European stocks made solid gains on Thursday following the
debt-ceiling approval in the House of Representatives, and as a
private gauge of China's factory activity bounced back to expansion
The positive sentiment was further boosted after data showed
inflation in the eurozone declined to a 15-month low in May,
opening a window for the European Central Bank to pause its
aggressive interest-rate increases. Read more here .
Stocks to Watch
Mediobanca has the potential to outperform peers and the bank is
the strong all-weather play for an uncertain environment, Jefferies
said, upgrading their rating on the Italian bank to buy from
If the economy slows, the bank's diversified nature will provide
resiliency while its plan for a buyback will support shares,
Jefferies said, adding that its new business plan meets their call
A major positive is a decline in risk-weighted asset activities
at its corporate and investment banking unit, which will support
capital ratios and enable "a generous shareholder distribution
policy," Jefferies said, who raised its target price on the bank's
shares to EUR12.40 from EUR10.60.
Investors should look for cash-rich companies and avoid those
exposed to higher cost of debt while interest rates continue to
rise, Jefferies said.
Having a strong cash balance seems more important than earnings
revisions for share performance this year, it added.
Informa, IAG and Bollore are among the European companies that
have both a high proportion of cash relative to total assets and a
declining share of net-interest expenses relative to operating
profit, Jefferies said.
Meanwhile those with high near-term debt maturities that are
likely to witness higher interest expenses and have low cash
balances include Vonovia, ALD and Demant, it added.
Read Volkswagen's China Problems Seem Too Structural to Fix With
Read Greek Banks Supported by Election Result, Tourism
Stock futures moved mostly higher after the House passed a bill
to avert a debt default and Fed officials signaled they are likely
to hold interest rates steady this month.
Few investors viewed the debt-ceiling standoff as a key risk to
equity markets, helping account for the muted pre-market moves.
Instead, some investors focused on the outlook for interest rates
and key data out of China.
Stocks to Watch
stock fell 20% in premarket trading after its earnings outlook
failed to live up to the hype.
CrowdStrike stock fell close to 11% as revenue growth slowed and
the company's full-year forecast fell short of expectations.
Salesforce shares fell more than 5% after investors were left
disappointed that the company didn't raise its full-year guidance
following better-than-expected first-quarter earnings.
Crucial to the Fed's deliberations will be the health of the
labor market, and so traders will be keen to see the ADP
private-sector employment report. Other data due include the
S&P U.S. manufacturing PMI for May and April construction
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The euro was little moved even after data showed eurozone
inflation eased by more than expected in May.
Lower-than-expected Spanish, French and German inflation data
earlier in the week had the market speculating about a soft
eurozone inflation print so was unlikely to materially impact the
euro, ING said.
The dollar stalled, pulling away from recent highs, after two
Fed officials suggested that the central bank could opt to keep
interest rates steady in June and raise them in July instead.
As a result, the dollar shrugged off approval of the
debt-ceiling deal on Wednesday, and the comments will make upcoming
data key in determining whether the Fed does indeed skip a rate
rise in June, ING said.
The dollar could edge marginally lower if Thursday's U.S. ADP,
jobless claims and ISM manufacturing data are on the weak side,
although moves should be limited ahead of Friday's key monthly jobs
figures, ING added.
Mizuho said benign European inflation data in May has been a key
driving force behind the performance of eurozone government bonds
[EGB] in the last days of the month.
With the 10-year German Bund yield getting closer to May's lows
around 2.20%, "there is limited room to see another leg lower in
EGB yields, and it would need the help of a very benign print in
today's eurozone core CPI data," it added.
The recent increase in core eurozone government bond yields
isn't sustainable, Generali Investments said, which forecasts lower
yields across the curve.
"We do not consider the rise to be sustainable and expect lower
U.S. yields going forward."
Notwithstanding robust U.S. macro data, Generali Investments
regards a recession in the second half of the year as
Moves in eurozone yields are likely to be smaller than those in
Treasury yields, but the trend still points to lower Bund yields,
Read Current Economic Cycle Likely a Boost for Bonds
France is expected to retain both its 'AA' rating and negative
outlook when S&P Global Ratings reviews the country's rating on
Friday, Citi said. "On balance, our forecasts don't suggest any
change to rating/outlook in the near-term."
