EMEA Morning Briefing : Stocks Seen Lower Ahead of U.S. PCE Data

MARKET WRAPS

Watch For:

CPI data for EU, France, Italy, Baden-Wuerttemberg; U.K. House Price Index, Money and credit; France consumer spending; trading update from JD Sports Fashion

Opening Call:

Shares may track lower in Europe on Friday. In Asia, stock benchmarks were higher; Treasury yields were little changed; the dollar gained; while oil and gold declined.

Equities:

European shares could head lower Friday tracking declines in U.S. stock futures. A big decline in Salesforce shares had dragged U.S. stock indexes lower Thursday, masking a broad rally outside of the tech sector.

Markets may also be weighed by an official gauge of China's manufacturing activity unexpectedly sliding into contraction in May, snapping a two-month run of growth and contrasting with the recent optimism about the economy.

Investors and officials will gain more clarity about the U.S. pace of price increases later in the day when the Commerce Department releases its latest report on the personal consumption expenditures price index, the Federal Reserve's preferred measure of inflation.

Forex:

The U.S. dollar gained early Friday ahead of the U.S. PCE core price index, the Fed's preferred inflation gauge, due out later.

This data together with next week's key data such as nonfarm payrolls will again provide critical near-term direction for the greenback, Westpac Strategy Group said.

A soft PCE and other data could spark a decline in the USD Index toward the 102.75-103.00 area, the group added.

Bonds:

Treasury yields were little moved ahead of U.S. inflation data and after a downward GDP revision, coupled with soft labor numbers, bolstered the case for interest rate cuts.

First-quarter GDP was revised to 1.3% from 1.6% and weekly jobless claims rose to 219,000 from 216,000.

The April core annual PCE inflation, the Fed's preferred gauge, is expected to slow slightly to 2.7% from 2.8%, according to a Wall Street Journal survey.

Energy:

Oil edged lower dragged by signs of slower U.S. economic growth that may lead to reduced energy demand.

Oil prices may also be weighed by possible position adjustments ahead of the OPEC+ meeting on Sunday.

Despite data released Thursday showing a big decline in U.S. crude inventories, oil has fallen, with traders awaiting the OPEC+ meeting, Westpac said.

Metals:

Gold declined in Asia. "It has been under pressure this week following hawkish comments from several Fed speakers," ANZ Research analysts said.

However, New York Fed President John Williams said overnight that he expects inflation to continue falling in the second half of the year, they added.

Market focus is now on the U.S. personal consumption expenditures data, the Fed's preferred inflation gauge, due later in the day.

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Aluminum rose, bolstered by the prospect of future supply cuts in China. Beijing announced new capacity limits on alumina refineries, and reaffirmed strict implementation of the aluminum swap scheme, where any new smelter needs to be matched by the closing of an existing one, ANZ analysts noted.

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Iron ore fell after China's official manufacturing PMI unexpectedly slid into contraction in May. The data also showed a decline in the construction subindex.

While Capital Economics thinks the recovery will regain some momentum short term, largely on a fresh wave of fiscal support, that's unlikely to prevent a renewed slowdown further ahead, "particularly given the likelihood of a much deeper downturn in property construction."

TODAY'S TOP HEADLINES

China Manufacturing Activity Falls Unexpectedly as Market Demand Shrinks

An official gauge of China's manufacturing activity unexpectedly slid into contraction in May, snapping a two-month run of growth as market demand shrank sharply, contrasting recent optimism about the economy.

The manufacturing purchasing managers index fell to 49.5 in May from 50.4 in April, the National Bureau of Statistics said Friday. That put the index below the 50 mark that separates growth in activity from contraction.

Fed's Williams expects inflation to cool in the second half of the year

The Federal Reserve has interest rates where they need to be to bring inflation down, New York Fed President John Williams said Thursday.

In a major speech at the Economic Club of New York, Williams said he expects inflation to "resume moderating in the second half of this year."

KKR's $23 Billion Acquisition of Telecom Italia's Broadband Network Receives EU Approval

The European Union gave the go-ahead for KKR & Co. to snap up Telecom Italia's broadband network assets for up to 22 billion euros ($23.77 billion), paving the way for one of Europe's largest ever private-equity deals.

The European Commission, the EU's executive arm, said it approved the deal unconditionally after concluding that the transaction wouldn't stifle competition in the European Economic Area, consisting of EU member states as well as Iceland, Liechtenstein and Norway.

