In a decree published Sunday, Putin nominated Andrei Belousov, a former deputy prime minister who specializes in economics to replace Shoigu, who in turn was named as the new secretary of the Security Council, a post until now held by Nikolai Patrushev.

GLOBAL NEWS

China Kicks off Ultralong Bond Sale Friday to Support Economy

China will start selling the first batch of a planned 1 trillion yuan ($138.37 billion) ultralong bond issuance this week, as Beijing looks to provide more support to the economy.

The sale will run from May to November, with an unspecified amount of special 30-year treasurys to be issued Friday, according to a post on Chinese finance ministry's website. Bonds in 20- and 50-year tenors will be sold starting May 24 and June 14 respectively.

Platinum Market Deficit Forecast Widens on Weak Supply, Sustained Demand

The forecast deficit for the platinum market has widened for 2024, as weak supply is outweighed by sustained demand from the automotive and industrial sectors.

The precious metal is now forecast for a market deficit of 476,000 ounces in 2024-from prior expectations given in March of 418,000 ounces-amid strained supply from the mining sector and resilient demand, according to a new report from the World Platinum Investment Council.

Wall Street Turns Up the Heat on Companies to Perform

Wall Street is showing little patience for companies that don't live up to expectations.

With the first-quarter earnings season nearly over, companies in the S&P 500 are on pace to deliver a 5.4% jump in profits from a year ago, the biggest increase in nearly two years, according to FactSet.

Inflation trap? Stock market's near-record run faces the most crucial CPI reading of 2024.

U.S. stocks could run into a mousetrap en route back to record territory, with this week's reading of consumer prices potentially being the year's most consequential.

Inflation in the past three months has been out of whack with the Federal Reserve's goal of achieving a 2% annual rate, with energy and housing costs helping push the consumer-price index, or CPI, for March up to 3.5% yearly rate.

In Rafah, Israel Reaches for a Knockout Punch That's Proved Elusive

TEL AVIV-Israeli troops pressed further into Rafah on Sunday but also engaged in fierce fighting in previously cleared areas around Gaza City, showing the difficulty of winning a decisive victory over Hamas as a guerrilla force.

More than 300,000 Palestinians have fled Rafah as the Israeli military expanded what it calls a targeted operation in the Gaza Strip's border city with Egypt. The worsening humanitarian crisis there heightens Israel's dilemma: The U.S. has warned against a full-scale assault on Rafah, packed with over a million civilians, but Israeli Prime Minister Benjamin Netanyahu has said Hamas's last fighting formations there must be defeated to "achieve total victory."

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

(END) Dow Jones Newswires

05-13-24 0550ET