EMEA Morning Briefing : Stock Futures Broadly Higher Ahead of ECB Rate Decision

MARKET WRAPS

Watch For:

ECB rate decision; U.K. unemployment, consumer confidence survey; trading updates from Novartis, Publicis Groupe, ABB, 3i Group, EQT AB, Volvo, SKF, Telia, Nokia, Telenor, Anglo American, Anglo American Platinum, SSE

Opening Call:

European stock futures broadly gained as traders focus on European Central Bank rate decision. Asian stock benchmarks were lower; the dollar and Treasury yields steadied; while oil futures and gold gained.

Equities:

Stock futures broadly advanced early Thursday ahead of the ECB rate decision. Eurozone interest rates are expected to remain on hold but market participants are awaiting clues on the timing of future rate cuts.

ECB President Christine Lagarde won't commit to a rate cut after the summer break at Thursday's meeting but she is also unlikely to categorically reject it, said Felix Schmidt, chief economist at Berenberg.

Berenberg continues to expect a rate cut of 25 basis points in September, followed by a pause until the first quarter of 2025.

"Investors are choosing to remain cautious, likely waiting for stronger evidence that the ECB will cut rates rather than buying the rumour," said Pierre Veyret technical analyst at ActivTrades.

Meanwhile, U.S. technology shares plunged Wednesday, sending the Nasdaq Composite to its worst day in more than a year.

"Following sharp semiconductor sector outperformance in the first half, we've seen some investors rebalance AI-linked semi [semiconductor] exposure to large-cap platform names and profitless tech," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"Tech is really overstretched," said Don Calcagni, chief investment officer at Mercer Advisors. "This is investors just taking profits off the table."

Forex:

The U.S. dollar was steady in Asia, underpinned by higher Treasury yields, which increase the allure of U.S. fixed-income assets and demand for the greenback.

However, the USD Index could be weaker in July on a seasonal basis before strengthening in August and September, Maybank analysts said.

Wednesday's price movements in other currencies also seem to have dragged the USD Index lower, the analysts said, noting a sharp drop in USD/JPY overnight.

Bonds:

Yields on U.S. government debt finished slightly lower on Wednesday after a pair of Federal Reserve officials suggested the time to cut interest rates may be approaching.

Investors expect that if Republicans win both the White House and the Congress in this year's elections it would cause longer-dated Treasury yields to rise faster than short-dated yields, a phenomenon known as 'bear steepening,' rates strategists at TD Securities said.

This trend has already begun as victory for former President Donald Trump is widely expected, they said. Trump is expected to implement tariff and immigration policies which wouldn't require Congressional approval. These would likely push inflation sharply higher in 2025 and growth lower in 2026, TD said.

Energy:

Oil futures gained after official U.S. data revealed a third weekly drop in a row for commercial crude inventories.

The crude-oil inventory decline, geopolitical tensions in the Middle East, solid seasonal demand and late-summer Fed rate-cut expectations have been catalysts for higher crude prices, said TD Securities.

Metals:

U.S. interest rate movements will likely be the most significant catalyst for gold prices in the near term, said Shaw & Partners.

"The long-term relationship between gold and rates suggests that for every 100 basis points drop in U.S. 10-year real rates, gold rallies by 11%," said analyst Andrew Hines.

Shaw now tips gold to reach US$3,000/oz next year, up some 33% on its prior forecast and expects it to remain at the level in 2026, rather than pull back slightly.

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Copper edged lower. Despite media reports that China was planning to cut its copper output, recent government data showed that refined copper production rose in June compared with May, the ANZ Research team said. This has raised concerns about weak demand as China's economic growth remains slow, they added.

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Iron ore prices declined amid high inventories. With current iron-ore stockpiles at Chinese ports close to 150 million tons, iron-ore supply is abundant and weighing on investor sentiment, Huarong Rongda Futures said. Meanwhile, demand for end products is relatively weak, it said.

Investors are looking to see if more supportive economic policies come from China's Third Plenum, which ends today.

TODAY'S TOP HEADLINES

ECB Is Watching the Fed. Why Another Rate Cut Won't Come.

The European Central Bank is expected to leave interest rates unchanged on Thursday after delivering the first reduction since the Covid-19 pandemic last month.

The ECB forged ahead of the Federal Reserve in June with a quarter-point cut even though the inflation rate in the 20 countries sharing the euro remains higher than the 2% target. While investors expect the Fed to start cutting soon, the ECB won't want to get too far ahead of its U.S. counterpart because it might weaken the euro too much and drive up inflation again.

Trump's Taiwan Comments Caused a Selloff in Chips. The Real Risk Is a Global Depression.

This article is from the free weekly Barron's Tech email newsletter. Sign up here to get it delivered directly to your inbox.

No Hyperbole. Former President Donald Trump is spooking investors with his latest comments about Taiwan. While chip stocks took the brunt of the pain on Wednesday, investors need to recognize that the entire global economy-not just chips-could crumble if Taiwan's security situation deteriorates significantly.

Prospect of Trump's Return to Dominate European Security Summit

The coming U.S. presidential election, with the growing prospect of a return of Donald Trump to the White House, promises to have profound repercussions for Europe's security, future trans-Atlantic relations and the conflict in Ukraine-changes with which European leaders are starting to grapple.

Trump's pick of Sen. JD Vance (R., Ohio) as his running mate on Monday reinforced a sense in Europe that the former president's return to office could mean a dramatic drop in U.S. aid for Ukraine and a push to force Kyiv into peace talks with the Kremlin. It could also mean a U.S. pivot in defense priorities toward Asia to deter China that would leave Europe to increasingly fend for itself.

Beyond Meat Engages Bondholders for Restructuring Talks

Beyond Meat, the purveyor of plant-based meat substitutes, has engaged with a group of bondholders to initiate discussions about a balance-sheet restructuring, according to people familiar with the matter.

The Los Angeles-based company's liquidity has diminished over the past several quarters as it continues to burn cash. The group of bondholders, which has interests in Beyond Meat's $1.1 billion of convertible notes, is working with the law firm Akin Gump Strauss Hauer & Feld, the people familiar with the matter said. The company is represented by Latham & Watkins.

TSMC Heads Into Earnings. Politics Loom in the Background.

Taiwan Semiconductor Manufacturing is thriving on rising demand for artificial-intelligence chips, but geopolitics may drive investor sentiment in the short term.

On Wednesday, TSMC shares and chip stocks fell after former President Donald Trump seemed to waver about the U.S.'s current relationship with Taiwan. "They did take about 100% of our chip business," Trump told Bloomberg Businessweek in an interview published on Tuesday. "Taiwan should pay us for defense."

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Expected Major Events for Thursday

04:30/NED: Jun Unemployment

06:00/UK: Jun UK monthly unemployment figures

06:00/EU: Jun New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

06:00/SWI: Jun Trade Balance

07:00/SPN: May Industrial Orders & Turnover

08:00/POL: Jun Average gross wages

08:00/POL: Jun PPI

08:00/POL: Jun Industrial Production Index

09:00/EU: May Construction output

12:15/EU: ECB interest rate announcement

23:01/UK: Jul UK Consumer Confidence Survey

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

07-18-24 0015ET