MARKET WRAPS

Stocks:

Most European stock markets retreated on Tuesday, tracking tech-led U.S. losses, with a warning from Airbus adding to the caution.

Stocks to Watch

Airbus's cut to its 2024 guidance dragged down most European aerospace stocks, with the Stoxx Europe Aerospace & Defense sector index dropping more than 4%.

Airbus cited supply-chain challenges and a charge in its defense-and-space business as it cut its plane-delivery target and lowered its adjusted earnings guidance for the year. Airbus's guidance cut could hurt aerospace suppliers, RBC Capital Markets said.

BP's transition growth engines are still leaving the market skeptical but evidence of acting on its strategy should ultimately be positive for its shares, RBC Capital Markets said.

"We think it is imperative for the company to get some 'runs on the board', whether it be growing its LNG portfolio, continue its trading prowess, or show positive earnings growth from its new transition businesses," RBC said.

U.S. Markets:

Stock futures traded mostly higher following a session that saw the S&P 500 and Nasdaq pulled lower by tech stocks and Nvidia, in particular.

Nvidia shares wobbled premarket after ending Monday in correction territory, having fallen almost 13% from a recent peak.

The stock has come under pressure in recent days after a rally that briefly vaunted Nvidia into the position of the world's most-valuable listed company.

Forex:

The euro may struggle to sustain any gains over the coming weeks given the potential for further French bond market stress due to risks stemming from French elections, ING said.

There are still "many possibly bearish chapters to play out" in the French elections such as the leftist alliance doing better than expected, ING added.

While bond investors might welcome the far-right National Rally saying it will respect the nation's budget rules, it is probably too early for the party to be making significant concessions to its manifesto, ING said.

"EUR/USD may therefore struggle to break to the topside of its 1.0660-1.0760 range."

The dollar was holding steady ahead of key events this week, most notably Friday's U.S. PCE inflation data as well as Thursday's first . presidential debate between Biden and Trump, ING said.

The PCE data is the Federal Reserve's preferred measure of inflation and a weak reading could take the dollar lower.

"Should it meet expectations of a 0.1% month-on-month reading, we suspect the short-end of the U.S. curve can come lower and take the dollar with it."

The dollar would hold up against the euro, however, due to caution ahead of the first round of snap French elections on Sunday.

Allianz Global Investors continues to prefer the dollar, maintaining overweight on the currency versus the euro, as "any reminder of the European sovereign debt crisis is a red flag for many international investors."

The pound looks set to fall as U.K. interest-rate expectations could be repriced lower later this summer following a likely rate cut by the Bank of England in August, ING said.

"Looking at forward curves, it is remarkable that U.K. interest rates remain priced so close to the U.S.," ING said.

For both the U.K. and the U.S., about 45 basis points of rate cuts are priced this year with policy easing cycles expected to end around 3.30%-3.40%, ING added.

Following the July 4 U.K. general election, some BOE members could signal rate cuts, ING said.

Bonds:

Deutsche Bank Research has switched its short position view in 10-year French government bonds against Bunds to an outright short in 10-year OATs.

It has set an indicative target of 3.40% for the 10-year OAT benchmark and a stop level at 3.10%; the current level is 3.15%, according to Tradeweb.

Deutsche Bank said the 10-year OAT yield is only 5 basis points higher than it was before the EU election and the 10-year Bund has only reversed 30% of its post-EU election selloff.

"We acknowledge that in tail risk scenarios the OAT-Bund widener will outperform versus a short 10-year OAT outright but still this should lead to higher OAT yields eventually."

Nervousness surrounding the French elections recently initiated a small rise in investment-grade corporate bond spreads but the broader downtrend doesn't appear to be permanently broken, DWS said.

Investment-grade corporate bond spreads on both sides of the Atlantic have been in very good shape since the beginning of 2023, DWS said, adding that even the high volume of new issuance isn't affecting the solidity of the market while corporate bond yields are still quite attractive.

"We expect that investors will refocus on the strong fundamentals once the recent volatility subsides, and the market will return to its solid path."

Allianz Global Investors has retained its long position on 10-year Treasurys in its multi-asset portfolios, being vigilant to market concerns over the outcome of upcoming French elections.

