EMEA Morning Briefing : Shares Seen Lower as Bond Yields Climb

MARKET WRAPS

Watch For:

ECB monetary developments; Germany GfK consumer climate survey, CPI data for Germany, Barvaria, North Rhine Westphalia, Saxony, Brandenburg, Hesse; France consumer confidence survey; trading update from Telecom Italia

Opening Call:

European stock futures declined as global bond yields climbed. Asian stock benchmarks fell; the dollar edged higher; Treasury yields steadied; while oil and gold futures rose slightly.

Equities:

Stock futures fell early Wednesday, with traders dialing back expectations for rate cuts by the Federal Reserve as they weighed comments by Minneapolis Fed President Kashkari and after a jump in Treasury yields overnight.

Kashkari said he wouldn't rule out additional rate hikes if inflation doesn't retreat further, and that he wants to see many more months of positive inflation data before he would support a rate cut.

Looking ahead, the U.S. personal-consumption expenditure price index data for April, due for release Friday remains in focus. The PCE is the Fed's favored inflation gauge, and the reading should therefore have an impact on traders' perceptions of the central bank's monetary-policy trajectory later this year.

Forex:

USD has firmed after the Conference Board's U.S. consumer confidence index unexpectedly increased, said CBA. Also, Minneapolis Fed President Kashkari said the odds of additional rate increases are low but not off the table, CBA added.

Bonds:

Treasury yields steadied in Asia, after the 10-year yield logged the biggest one-day gain in about a month on Tuesday after relatively weak 2-year and 5-year auctions.

Kent Engelke, chief economic strategist at Capitol Securities Management, pointed to Kashkari's comments as a catalyst for rising long-duration bond yields, while adding that wage inflation looks to be particularly hard to tame, especially with higher minimum wages and recent union wins on higher wages in the automotive sector.

Energy:

Oil futures rose early Wednesday. Oil traders expect OPEC+ countries to roll over voluntary production cuts into 3Q when the group meets this weekend, said NAB. Heightened tensions in the Middle East are also a factor which has boosted oil prices with another vessel attacked in the Red Sea, NAB added.

Metals:

Gold edged higher in Asia amid cautious sentiment ahead of the U.S. PCE core price index, the Fed's preferred inflation gauge, due out this Friday.

A higher-than-expected reading could add to pressures that the precious metal is facing, especially after FOMC minutes recently indicated a more hawkish stance from members, said DHF Capital. There seems to be growing skepticism over substantial Fed rate cuts this year, with traders pricing in a cut in November, DHF added.

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Copper edged higher in Asian trading. Hopes of stronger demand from China's property sector seem to have triggered a rebound in copper, ANZ said.

Shanghai lowered down-payment ratios and minimum mortgage thresholds for home purchases, which helped offset signs of soft physical demand, ANZ added. That comes amid a string of other policy measures to prop up China's real-estate sector.

TODAY'S TOP HEADLINES

IMF Raises China's 2024 Economic Growth Forecast to 5%

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 on Wednesday that 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%.

One of Wall Street's Biggest Bulls Got More Bullish. There Is Reason for Caution.

Optimism is on the rise among strategists-and UBS is helping lead the pack.

UBS' Strategist Jonathan Golub, on Tuesday, said he expects the S&P 500 to hit 5600 by December, revising his earlier forecast of 5400 made in February. This means he expects an over 17% gain for the main index this year as opposed to 11% so far.

Macron Allows Ukraine to Use French Missiles to Strike Inside Russia

French President Emmanuel Macron said Ukrainian forces are allowed to use powerful cruise missiles supplied by France to strike inside Russia on the condition the weapons are only used to take out military sites that have fired on Ukraine.

The comments, made during a news conference with German Chancellor Olaf Scholz, came as Ukraine and its European allies have begun to press the Biden administration to ease restrictions on the use of Western weapons to target Russian territory.

Lenovo to Issue $2 Billion Convertible Bonds to Saudi Sovereign Wealth Fund

Lenovo Group is raising US$2.0 billion by issuing convertible bonds to a unit of Saudi Arabia's sovereign-wealth fund, which could result in the investor owning a stake in the world's largest PC maker.

Alat, a wholly owned subsidiary of Saudi Arabia's Public Investment Fund, will subscribe to the zero-coupon bonds, whose proceeds will be used by the PC maker to repay its existing debt and meet working capital needs, Lenovo said Wednesday.

Blacklisted Chinese Companies Rebrand as American to Dodge Crackdown

In December, a new company registered in Michigan: American Lidar. Its planned home would be an easy drive from the big three U.S. automakers.

The company behind American Lidar, and not mentioned in its registration, is China-based lidar maker Hesai Group, which the U.S. has labeled a security concern. It is a familiar playbook: a company facing regulatory or reputational problems sets up a subsidiary or affiliate with a different name.

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Expected Major Events for Wednesday

06:00/GER: Jun GfK consumer climate survey

06:00/SWE: Apr Retail sales

06:45/FRA: May Consumer confidence survey

07:00/SPN: Apr Retail Sales

08:00/ITA: May Consumer Confidence Survey

08:00/ITA: May Business Confidence Survey

08:00/EU: Apr Monetary developments in the euro area (M3)

08:00/GER: May Bavaria CPI

08:00/GER: May North Rhine Westphalia CPI

08:00/GER: May Saxony CPI

08:00/GER: May Hesse CPI

08:00/GER: May Brandenburg CPI

08:30/UK: Apr Capital issuance statistics

09:00/ITA: Apr Foreign Trade non-EU

09:00/CRO: Apr Retail trade

09:00/MLT: 1Q GDP

10:00/POR: Apr Retail trade

12:00/GER: May Provisional CPI

23:01/UK: Apr UK monthly automotive manufacturing figures

23:01/UK: CBI Service Sector Survey

23:01/UK: Apr Zoopla House Price Index

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

05-29-24 0016ET