EMEA Morning Briefing: Stock Futures Mixed Ahead of Powell Testimony

MARKET WRAPS

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Trading update from OMV

Opening Call:

European stock futures were mixed. Asian stock benchmarks mostly advanced; the dollar and Treasury yields steadied; while oil futures fell and gold edged higher.

Equities:

Stock futures were mixed early Tuesday, as traders look ahead to Federal Reserve Chair Jerome Powell's congressional testimony starting today for more clues on when interest-rate cuts could begin.

If the consumer-price index on Thursday shows that inflation continued to moderate in June, the Fed would have a clearer path to cuts.

"Expect him to say progress on inflation has been and is being made, but the Fed remains patient in terms of cutting rates to ensure it doesn't reignite," Bill Hornbarger, chief investment officer at Benjamin F. Edwards, said of Powell's Tuesday testimony.

Forex:

Fed Chair Powell is likely to reiterate the need to see more evidence of slowing inflation before cutting rates during his two-day congressional testimony, said Carol Kong, economist and currency strategist at Commonwealth Bank of Australia.

However, given recent signs of softer growth and labor market in the U.S., markets will closely monitor whether Powell provides any hints on the timing of rate cuts, Kong added. Any dovish signals could push USD lower.

Bonds:

Yields on U.S. government debt finished little changed Monday as investors prepared for Thursday's U.S. CPI release. Treasurys cheapened slightly overnight partly as a result of the French elections, in which left-wing parties secured the most seats in the National Assembly but not by enough to form a coalition.

"The results suggest it will be difficult to push through any major reforms as no party has a majority," said BMO Capital Markets strategists Ian Lyngen and Vail Hartman. "We're reminded that gridlock is good - at least from the perspective of financial markets. With the French political questions now answered, the U.S. presidential election will remain topical with increasingly vocal calls for Biden to withdraw from November's race."

Energy:

Oil futures fell slightly in Asia as broad-market fears of supply disruptions from Tropical Storm Beryl recede, UOB said. The tropical storm, which initially made landfall in Texas as a category 1 hurricane, has been downgraded after wind speeds declined, and looks set to peter out without disrupting U.S. domestic crude oil markets, UOB added.

Metals:

Gold edged higher early Tuesday after prices settled 1.4% lower on Monday. Geopolitical and macroeconomic factors may continue to support the precious metal, said Rania Gule, market analyst at XS.com.

"Ongoing conflicts in the Middle East and Ukraine continue to drive anxious investors to store their wealth in gold," Gule said. Efforts of the BRICS intergovernmental organization to reduce the dominance of USD should underpin gold's long-term outlook, Gule added.

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The short-term outlook for copper is likely to remain bullish due to supply concerns, Nanhua Futures said. While prices in the near term could be affected by subdued sentiment over China's stock market, that's not related to copper's fundamentals, Nanhua Futures said.

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Seaborne iron-ore supply has taken a back seat to other influences determining prices of the steel ingredient in recent years, because of relatively muted growth, said CBA analyst Vivek Dhar. That could be about to change, he said.

"The onset of new low--cost supply from Brazil, Australia and Guinea underpins our view of lower iron-ore prices by the end of the decade, especially with China's steel output showing signs of plateauing at current levels," said Dhar.

TODAY'S TOP HEADLINES

In France, Investors Get the Centrist Limbo They Wanted

When it comes to France's turbulent politics, the current impasse is probably the best investors could have hoped for.

The second round of French legislative elections delivered a widely expected hung parliament, but not its predicted makeup: Rather than coming in first, Marine Le Pen's far-right and anti-immigrant National Rally finished third. In a shock twist, the leftist New Popular Front alliance emerged victorious, with the party of President Emmanuel Macron and its allies in second place.

Stocks likely headed for a 10% pullback in the third quarter, Morgan Stanley's Wilson warns

Investors should start preparing for a stock-market correction as uncertainty surrounding U.S. politics, corporate earnings and Federal Reserve policy starts to weigh on the market, according to Morgan Stanley's Michael Wilson.

"The chance of a 10% correction is highly likely between now and the election," Wilson said. "Not because of the election but because uncertainty is likely to prevail," Wilson said during an interview with Bloomberg Television on Monday.

Powell Needs to Consider Trump Before Cutting Rates

Federal Reserve Chair Jerome Powell is laser-focused on finding the perfect balance of interest rates that brings about maximum jobs and stable prices. All the political noise is just tuned out, he says.

Maybe he should turn up the volume, because politics are about to complicate the Fed's work, whether it is listening or not. The Fed remains in search of the data that would allow it to cut rates in 2024. But if it does, it is likely the central bank will be forced to reverse course in 2025 by a Trump presidency that is promising policies that will reignite inflation and send the national debt even higher.

Europe's New Politics: Nobody Is Popular

In the space of four days, France and the U.K. have defied the theory that European politics is shifting decisively toward the anti-immigration right.

Instead, the results of recent elections confirm that the bigger trend is fragmentation. Divisions are multiplying in European societies, making it harder for leaders to claim a clear mandate-or, in many countries, to cobble together a coherent governing majority at all.

Danaos Adds Deals for Five New Ships to Busy Container Market

Greek shipowner Danaos struck charter agreements worth $616 million, including deals for five new containerships, the latest sign of the sector's appetite for additional capacity in a market marked by strong demand and surging freight rates.

The additional revenue consists of $203 million in two-year charters for nine existing ships, with the remaining $413 million in charter fixtures for the five new containerships.

Write to singaporeeditors@dowjones.com

Expected Major Events for Tuesday

04:30/NED: May Consumer Spending

04:30/NED: Jun CPI

06:00/NOR: May Monthly GDP

06:00/DEN: May Balance of payments (provisional figures)

06:00/DEN: May External trade (provisional figures)

06:30/HUN: Jun CPI

07:00/SVK: May Foreign trade

07:00/CZE: Jun Unemployment data

09:00/CRO: May Foreign Trade

09:00/GRE: Jun CPI

10:00/FRA: May OECD CPI

10:00/IRL: May Industrial Production and Turnover

10:00/FRA: 1Q OECD Quarterly Labour Market Situation

10:00/FRA: May OECD Harmonised Unemployment Rates

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

(END) Dow Jones Newswires

July 09, 2024 00:17 ET (04:17 GMT)

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