EMEA Morning Briefing: Shares Set to Retreat on Hawkish Fedspeak; China Data Likely in Focus
MARKET WRAPS
Watch For:
EU CPI; France ILO unemployment; trading updates from Richemont, Land Securities, Engie
Opening Call:
Shares could lose ground in Europe on Friday, following hawkish comments from U.S. Federal Reserve policymakers. In Asia, stock benchmarks were mixed; Treasury yields were also mixed; the dollar gained; while oil rose and gold fell.
Equities:
European shares look set to retreat on Friday, as hawkish Fedspeak counters relatively soft U.S. economic data.
Fed officials Loretta Mester and Thomas Barkin signaled overnight that higher U.S. rates are here to stay for now.
Focus will likely be on fresh economic data out of China, which showed consumption and investment slowed unexpectedly in April, while industrial output beat expectations.
The broadly weaker economic readings may raise doubts about whether the worst is indeed over for China's economy, IG said.
Forex:
The dollar slightly strengthened in Asia, supported by bets that U.S. interest rates will stay high, which would sustain the allure of U.S. fixed-income assets and demand for the greenback.
The narrative of high-for-longer U.S. rates continues to keep dollar supported on dips, Maybank said.
This high-for-longer rate stance seems to be the message from several Fed officials who spoke overnight, it added.
Bonds:
Treasury yields were mixed after an overnight rally on hawkish comments from Federal Reserve policymakers.
U.S. indicators did little to change markets' bets on interest rate cuts later this year, but Fed officials Mester and Barkin reinforced the message that prices still look too hot despite April's relatively mild print.
No major U.S. indicators are due until existing home sales next Wednesday.
Energy:
Oil edged higher, aided by prospects of Fed rate cuts which would help support the U.S. economy and energy demand.
A weakening dollar, along with hopes of stronger oil demand in the second half, have helped buyers to muster up the strength to support oil prices around current levels, said IG.
While oil prices have experienced a volatile period so far in May, it looks as though prices are forming a low, IG added.
Metals:
Gold slipped after earlier gains on hopes for Fed rate cuts, which would enhance the allure of the non-interest-bearing precious metal.
The U.S. economy is showing signs of slowing down, which underpins a relatively dovish stance from the Fed, said Saxo Bank.
Once the rate cut cycle starts later this year, gold will probably see renewed demand from exchange-traded-fund investors, it added.
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Copper edged lower in a likely technical correction.
Prices tested a new high overnight, supported by news of more Chinese local government support for the slumping property market, Sucden Financial said.
Broader sentiment remains supported by the prospect of Fed rate cuts after the U.S. CPI fell more than expected, ANZ Research said.
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Iron ore rose amid renewed optimism over China's efforts to tackle the property crisis, ANZ Research said.
Investor sentiment was boosted by a media report that authorities are considering letting local governments buy unsold homes from distressed developers, it said.
Attention will be on the key briefing by housing and financial regulators later in the day about policies to ensure housing delivery.
TODAY'S TOP HEADLINES
China Consumption and Investment Slow Unexpectedly
China's consumption and investment slowed unexpectedly in April, while industrial output beat expectations as Beijing doubled down on its manufacturing drive to spur growth amid a prolonged property slump and growing trade tensions with the West.
Retail sales, a major gauge of consumption, increased 2.3% in April from a year earlier, down from the 3.1% growth recorded in March and the 4.0% rise expected by economists surveyed by The Wall Street Journal.
Fed's Barkin says consumers are driving inflation. Here's what they're willing to pay more for.
Inflation is being fueled by the service sector, while goods producers have been chastened by experience, Richmond Fed President Tom Barkin said Thursday.
The service sector - essentially the people we pay to mow our lawns, take care of our children, and keep our homes free of pests - still believes consumers will accept higher prices and they are going to continue to raise them until households balk, Barkin said in an interview on CNBC.
France Rushes Reinforcements to Riot-Stricken New Caledonia
France is rushing security reinforcements to its overseas territory of New Caledonia, a crucial foothold for Paris in the Indo-Pacific, after days of violent riots that have led to the deaths of at least five people and raised difficult questions over the archipelago's future and France's broader role in the region.
French authorities said Thursday that 1,000 police officers were on their way to the territory, while the army was being deployed to secure ports and the main airport. Around 1,700 police officers are already present in New Caledonia, where rioters have burned buildings, looted shops and set up road barricades, they added.
Netanyahu Pacifies Israel's Far Right and Alienates Everyone Else to Survive
TEL AVIV-Israeli Prime Minister Benjamin Netanyahu's approach to the Gaza war is frustrating almost everyone with a stake in the fight, including his allies.
The U.S. wants at least a temporary cease-fire. Israeli security officials, including the defense minister, want a plan for who will rule postwar Gaza. And hostage families want their loved ones home.
Reddit to Give OpenAI Access to Its Data in Licensing Deal
Reddit says it signed a deal with OpenAI to give the artificial-intelligence startup access to its data, following similar arrangements it made with Google and public-relations software firm Cision.
San Francisco-based Reddit says the deal will bring its content to OpenAI's ChatGPT chatbot and new products and that OpenAI will become a Reddit advertising partner. Further, Reddit users and moderators will gain new AI-powered features.
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Expected Major Events for Friday
05:30/FRA: 1Q ILO Unemployment and Labour Market-related indicators
06:30/SWI: 1Q Industrial production
06:45/FRA: 1Q New home sales
07:00/SVK: Apr Harmonized CPI
07:00/AUT: Apr CPI
08:30/UK: Feb Card Spending statistics
08:30/UK: Apr Monthly Insolvency statistics
09:00/CRO: Apr CPI
09:00/CYP: Apr Harmonised CPI
09:00/MLT: Apr Harmonised CPI
09:00/EU: Apr Harmonised CPI
17:59/POR: Mar Balance of Payments
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This article is a text version of a Wall Street Journal newsletter published earlier today.