EMEA Morning Briefing : Shares Seen Lower Amid Cautious Mood

MARKET WRAPS

Watch For:

EU trade; Germany ZEW indicator of economic sentiment; trading updates from Vinci, Richemont, Ocado, SEB, Swedbank, X5 Retail, Experian, Intermediate Capital Group

Opening Call:

European stock futures edged lower, as Asian stock benchmarks traded cautiously. The dollar rose slightly; Treasury yields were steady; while oil futures edged lower and gold rose.

Equities:

Stock futures were slightly lower early Tuesday, tracking muted moves by Asian equities.

Bets on a Trump victory in the November presidential election have increased, according to PredictIt data. That has put the "Trump trade" back in focus for investors. Investors expect that a second Trump administration would feature tariffs and tax cuts that could stoke inflation again.

Federal Reserve Chair Jerome Powell said Monday that U.S. inflation and economic activity had slowed broadly in line with the central bank's expectation, but declined to say whether that would justify lowering interest rates at policymakers' meeting later this month.

"I'm not going to be sending any signals one way or another on any particular meeting," Powell said. "We're going to make these decisions meeting by meeting."

Investors will have plenty to chew on the rest of the week with earnings due from major U.S. companies, along with data on U.S. retail sales and housing starts and a rate decision from the European Central Bank.

Forex:

USD has strengthened against most currencies, as the policies of Donald Trump, who seems increasingly likely to win the U.S. presidential election, are perceived to be USD-positive.

The policies that Trump has been advocating are tariff increases, tax cuts, and an anti-immigrant drive, which are mostly inflationary and pro-growth, Maybank said.

His policies are likely to support the higher-for-longer rates narrative and possibly bring back U.S. economic exceptionalism, Maybank said.

Bonds:

Long-term Treasurys sold off overnight, sending corresponding yields up by the most in two weeks, as traders weighed the rising odds of a Trump victory in November.

"Politics have returned to the forefront for financial markets following an assassination attempt on former President Trump over the weekend," FHN Financial strategist Will Compernolle said.

The Treasury curve has steepened "from the so-called 'Trumpflation' trade that reflects investors' belief of a rising likelihood of Trump's return to the White House that would come with wider deficits and higher long-term inflation," the strategist said. "For now, though, the relatively modest magnitude of such bond-market moves suggests that traders feel better equipped to price in changes from the macroeconomic environment than the political landscape."

Energy:

Oil futures fell slightly early Tuesday following weak economic data out of China.

"Given that China is expected to make up the majority of oil demand growth this year, it is not surprising signs of weakness in Chinese demand are a concern," ING said.

Metals:

Gold rose slightly in Asia, underpinned by a bullish technical and fundamental outlook. No significant reversal patterns emerged on technical charts during June to worry bullish investors and the precious metal is well in positive territory in mid-July, said Fawad Razaqzada, market analyst at City Index and FOREX.com.

Also, investors seem to be focused on gold's appeal for wealth production against rising prices,he said. Short-term resistance is around $2,420/oz, and above that would put May's high of $2,450/oz as next upside objective, he added.

-

Aluminum fell slightly, supported by stronger output in China, ANZ said. In June, China's total aluminum production climbed to a record high of 3.67 million tons on higher refining margins, ANZ noted.

"Aluminum stocks on the Shanghai Futures Exchange also rose, another sign of an oversupplied market," ANZ added.

-

Iron-ore prices declined as weak economic data out of China clouded the demand outlook and amid strong supply of the steelmaking material. Both the value of home sales and property investment in the country remained weak in 1H.

Meanwhile, with port inventories of iron ore close to 150 million tons, abundant supply is further weighing on investor sentiment, Huarong Rongda Futures said.

TODAY'S TOP HEADLINES

Powell Signals Rate Cut Coming Into View but Declines to Say When

Federal Reserve Chair Jerome Powell declined to change expectations Monday that the central bank would hold interest rates steady at its meeting in two weeks as officials look ahead toward potential rate cuts after that.

Powell said inflation and economic activity had slowed broadly in line with the central bank's expectation. Data on price pressures between April and June "do add somewhat to confidence" that inflation will return to the Fed's target after inflation readings failed to provide such confidence earlier this year, he said during a question-and-answer session in Washington on Monday.

Why cooling inflation may not hurt corporate earnings after all

While U.S. stock-market investors have cheered cooling inflation, some have worried it could be bad news for equities - as disinflation may take away companies' pricing power and hurt their future earnings.

But strategists at BofA Global Research suggest there is no statistical evidence to support the argument that disinflation could be a headwind to the financial health of American companies.

Hugo Boss Joins Burberry in Warning on Luxury Spending, Cuts Full-Year Sales Outlook

Hugo Boss cut its sales outlook for the year, becoming the latest high-end fashion player to warn about consumer spending levels for luxury goods.

The warning from the German premium-fashion company late Monday came after both the luxury brand Burberry and watchmaker Swatch earlier in the day sounded caution on current sales trends. The challenges also prompted Bruberry to cut its dividend and replace its chief executive.

Rio Tinto Gets Simandou Approvals

Miner Rio Tinto said it has got the approvals it needs for a huge iron-ore mine it is building in Africa, as it reported a rise in second-quarter shipments of the steel ingredient from its operations in Australia.

The world's second-biggest miner by market value said Tuesday that all conditions have now been fulfilled for its investment in the Simandou iron-ore deposit in Guinea, including necessary Guinean and Chinese regulatory approvals.

Write to [e-mail]

Expected Major Events for Tuesday

07:00/SVK: May New orders in industry

08:00/ITA: Jun CPI

09:00/FRA: May Balance of payments

09:00/EU: May Foreign trade

09:00/ITA: May Foreign Trade EU

09:00/CRO: Jun CPI

09:05/GER: Jul ZEW Indicator of Economic Sentiment

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

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

07-16-24 0021ET