MARKET WRAPS
Stocks:
European indexes were mostly declining Wednesday after the U.S. and Iran exchanged heavy fire and diplomatic efforts for peace stalled.
Despite the most intense fighting in months, U.S. Central Command said the tenuous ceasefire was still ongoing.
Brent crude rose above $98. Energy and utilities were among the few sectors gaining on the Stoxx 600.
The IBEX 35 was the only major European index in the green during mid-morning trade, lifted by Inditex reporting accelerating sales .
"Market pessimism once again grows over the prospects of a U.S.-Iran deal that could pave the way for a reopening of the Strait of Hormuz," Saxo Bank said.
Also sapping sentiment was a U.S. proposal to impose tariffs on many trading partners including Europe following an investigation into alleged forced labor.
Meanwhile, the OECD said the global economy was set for a significant slowdown this year as higher energy costs weakened consumer spending and business investment.
Stocks to Watch
Rio Tinto has little room left to run after rising around 8% since the Middle East conflict began, RBC Capital Markets said.
Catalysts for further growth look limited, RBC said, downgrading its rating on the stock to underperform .
Economic Insight
Federated Hermes said the probability of the Federal Reserve moving its key rate at the June 16-17 meeting is all but zero.
While rising inflation hasn't completely stifled consumer spending, concern is rising, the global investment manager said.
Standard Chartered said there was no visible case for an immediate interest-rate cut by the Fed , "but such a case could emerge over time."
Markets currently price in around 75% probability of a 25-basis-point Fed rate hike in September, according to LSEG.
Market Insight
Physical AI is rapidly maturing and will soon be deployed to lower costs and improve operational efficiency across factory floors, according to Macquarie.
Major chip makers such as Nvidia are establishing robust ecosystems by releasing reference robot designs that allow developers to prototype using proprietary silicon. This helps shorten the prototype development time from months to days, Macquarie said.
U.S. Markets:
Stock futures were threatening a stellar run for the main indexes.
The S&P 500 posted a ninth-straight day of gains Tuesday, its longest winning streak in more than a year , on the back of enthusiasm for AI.
Investor focus is now on private payrolls and services ISM figures due later on Wednesday ahead of Friday's jobs report.
Forex:
The dollar rose after the escalation of hostilities in the Persian Gulf.
The greenback was also supported by data showing U.S. job openings rose sharply in April, as well as comments from Cleveland Fed President Beth Hammack saying it could "soon be appropriate to act" to address elevated inflation.
The euro fell and could weaken further against the dollar if upcoming U.S. data are strong.
ING said Tuesday's job openings data boosted the dollar as markets consider a potential interest-rate rise by the Fed this year.
Sterling was lower against the dollar. Ebury said the current pricing on the pound seemed to underprice lingering political risk .
The Swiss franc was drifting lower against the euro this week as short-dated swap rate differentials moved against the exchange rate.
The dollar was a touch higher versus the offshore yuan.
LGT Private Banking Asia said the yuan likely remains an Asia outperformer .
Bonds:
Eurozone government bond yields rose in opening trade, tracking Treasury yields, as stalling diplomacy in the Middle East and higher oil prices kept inflation concerns elevated .
Treasury yields were slightly higher across maturities in Asian trade.
Standard Chartered said oil prices had effectively become the primary near-term directional driver of Treasury yields.
The Treasury market is focusing on inflation rather than growth risks from high oil prices.
Commerzbank said Bunds remained on the back foot amid the latest increase in oil prices, with room for the 10-year yield to rise above 3%.
Energy:
Oil prices climbed as hostilities in the Middle East escalated.
Diplomatic efforts to reopen the Strait of Hormuz and end the war have shown little progress after days of mixed messages from both sides .
Metals:
Gold futures fell as U.S.-Iran hostilities and rising crude prices fueled inflationary fears, raising prospects of higher interest rates.
The yellow metal was coming under pressure below the $4,500 an ounce level, as the market turned cautious ahead of the U.S. non-farm payrolls report due out this Friday.
"Without a clear signal from the data, gold is likely to continue trading in a consolidative pattern," XS said.
Aluminum
LME 3-month aluminum was higher. Commonwealth Bank of Australia said the price was likely to rise further if the Strait of Hormuz remained closed.
"As bauxite and alumina stockpiles dwindle, more Middle Eastern aluminum supply is expected to be curtailed ."