France's Macron Prepares Plan to Send Military Instructors to Ukraine

France is intensifying talks with some European allies over a plan to send military instructors to Ukraine to train its forces, according to officials, an option that risks running up against red lines set by Washington and Berlin at the start of the war to prevent the conflict from escalating.

French President Emmanuel Macron wants to forge a coalition of Western countries willing to take the contentious step of training Ukrainian troops on the ground, officials said. Lithuania's foreign minister has said the country is ready to back the French plan, and officials said discussions are under way with the U.K., the continent's other major military power.

European Union Approves New Financial Crime Agency

The European Union has approved the creation of a new anti-money-laundering watchdog, a move aimed at closing loopholes for illicit cash flows in the 27-member union.

The Council of the European Union, a legislative body, said Thursday that it had adopted a package of anti-money-laundering measures, including one creating a Frankfurt-based authority to oversee the most high-risk financial entities.

U.S. Allows Ukraine to Carry Out Limited Strikes Inside Russia With American Weapons

WASHINGTON-In a significant policy reversal, the Biden administration on Thursday said for the first time that it would allow Ukrainian forces to do limited targeting with American-supplied weapons inside Russia.

The new policy will allow Ukrainian forces to use artillery and fire short-range rockets from Himars launchers against command posts, arms depots and other assets on Russian territory that are being used by Russian forces to carry out its attack on Kharkiv in northeastern Ukraine. But the policy doesn't give Ukraine permission to use longer-range ATACMS surface-to-surface missiles inside Russia.

Netanyahu Rival Launches Push to Dissolve Israeli Parliament Amid Split Over Gaza War

TEL AVIV-Israeli war cabinet member Benny Gantz's party submitted a bill to dissolve parliament, in a move analysts said is unlikely to lead to a vote soon but opens the door for a battle over elections as early as this summer.

Gantz, a longtime rival of Israeli Prime Minister Benjamin Netanyahu, said earlier this month that he would take his centrist National Unity party out of the government on June 8 if the Israeli leader doesn't articulate a plan for ending the war in Gaza and securing the enclave, among other demands.

Boeing Sets Its Own Quality Targets Under Pact With FAA

The Federal Aviation Administration said Boeing has crafted performance goals that the agency will use to determine whether the jet maker's efforts to improve quality are succeeding.

Boeing on Thursday formally submitted a plan to the U.S. air-safety agency, which has increased its scrutiny on the jet maker after a fuselage panel blew off a 737 MAX during an Alaska Airlines flight in January.

DJT Stock Dives After Trump Found Guilty on All 34 Charges

Trump Media & Technology Group stock fell in after-hours trading after the jury in Donald Trump's trial delivered a guilty verdict on all 34 felony charges.

Trump Media shares were down 7.4% to $48 around 5:30 pm. The stock had closed up 1.1% on Thursday.

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Expected Major Events for Friday

04:30/NED: May Flash Estimate CPI

05:00/FIN: 1Q GDP

05:30/FRA: 1Q Job creation

06:00/GER: Apr Foreign trade price indices

06:00/NOR: 1Q Credit Indicator C3

06:00/GER: Apr Retail Trade

06:00/UK: May Nationwide House Price Index

06:30/HUN: Apr PPI

06:30/SWI: Apr Retail Sales

06:45/FRA: Apr Household consumption expenditure in manufactured goods

06:45/FRA: Apr PPI

06:45/FRA: May Provisional CPI

06:45/FRA: 1Q GDP - detailed figures

07:00/CZE: 1Q GDP

07:00/TUR: 1Q GDP

08:00/GER: May Baden-Wuerttemberg CPI

08:00/ICE: 1Q GDP

08:00/ITA: 1Q GDP

08:30/UK: Apr Money and Credit - Lending to Individuals, Lending to Businesses, Broad Money and Credit

08:30/UK: Apr Bank of England effective interest rates

08:30/UK: Apr Monetary & Financial Statistics

09:00/CRO: Apr Industrial Production Volume Index

09:00/BEL: 1Q Final GDP

09:00/CYP: Apr PPI

09:00/GRE: Mar Turnover Index in Retail Trade

09:00/ITA: May Provisional CPI

09:00/ITA: May Cities CPI

09:00/LUX: Apr PPI

09:00/EU: May Flash Estimate euro area inflation

10:00/ITA: Mar Industrial turnover

10:00/POR: 1Q GDP

10:00/POR: Apr Industrial production index

16:59/SPN: Apr Budget deficit

16:59/BEL: Apr PPI

16:59/SPN: Mar Monthly Balance of Payments

17:59/UK: REC JobsOutlook survey

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05-31-24 0015ET