EMEA Morning Briefing : Markets Await Widely Expected ECB Rate Cut

MARKET WRAPS

Watch For:

ECB rate decision; Retail sales data for EU, Italy; Germany manufacturing orders; trading updates from Remy Cointreau, Norwegian Air Shuttle, Finnair Oyj

Opening Call:

Shares may rise in Europe on Thursday. In Asia, stock benchmarks were higher; Treasury yields gained; the dollar weakened; while oil and gold advanced.

Equities:

European stock futures were tracking higher early Thursday amid optimism that global interest-rate cuts could be on the horizon.

The Bank of Canada cut its main interest rate by a quarter percentage point on Wednesday, becoming the first Group of Seven central bank to provide rate relief.

Focus today is on the European Central Bank, which is widely expected to deliver its first interest-rate cut since the Covid-19 pandemic unleashed a surge of inflation.

Investors are also looking ahead to the U.S. monthly jobs report on Friday which could provide clues about the strength of the economy and the chances that the Federal Reserve will begin to cut interest rates soon.

Tech giants pushed major stock indexes in the U.S. to records Wednesday as investors stuck with a favorite trade.

Forex:

The U.S. dollar weakened on hopes for Fed rate cuts which would bolster appetite for risky assets.

The dollar remains "by a very wide margin" the most used global currency even though its share of global trade and gross domestic has fallen as emerging markets expand and despite attempts by China, Russia and its allies to side-step the U.S. currency, Rabobank said.

"Additionally, the inflation implications of potentially higher trade tariffs on China post the U.S. election suggest that the forthcoming rate cutting cycle from the Fed could be short-lived."

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The ECB is expected to cut interest rates but uncertainty remains over the outlook, leaving the euro exposed to risks and volatility, DHF Capital said.

"The euro and European treasury yields could be exposed to the downside if the ECB takes a softer stance on its interest rate trajectory."

Furthermore, the payrolls report could strengthen the dollar, sending EUR/USD lower, if jobs growth for May is higher than expected, it added.

Bonds:

Treasury yields gained after finishing lower on Wednesday as traders focused on the possibility that inflation may be starting to ease and global interest-rate cuts could be on the horizon.

On Wednesday, Canada became the first Group-of-Seven country to cut interest rates. The BOC's action is expected to be followed later today by a similar move from the ECB.

Further pressure is expected for yields, says Peter Cardillo of Spartan Capital Securities. "A combination of a lukewarm labor report this Friday, and Canada rate cut along with near given ECB rate cut tomorrow will add positive traction in the bond market."

Energy:

Oil gained, rebounding from losses earlier in the week on likely bargain hunting.

"It remains to be seen whether this recovery will last, given ongoing concerns over demand and over the OPEC+ decision to eventually phase out voluntary output cuts at a time when non-OPEC supply is on the rise," said Fawad Razaqzada, market analyst at City Index and FOREX.com.

Commodity strategists at ING argued that oil's recent slump in prices may have gone too far. "Our balance sheet continues to show a tightening in the oil market over the third quarter. Therefore, we believe the scale of the selloff at the front end of the forward curve is overdone," it said.

Metals:

Gold advanced in Asia, underpinned by prospects for Fed rate cuts driven by U.S. data released overnight. U.S. businesses added 152,000 new jobs in May to mark the smallest increase this year, ADP said.

Fed rate-cut bets lend support to gold, Phillip Nova said adding that market participants await more cues on potential labor-market weakness from nonfarm payrolls on Friday.

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Copper rose in Asia on hopes for monetary policy easing after the Bank of Canada cut its policy rate by 25 bps. ANZ Research analysts expect the ECB to cut rates by 25 bps as well. Lower rates could spur more business activity, boosting demand for materials like copper and softening USD, which also bolsters commodities.

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Iron ore prices edged higher in a possible technical rebound after a recent drop due to signs of weak demand from China. However, bearish sentiment may persist as the strength of China demand remains uncertain, ANZ research analysts said.

TODAY'S TOP HEADLINES

ECB Poised to Beat Fed to Rate-Cut Punch. Why the Timing Is Awkward.

The European Central Bank is widely expected to get ahead of the Federal Reserve on Thursday and deliver its first interest-rate cut since the Covid-19 pandemic unleashed a surge of inflation.