This should mean limited market impact from Friday's decision,
Oil prices edged higher as Chinese data pointed to expanding
Expectations for an OPEC+ meeting this weekend were also
fluctuating, with most bank analysts taking the view the cartel
will hold off from adjusting production levels for now. Investors
had been concerned the group could cut production to counter a
decline in oil prices.
"We don't expect the group to announce production cuts at the 4
June meeting, but bullish rhetoric is likely to continue," ANZ
Base-metal prices edged higher, while gold faltered, as
expectations that strong U.S. jobs data will likely cement further
Fed rate hikes this year counterbalanced more positive economic
data from China.
Gold faces increasing risk of bearish reversal, based on charts,
UOB Global Economics & Markets Research said.
Following its recent slide, gold fell further to a low of
$1,932/oz on Tuesday, which seems to have slightly broken the
21-week exponential moving average and the rising trendline
connecting the lows of October 2022 and March 2023, UOB said.
These price actions, together with weekly moving average
convergence divergence indicator turning negative last week suggest
an increasing risk of a bearish reversal, UOB said, pegging support
at bottom of daily Ichimoku cloud, now at $1,920/oz.
Read Gold Prices Likely to Find Support in Recession Risks,
Central Bank Demand
The copper market looks to be closing in on a fundamental
inflection point, UBS said.
UBS, which said it has done a detailed review of its supply and
demand estimates for the metal, now forecast only a modest surplus
in 2023 and expect a growing deficit from 2025.
"This increases the risk of material price upside over the next
2-3 years [potentially copper's 'lithium moment']," it said.
Prices could dip in the near term if "already weak physical
signals deteriorate further," but UBS said it doesn't expect any
oversupply to push prices down into the cost curve for an extended
DOW JONES NEWSPLUS
Cooling Eurozone Inflation Opens Path for ECB Rate Pause
FRANKFURT-Inflation in the eurozone declined to a 15-month low
in May, opening a window for the European Central Bank to pause its
aggressive interest-rate increases.
The data is unlikely to deter the ECB from increasing rates by
another quarter percentage point at its June 15 policy meeting, but
it could tee up a pause over the summer.
Remy Cointreau Expects Flat Margins in FY 2024 as US Drinkers
Take It Slower
Remy Cointreau said Thursday that it expects little growth in
margins or sales in the new fiscal year as U.S. consumption drops
from recent highs.
The French cognac maker said it anticipates stable profitability
and sales in fiscal 2024 as a postpandemic boom in the U.S. fades,
balanced by acceleration in the key China market and other regions.
The company, which produces the premium Remy Martin range of cognac
labels, said the year will be marked by a sharp fall in sales in
the first half, against tough bases and worsening U.S. trends,
followed by recovery in the second half.
SAS Saw Rising Costs in 2Q But Backs Guidance Amid Healthy
SAS on Thursday reported an unchanged fiscal second quarter net
loss as higher revenue was offset by increased jet-fuel prices and
other operating costs, but it reiterated its full-year guidance
amid healthy underlying demand.
"The summer season is approaching and we noted a continued
positive evolution for passenger demand through the second
quarter," Chief Executive Anko van der Werff said.
Oil Traders Are Unfazed by Potential OPEC+ Production Cuts
Oil traders are betting prices will continue to drop despite the
best efforts of producing countries to boost them.
Prices have slid since the Organization of the Petroleum
Exporting Countries and its allies, the coalition known as OPEC+,
jolted markets in October by cutting production by 2 million
barrels a day. A February vow from Moscow to curtail another
half-million barrels and a voluntary April move by eight OPEC+
members to cut 1.2 million barrels more haven't stopped the
Washington's Dilemma in Chad: Defense or Democracy?
ABIDJAN, Ivory Coast-The Biden administration is in a bind over
whether to provide military aid to Chad, one of Africa's most
reliable bulwarks against the spread of Islamist militants and an
opponent of Russia's growing influence in the Sahel region.
Chad's longtime president, Idriss Déby, was killed in battle two
years ago and quickly replaced by his son, violating the line of
succession laid out in the Central African country's constitution.
Now, the U.S. government is struggling with the question of whether
the ruling junta is too brutal and undemocratic to merit U.S.
assistance, or whether the country's value as a military ally
trumps those concerns.
