MARKET WRAPS

Stocks:

European stocks fell after e urozone purchasing managers' data showed slowing activity, particularly in France as businesses grow concerned ahead of upcoming elections.

"The uncertainty of the upcoming elections has French businesses stalling," Hamburg Commercial Bank said.

Stocks to Watch

European weapons manufacturers should continue to enjoy strong orders, Berenberg said, after attending the Eurosatory defense trade show in Paris.

"All five companies we met at the event painted a bullish tone on the demand outlook, particularly for combat vehicles, air defense and ammunition," it said in reference to BAE Systems, Rheinmetall, Babcock, Renk Group and Thales.

Berenberg said it came away from the event more positive on BAE Systems and Renk.

U.S. Markets:

Investors await U.S. purchasing managers' surveys, which are expected to show that both services and manufacturing activity eased in June.

So far this week, data has shown that industrial production accelerated in May, while retail sales rose less than expected.

In recent trading:

S&P 500, Dow industrials and Nasdaq-100 futures all edged lower. The S&P 500 briefly topped 5500 on Thursday for the first time.

Benchmark U.S. bond yields fell, after settling at 4.252% on Thursday.

Forex:

The euro edged lower against the dollar after the PMI data and the currency risks further weakness ahead of the French election, with potential for "multiple days of trading below $1.07," ING said.

The dollar is likely to stay supported by interest-rate differentials and as concerns ahead of French elections prompt flows into the safe-haven currency, ING said.

Thursday's rate cut by the Swiss National Bank and the Bank of England holding rates but stating that for some the decision was 'finely balanced' reinforced the notion that European central banks are "way ahead of the Federal Reserve with rate cuts, a dollar-positive development," ING said, adding that over the coming days the DXY dollar index could rise toward 106.0, from 105.628 currently.

Sterling edged lower, shrugging off data showing U.K. retail sales rebounded by 2.9% in May as prospects of the Bank of England cutting interest rates in the coming months weigh on the currency.

ING sees scope for sterling to fall toward $1.25 as an August rate cut looks increasingly possible. Money markets currently only price around a 50% chance of an August rate cut, according to Refinitiv, leaving scope for further adjustment.

ING forecasts three rate cuts this year, versus two priced by the market.

Bonds:

Under most political scenarios in the outcome of French snap elections, the already challenging fiscal outlook is unlikely to improve and Emmanuel Macron's reform agenda will stall, Commerzbank Research said.

"[French bond] spreads are therefore unlikely to return to their old ranges even [if Marine Le Pen's National Rally party] waters down some pledges and moves further to the center," it said.

In addition, unclear majorities may well keep the uncertainty premium higher for a long time after the election, Commerzbank Research said, reiterating its view that it wouldn't treat the bounce in spreads as a buying opportunity and stays short in French OATs versus Iberian peer bonds and also against EU bonds.

After peaking just shy of 80 basis points last Friday, the highest since 2017, the 10-year French OAT-German Bund yield spread has stabilized at lower levels, having closed at 72.5 basis points on Thursday, with Commerzbank Research saying investors seem to be taking comfort from Marine Le Pen's recent interview as some speculate that buying French government bonds at the height of political uncertainty could pay off again.

In a recent interview with Le Figaro, Le Pen said: "I'm respectful of institutions; I do not call for institutional chaos. There will simply be cohabitation."

Citi Research said the French government bond market looks priced for a hung parliament or majority by the far-right National Rally but with a relatively benign fiscal impact and Emmanuel Macron staying as the President.

"The risk scenario is a more forceful implementation of far-right/left manifesto that could take 10-year OAT-Bund spread to 100bp, with another 30bp widening in the tail event of Macron resigning," Citi said.

The most market friendly, and least likely, scenario might be a tightening toward 55-60bp on a centrist coalition or if National Rally is forced to discard most of its manifesto pledges, Citi said, adding periphery spreads are likely to outperform OATs in all scenarios if Macron stays, but underperform if he resigns.

Deutsche Bank Research said this week has seen some mild correction in eurozone government bond yield spreads over German Bunds, following severe widening across the board last week.

The 10-year French OAT-German Bund yield spread has seen the smallest correction versus all other eurozone government bond spreads, lagging during this week's compression move, it said.