It won't be the first central bank to cut since-Canada pulled the trigger on a reduction Wednesday, and Switzerland and Sweden moved earlier this year.

Bank of Canada Cuts Rates to Become First G-7 Central Bank to Ease Policy

OTTAWA-The Bank of Canada cut its main interest rate by a quarter percentage point, becoming the first Group of Seven central bank to provide rate relief after global policymakers aggressively increased borrowing costs to tame inflation.

Canada's central bank said a cut was warranted because officials are now increasingly confident that inflation is moving closer to their 2% target. Bank of Canada Gov. Tiff Macklem said more rate cuts could be in the offing should inflation show further signs of slowing, though he added the pace of reductions would likely be gradual. He also warned households, businesses and governments that rates are unlikely to return to pre-pandemic levels.

Europe's Ascendant Right-Wing Parties Want to Remake the EU. They Can't Agree How.

Right-wing nationalist parties look set to surge in elections across Europe this week, but the shock wave will travel slowly due to rifts among the political forces.

Many of the parties see former President Donald Trump as a model. They pledge to peel back Brussels' power and shift European Union policy on hot-button issues including migration and climate policies.

Israeli Nationalists, Marching in Jerusalem, Balk at U.S. Cease-Fire Push

JERUSALEM-The marchers waved Israeli flags alongside flags of religious seminaries and banners in support of Donald Trump. Some chanted "Death to Arabs," while others called for tearing down the Al Aqsa Mosque in the heart of this ancient city and rebuilding an ancient Jewish temple in its place.

This year, the young religious nationalists at Israel's annual flag march also called for carrying on the war against Hamas in Gaza, rejecting President Biden's push for a cease-fire that could save some Israeli hostages but might help Hamas to survive.

How Apple Fell Behind in the AI Arms Race

For those who saw them, the demonstrations inside Apple earlier this decade of a revamped Siri offered a showcase of the amazing capabilities a powerful AI voice assistant could have.

The famed assistant, one of the last projects Apple co-founder Steve Jobs worked on before his death, had been given a total overhaul. Capable of running on an iPhone and without an internet connection, the new Siri impressed people with its improved speed, conversational capabilities and the accuracy with which it understood user commands. Code-named Project Blackbird, the effort also imagined a Siri with capabilities built by third-party app developers, according to people familiar with the work.

Nvidia Reaches $3 Trillion Market Value. It's the Latest Sign of Chip Demand.

Nvidia shares hit a historic milestone Wednesday afternoon, closing above $3 trillion in market value for the first time. It's the third U.S. company to do so, after Apple and Microsoft.

Nvidia has benefited from expectations for its next generation of artificial-intelligence chips. Both Tesla and Hewlett Packard Enterprise executives called out the chip maker as the dominant supplier in the AI boom.

Elon Musk's xAI Plans to Build Supercomputer in Memphis

Elon Musk's startup xAI is planning to build a supercomputer in Memphis, Tenn., as the young company races to catch up to rivals that have had yearslong head starts developing generative AI.

Terms weren't disclosed. The amount of the investment is still being finalized, according to Ted Townsend, president of the city's chamber of commerce. The project, which would be housed at an old manufacturing facility, still needs approval of local and regional authorities.

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Expected Major Events for Thursday

00:01/IRL: May Ireland Services PMI

05:45/SWI: May Unemployment

06:00/ROM: Apr Retail trade

06:00/GER: Apr Manufacturing orders

06:00/GER: Apr Manufacturing turnover

06:00/FIN: Apr Foreign trade

06:30/HUN: Apr Retail Sales

07:00/SVK: Apr Internal trade, incl Wholesale & Retail

07:00/CZE: Apr External trade

07:00/CZE: Apr Industry, Construction

07:00/SVK: 1Q GDP

07:00/SPN: Apr Industrial Production

07:00/AUT: May Wholesale Price Index

07:00/SPN: 1Q Housing Price Index

08:00/ICE: May External trade, preliminary figures

08:00/ITA: Apr Retail Sales

08:30/UK: May S&P Global UK Construction PMI

09:00/CYP: May CPI

09:00/EU: Apr Retail trade

10:00/IRL: 1Q Balance of Payments

10:00/IRL: 1Q GDP

12:15/EU: ECB interest rate announcement

23:01/UK: CBI Economic Forecast

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

06-06-24 0015ET