China Caixin Manufacturing PMI Returns to Expansion in May
A private gauge of China's factory activity bounced back to
expansion in May, the first improvement in the manufacturing
sector's health since February.
The China Caixin manufacturing purchasing managers index rose to
50.9 in May from 49.5 in April, according to data released Thursday
by Caixin Media and S&P Global. The 50 mark separates expansion
Debt Ceiling: House Approves Deal Struck by Biden and
WASHINGTON-The House passed a sweeping bill that suspends the
federal government's $31.4 trillion debt ceiling in exchange for
spending cuts, as Republican Speaker Kevin McCarthy muscled through
a deal struck with President Biden to avert a looming government
The 314-117 vote relied on support from both Republicans and
Democrats. Passage of the deal sends the measure to the Senate,
where leaders have promised quick action, and Biden has said he is
eager to sign the measure into law. Treasury Secretary Janet Yellen
has said the government could run out of the cash it needs on June
5 to pay its bills on time and warned of severe economic damage and
market disruptions unless Congress acts.
Fed Prepares to Skip June Rate Rise but Hike Later
Federal Reserve officials signaled they are increasingly likely
to hold interest rates steady at their June meeting before
preparing to raise them again later this summer.
Investors in recent days had expected the Fed would lift rates
at its meeting June 13-14, prompting two policy makers Wednesday to
publicly underscore their preference to forgo a hike, barring a
sizzling jobs report on Friday.
Profit Numbers Get Spruced Up as Business Slows
Business slowed last year for Google's parent, Alphabet. The
tech giant still beat earnings expectations in this year's first
quarter, in part because it said that its computer servers would
last longer than expected.
The shift reduced its depreciation expense by nearly $1 billion
and helped push per-share earnings ahead of analysts'
Republicans Probing Bidens Step Up Threats Against FBI Chief
WASHINGTON-Top Republican lawmakers on Wednesday escalated
threats to hold FBI Director Christopher Wray in contempt over what
they view as his stonewalling of a congressional investigation into
the business dealings of President Biden and his family.
Following a phone call with Wray, Rep. James Comer of Kentucky
and Sen. Chuck Grassley of Iowa assailed the Federal Bureau of
Investigation director for not turning over a document that the
House Oversight Committee subpoenaed as part of its investigation
into the Biden family's business dealings. Comer, chairman of the
House Oversight Committee, and other Republicans have said the FBI
record contains allegations that President Biden engaged in a
bribery scheme with a foreign national during his vice
Chris Christie Plans to Enter 2024 Republican Presidential Race
as Field Keeps Growing
Former New Jersey Gov. Chris Christie is among at least three
new entrants expected to join the 2024 Republican presidential
field next week, as campaigning for the party's nomination has
intensified and become more combative.
Aides to Christie, former Vice President Mike Pence and North
Dakota Gov. Doug Burgum all indicated to The Wall Street Journal
that they are planning announcements.
A New Approach to Hostage Diplomacy? Group Looks for Ways to
Deter Wrongful Detentions
WASHINGTON-A new private panel, launched partly in response to
Russia's detention of Wall Street Journal reporter Evan
Gershkovich, aims to help tackle the challenges the U.S. faces over
the rising number of Americans unjustly detained abroad.
The panel, led by the Center for Strategic and International
Studies, will explore ways to strengthen current U.S. hostage
policy and propose new government strategies to deter further
hostage taking and wrongful detentions. CSIS was set to formally
announce the panel's formation on Thursday.
Drones Hit Russian Oil Refineries as Moscow Shores Up Front
KYIV, Ukraine-Drones struck two oil refineries in southern
Russia on Wednesday as Western officials said Moscow was moving to
shore up defenses in border areas and along the 900-mile front with
Ukraine ahead of a planned counteroffensive by Kyiv.
Authorities in Russia's Krasnodar region said the Ilyinsky oil
refinery was largely unaffected by a suspected drone attack, but a
blaze at the Afipsky refinery engulfed over 1,000 square feet of
territory likely as a result of a drone, according to regional
governor Veniamin Kondratyev, who said no one had been injured.
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(END) Dow Jones Newswires
June 01, 2023 06:10 ET (10:10 GMT)
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