Energy:

Oil prices were broadly steady after rising 1% in the previous trading session on prospects of stronger demand over the summer and heightened geopolitical risks in Eastern Europe and the Middle East.

Further gains are capped by investors' cautiousness ahead of this week's U.S. PCE data and concerns over the demand outlook in China.

Meanwhile, Ukrainian missile strikes on Russian oil infrastructure and fears of a full-scare war between Israel and Iran-backed militia group Hezbollah continue to uphold prices.

According to ANZ, the market also remains on edge ahead of elections in Iran later this week, as a "more hard-line" president could result in more direct confrontations with the U.S., Israel and Saudi Arabia.

Metals:

Metal prices were as investors wait for more insights into the possible timing of the Federal Reserve's first interest-rate cut this year.

"Currently, forward swaps are pricing in nearly a 75% chance of a rate cut in September," Sucden Financial said.

"Markets are already anticipating two 25 basis point cuts."

In base metals, analysts said the market is torn between sluggish demand signals in China and persistent issues on the supply side.


EMEA HEADLINES

Airbus Sheds More Than $10 Billion in Market Value After Slashing Guidance Over Supply-Chain Snags, Space Impairment

Airbus lost more than $10 billion in market value after the group lowered its commercial aircraft delivery goal and cut financial targets for the year due to supply-chain hurdles and an impairment related to its space activities.

Airbus shares in Paris slumped more than 9% on Tuesday, giving the group a market value of around 107.86 billion euros ($115.79 billion), according to FactSet. The group's market value stood at about EUR118 billion on Monday.


Brookfield to Takeover France's Neoen in $6.5 Billion Deal

Brookfield Asset Management agreed to buy a majority stake in France's Neoen, the first step toward a full acquisition in a deal that values the renewables company as a whole at 6.09 billion euros ($6.54 billion).

With the deal, Brookfield aims to bolster exposure to renewables and battery-storage technology and to accelerate Neoen's portfolio expansion.


Novo Nordisk to Invest $4.1 Billion in New Facility in North Carolina

Novo Nordisk plans to invest $4.1 billion to build a second fill and finishing manufacturing facility in Clayton, N.C., as demand for weight-loss drugs show no signs of letting up.

The Danish drug maker - known for its weight-loss drugs Wegovy and Ozempic - said the new plant would be its largest in the state, doubling the combined square footage of its three existing facilities.


GLOBAL NEWS

Fed Official Says High Interest Rates Still Needed to Lower Inflation

San Francisco Federal Reserve President Mary Daly sees more work for higher interest rates to do to slow demand and inflation in the U.S. economy. She said the Fed is ready to respond to both a softening labor market that needs a boost and to inflation remaining stuck above its target-but it's unclear which scenario is more likely.

For now, interest rates aren't going anywhere, Daly said in remarks before the Commonwealth Club World Affairs of California on Monday. "The bumpiness of inflation data so far this year has not inspired confidence, " She said. "Recent readings are more encouraging, but it is hard to know if we are truly on track to sustainable price stability."


Fed's Goolsbee lays out dovish case for rate cuts, flags 'a couple of warning signs' for economy

Federal Reserve Bank of Chicago President Austan Goolsbee on Monday laid out a dovish case for considering potential cuts in interest rates in coming months.

In an interview on CNBC, Goolsbee said there are new signs of stress on the economy that should make the U.S. central bank at least wonder if its policy rate needs to be as high as it currently is.


In Rare Rebuke, U.S. Ambassador Accuses China of Undermining Diplomacy

BEIJING-In November last year, President Biden and Chinese leader Xi Jinping agreed to boost engagement between ordinary Chinese and Americans, part of an effort to repair fraying ties ahead of a tense election year in the U.S.

Instead, says Nicholas Burns, Washington's ambassador in Beijing, China has actively undermined those ties, interrogating and intimidating citizens who attend U.S.-organized events in China, ramping up restrictions on the embassy's social-media posts and whipping up anti-American sentiment.


Gaza War Moves Close to Its Next Phase, but No Nearer to an End

As Israel nears the end of major combat operations in the city of Rafah, its leaders are preparing for an extended counterinsurgency campaign that would reduce the number of troops tied down in Gaza but could still leave the enclave mired in violence and instability.

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06-25-24 0527ET