EMEA Morning Briefing : Stock Futures Muted Ahead of U.K. Election

MARKET WRAPS

Watch For:

Germany manufacturing orders; trading updates from Bang & Olufsen, Norwegian Air

Opening Call:

European stock futures were muted early Thursday. Asian stock benchmarks advanced; the dollar fell; while oil futures edged lower and gold was flat.

Equities:

Stock futures were little changed early Thursday ahead of elections in the U.K., with the Labour Party expected to win comprehensively.

With a Labour majority priced in, markets might focus on which party finishes second when the exit poll is released, Deutsche Bank said.

Should the Conservatives win north of 100 seats, the count is likely to be a non-event for markets. But if the Liberal Democrats are within around 20 seats, attention should turn to the positives of the pro-European Union party forming the official opposition, though betting markets currently assign this outcome at 1-in-5, Deutsche Bank said.

While a strong Lib Dem performance will be the result of focusing on local issues--such as sewage in rivers--down the line it would likely help move the government closer to the EU, it added.

Meanwhile, trading activity may be thin as U.S. stock and bond markets will be closed Thursday to mark Independence Day. Markets are keeping an eye on the U.S. jobs report due Friday.

Forex:

The dollar edged lower in Asia after a slate of softer U.S. economic data.

There are heightened prospects for lower Fed rates following the much weaker-than-expected U.S. ISM index of services businesses for June, said National Australia Bank.

Overall, the latest U.S. data released overnight have pulled the Citi U.S. economic surprise index sharply lower to its weakest reading since the start of August 2022, NAB noted.

Bonds:

Gilt yields are expected to remain relatively steady after the U.K. election as the more prudent Labour Party, which is unlikely to introduce radical ideas, is expected to win, Insight Investment fixed-income investment specialist Andy Burgess said. "As our base case, we're not anticipating a material change in the gilt market."

A Labour win would mean a "more considered and probably lengthier process in terms of announcing new [fiscal] measures," Burgess said.

The gilt market could however react if the election results differ significantly from what opinion polls suggest, he said. "Markets are volatile and can react to different events, rumors and speculation."

Energy:

Oil futures fell early Thursday after prices settled modestly higher on Wednesday. However, geopolitics and weather appear to be keeping oil prices well supported in the $80/bbl area for now, Citi said.

Israel has begun ramping up attacks on Hezbollah in Lebanon, while Hurricane Beryl is passing through the Caribbean, Citi noted.

Metals:

Gold were little changed in Asia. Gold prices have rebounded to $2,355/oz on softening U.S. economic data, which has lifted investor confidence around a start to the U.S. monetary easing cycle from September, ANZ said. Data showed private-sector employment rose by 150,000 jobs in June, down from a rise of 157,000 in May, marking a third month in a row of a slowdown in job creation.

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Copper declined in Asian trading after strong gains were seen across the base metals complex overnight, helped by a weaker dollar and upbeat mood, said Sucden Financial.

Meanwhile, Huarong Rongda Futures thinks prices may be volatile in the near term as investors focus on macro events including U.S. and Canada PMI data, as well as the latest Fed comments.

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Relatively high stockpiles of iron ore at Chinese ports will remain a headwind for prices of the steel ingredient over the next couple of months, but that should change come 4Q, Morgan Stanley said.

MS forecast iron-ore prices to rise heading into the year-end, projecting a seasonal softening in Brazil's exports and robust demand in China and other big markets. Iron-ore prices experienced a volatile 1H and are down by roughly 24% year to date, MS said.

The MS analysts have a 2H average price forecast of $120/ton and say it is one of the mined commodities they are most bullish on for the final months of 2024.

TODAY'S TOP HEADLINES

Making Money on the Election Trade Is Harder Than Ever

Elections are getting trickier for investors. Once all you had to think about was who would win, a hard enough job when polls are unreliable. Now you need to decide whether there will be a surprise landslide-and if there is, whether that will be good or bad for markets.

Investors in India and Mexico, and to an extent Monday in France and the U.S., have seen big swings as a result of such bets-and some big losses when they went wrong.