Peripheral spreads have seen the biggest correction, while in core and semicore there was some variation across countries, with Austria and Belgium lagging a bit relative to Finland and Ireland, for example. Deutsche Bank expect volatility and headline risk to prevail over the next few weeks.

Energy:

Oil prices were on track for weekly gains as signs of a tightening market and stronger demand boost sentiment.

"OPEC+ cuts mean that the market should tighten further as we move into the third quarter, suggesting that there is still room to move higher from current levels," ING said.

Further price gains though are capped by uncertainties around the timing and extent of U.S. rate cuts.

Metals:

Gold futures were higher with the market still waiting for the next price driver from U.S. economic data, Federal Reserve policy and emerging market central bank trends.

Gold has settled into a clearly-defined range, reflecting this patient stance, though there are traders capitalizing on small moves, Pepperstone said, expecting these levels to hold "until we get a more immediate need to reweight gold allocations higher in the broad portfolio."

The U.S. economy is still humming along nicely and the Fed appears to be in control; for a new trend to develop may take time, Pepperstone said.


EMEA HEADLINES

Carlsberg's Improved $3.9 Billion Offer for Britvic Rejected

Carlsberg said it is considering its position after Britvic rejected an improved offer valuing the U.K. soft-drinks maker at 3.11 billion pounds ($3.94 billion).

Britvic said the Danish brewer made an unsolicited cash offer of 1,250 pence a share on June 11, which it rejected on June 17. Though the offer represented a 23% premium to Thursday's closing share price of 1,015 pence, Britvic said it significantly undervalued the company. The deal would have created a combined company valued at $21.44 billion.


U.K. Retail Sales Rebounded in May on Warmer Weather

U.K. shoppers returned to retailers by more than expected in May, with sales recovering from the wet weather in the prior month, data showed Friday.

Retail sales volumes rose 2.9% on month in May, flipping the 1.8% fall in April, according to the Office for National Statistics. That was better than the 1.5% expected in a consensus of economists polled by The Wall Street Journal.


U.K. Consumer Confidence Inches Up as Views of Economy Improve

U.K. consumer confidence improved slightly in June on an improved assessment of the economy as inflation eases and ahead of national elections, a monthly survey said.

Research group GfK's consumer-confidence barometer climbed to minus 14 in June, the highest since November 2021, from minus 17 in May, it said Friday. The reading bettered consensus of minus 16 from economists polled by The Wall Street Journal.


GLOBAL NEWS

Fed's Barkin Says Inflation to Linger as Rate Hikes Take Full Effect

Federal Reserve Bank of Richmond President Thomas Barkin sees lingering inflationary pressures in the U.S. economy, but said Thursday that today's level of interest rates is sufficient to slow price growth. It will take time, however, with the full impact of higher interest rates yet to hit the real economy.

Barkin is a current voting member of the Federal Open Market Committee, the Fed's policymaking body. He has served as president of the Richmond Fed since 2018. The FOMC has held its target for the federal-funds rate at a range of 5.25% to 5.50% since July 2023.


Fed's Kashkari sees some signs of 'some softening' in the economy

The U.S. economy is showing signs of softening, Minneapolis Federal Reserve Bank President Neel Kashkari said Thursday.

"There is some evidence of some softening around the margins," Kashkari said in a speech to the Michigan Bankers Association.


France's Jews Consider the Unthinkable: Voting for a Party With an Antisemitic Past

PARIS-Serge Klarsfeld is a world-renowned Nazi hunter, a historian of the Holocaust and a moral authority in France who has pushed the country to reckon with its dark history of antisemitism.

That is why many in France were shocked this week when Klarsfeld defended the far-right party of Marine Le Pen, which counts among its founders a former Nazi paramilitary soldier. Klarsfeld, an 88-year-old Holocaust survivor, said the main threat to France's Jews now comes from the far left and that he wouldn't hesitate to vote for Le Pen's party, the National Rally, in the coming parliamentary elections if the alternative were a coalition of leftist parties, the New Popular Front.


Billionaires Pony Up Huge Donations for Trump, Biden

With weeks to go until their respective party conventions, Donald Trump and Joe Biden are getting significant financial support from just a handful of donors.

(MORE TO FOLLOW) Dow Jones Newswires

06-21-24 0528ET