EMEA HEADLINES
AkzoNobel Shares Plunge After Sherwin-Williams, Nippon Paint Drop $14.5 Billion Bid
AkzoNobel shares fell sharply after rivals Sherwin-Williams and Nippon Paint Holdings said they were dropping their efforts to jointly buy the Dutch paint maker, which recently turned down a 12.49 billion-euro ($14.53 billion) takeover bid.
Shares in AkzoNobel were down 19% to 53.74 euros in early European morning trading Wednesday, reversing last week's jump on news of the takeover approaches and taking their shares down about 9% in the year to date. This would be the stock's worst one-day percentage drop ever, according to FactSet data.
U.K. Regulator to Let Publishers Keep Content Out of Google Search's AI Tool
U.K. antitrust regulators said they would allow publishers to opt out of feeding their content to power artificial-intelligence features in Google's online searches.
The Competition and Markets Authority said Wednesday that the move aims to give publishers control over how their content is used by AI and put them in a stronger position to negotiate with Google.
Novo Nordisk Launches Wegovy Weight-Loss Pill in UAE
Novo Nordisk launched its Wegovy weight-loss pill in the United Arab Emirates on Wednesday, after regulators in the country approved the drug earlier this week.
The UAE becomes the second country to offer the pill after the Danish drugmaker launched it in the U.S. in early January.
Volvo Car's Sales Fall 5.5% as Industry Headwinds Continue
STOCKHOLM-Volvo Car said global sales fell 5.5% on year in the three months to the end of May.
The Swedish automaker, which is majority-owned by China's Zhejiang Geely Holding Group, sold 178,980 cars in the period, down from 189,440 in the same three months the year prior, it said Wednesday.
Inditex Sales Accelerate Despite Tough Market Backdrop
Zara owner Inditex said sales growth picked up last month despite a difficult market environment for apparel companies as the war in the Middle East pushes up raw-material and shipping costs.
The Spanish fashion giant, which also houses labels such as Massimo Dutti and Bershka, said Wednesday that sales rose 11.5% on a constant-currency basis from May 1 through June 1 compared with the prior-year period. This growth marked an acceleration from the 8.8% sales increase it booked for its first quarter through April 30 to a total of 8.75 billion euros ($10.18 billion). Analysts had expected 8.72 billion euros, according to a poll of estimates compiled by Visible Alpha.
GLOBAL NEWS
U.S. Stock Futures Steady, Though Oil Rises on Mideast Escalation
U.S. futures were mostly steady in the European morning as stocks looked to extend the technology-led surge, even as continued Middle East escalation clouded sentiment in other sectors.
Oil prices rose after the U.S. and Iran exchanged heavy fire, with Iran firing ballistic missiles at American bases in the Gulf after the U.S. struck an empty oil tanker. The dollar strengthened and Treasury yields rose further, as diplomatic efforts to reopen the Strait of Hormuz and end the war stalled.
U.S., Iran Exchange Fire, With Drone Attack Closing Kuwait Airport
The U.S. and Iran exchanged heavy fire after the U.S. struck an empty oil tanker that it said was attempting to breach its blockade. That set off a string of attacks by both sides, with Iran firing ballistic missiles at U.S. bases and later launching drones that struck Kuwait airport, suspending air traffic.
The latest episode was one of the most intense bouts of fighting since the ceasefire began in April and came as diplomatic efforts have stalled.
OECD Warns of Severe Global Slowdown If Middle East Conflict Is Prolonged
The global economy is set for a significant slowdown this year as higher energy costs weaken consumer spending and business investment, but it could become much more severe if the conflict in the Middle East drags on into 2027, the Organisation for Economic Co-operation and Development said.
In a quarterly report on the global outlook, the Paris-based research body said worldwide output is likely to grow by 2.8% in 2026 if energy production in the Persian Gulf starts to recover later this month and transport through the Strait of Hormuz returns to normal. That would mark a sharp slowdown from the 3.4% expansion recorded last year.
U.S. Proposes at Least 10% Tariffs on Partners After Probe Into Forced Labor
The U.S. has proposed tariffs of at least 10% on many trading partners following an investigation into goods allegedly produced by forced labor.
The Office of the U.S. Trade Representative said in a report released Tuesday that products of Canada, Mexico, Taiwan, the European Union and the U.K., among other countries, would face a 10% duty after its probe.
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06-03-26 0515ET