Fed Officials Signaled No Hurry to Cut Rates

With elevated inflation preventing Federal Reserve officials from feeling confident enough to cut interest rates, some policymakers at their meeting last month called for careful attention to signs the labor market might weaken faster than anticipated.

"A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness," said the minutes of the Fed's June 11-12 meeting, which were released Wednesday with a customary three-week delay.

Is the big slowdown in hiring finally here? June U.S. jobs report not supposed to show it.

The U.S. economy wasn't supposed to churn out so many new jobs this year, according to the experts. But lots of businesses have been hiring to underpin a solid economic expansion.

Is the dam finally about to break? Here's what to watch for in the June U.S. jobs report due Friday morning.

U.K.'s Labour Party Set to Score Sweeping Election Win

LONDON-Britain is set for a seismic shift in its political landscape Thursday as voters look set to elect the opposition Labour Party with a huge majority, putting a center-left government into Downing Street for the first time in 14 years.

Some polls show Labour Party leader Keir Starmer, a former public prosecutor turned politician, could be handed the biggest parliamentary majority in modern British history, as voters look for fresh leadership after a tumultuous period of Conservative Party rule that included Britain's departure from the European Union, political infighting and scandal that saw four prime ministers in five years, the pandemic, war in Ukraine and a cost-of-living crisis.

He Won a Big Netflix Deal. Then Saudi Arabia Convicted Him as a Terrorist.

DUBAI-Saudi Arabia is hungry for homegrown talent like Abdulaziz Almuzaini, whose animation studio in Riyadh produces Netflix shows that evoke the open, modern society idealized by the kingdom's reform-minded leaders.

Saudi Arabia has now also convicted him as a terrorist.

Amazon to Build $1.3 Billion Top-Secret Cloud for Australia's Government

SYDNEY-Amazon's cloud-computing business will build a top-secret cloud for Australia's government, improving the key U.S. ally's ability to share and analyze information and boost the resilience of its defense communications.

Australia said it will invest at least 2 billion Australian dollars, or US$1.3 billion, over the next decade in establishing and operating the top-secret cloud. The deal involves a strategic partnership between the Australian Signals Directorate, the intelligence service in charge of cybersecurity, and Amazon Web Services.

Canada Enacts Digital-Services Tax Amid Risks of U.S. Trade Retaliation

OTTAWA-Canada authorized the implementation of a digital-services tax, a move that threatens to trigger trade retaliation from Congress and the Biden administration.

A notice published late Wednesday indicated that the cabinet, led by Prime Minister Justin Trudeau, ordered the digital-services tax to be implemented June 28, or last Friday.

Amazon Founder Jeff Bezos Files Plan to Sell More Stock

Amazon.com stock has been on a tear, and Jeff Bezos signaled he plans to sell more shares.

The executive chairman notified the Securities and Exchange Commission in a Form 144 filing dated Tuesday, July 2, of his intent to sell 25 million of his Amazon shares worth $4.93 billion at the time of the filing. This proposal comes as shares of Amazon hit a closing high on Tuesday of $200.

Ericsson Intends to Book $1.1 Billion Charge for Latest Quarter

Ericsson said it expects an additional charge associated with the purchase of the company's Vonage cloud-communications subsidiary, two years after reaching the deal to expand in the U.S.

The Swedish telecom-equipment company said Wednesday that it would book a $1.1 billion noncash charge in the second quarter after Vonage's current portfolio reported lower-than-expected growth rates.

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Expected Major Events for Thursday

05:45/SWI: Jun Unemployment

06:00/GER: May Manufacturing orders

06:00/GER: May Manufacturing turnover

06:30/SWI: Jun CPI

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

07:00/CZE: May Retail trade

08:00/UK: Jun UK monthly car registrations figures

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

08:30/UK: 2Q Bank of England Credit Conditions Survey

08:30/UK: 2Q Bank of England's Bank Liabilities Survey

09:00/EU: 1Q Quarterly sectoral accounts

09:00/EU: 1Q Quarterly Balance of Payments

09:00/CYP: Jun CPI

23:01/UK: Jun BRC-Sensormatic IQ Footfall Monitor

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

07-04-24 0018ET