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EUROPEAN MIDDAY BRIEFING : Investors Pause With Stocks Steady Ahead of Fed

06/16/2021 | 06:15am EDT



European stocks inched up on Wednesday as investors waited for the outcome of a Federal Reserve policy meeting due later. Miners were lower as China took aim at soaring commodity prices.

The Stoxx Europe 600 index rose 0.1%, the German DAX was down 0.3%, the French CAC 40 was up 0.1% and the FTSE 100 index was up 0.1%.

U.K. consumer prices rose 2.1% on the year in May, the fastest pace of growth since July 2019, the Office for National Statistics said on Wednesday. The rise exceeded the Bank of England's target for the first time in almost two years. But like the Fed and other central banks, U.K. officials have said they expect price rises to be transitory.

Germany's Ifo Institute lowered its forecast for economic growth for the country in 2021 to 3.3% from 3.7% forecast in March, citing bottlenecks with supplies of intermediate products.

Economic data from China showed a moderating of growth in May, with industrial production, while retail sales and fixed-asset investment all rising, but slowing from the pace seen in year-earlier periods.

Mining stocks fell after China's state stockpiling body said Wednesday that it will release national metals reserves such as copper and aluminum batches in the near future to keep supply and prices stable.

Commodity prices have been soaring around the world as some economies speed up recoveries from the pandemic.

Shares of Anglo American fell 1.8% and Glencore nearly 2%. Rio Tinto shares slipped 0.5%. Copper and palladium prices shifted lower on Wednesday.

Shares of German business software group fell SAP fell on the heels of results from U.S. rival Oracle which soundly beat expectations for earnings and sales to close out its fiscal year on Tuesday. However, Oracle shares slipped amid softer-than-anticipated guidance for the August quarter.

U.S. Markets:

Stock futures wavered ahead of the Federal Reserve's latest projections, which could provide cues on when policy makers may begin to dial back support for the economy.

Futures tied to the S&P 500 edged down less than 0.1%, pointing to a tepid drop at the opening bell. The broad market index ended Tuesday down 0.2%. Nasdaq-100 futures ticked up 0.1% Wednesday, suggesting muted gains in technology stocks.

Stocks are hovering close to all-time highs with many developed economies moving toward ending lockdowns while central banks keep easy-money policies in place.

Investors this week are watching for any changes in Fed policy makers' views on inflation, the labor market, and other economic indicators that may offer hints on when they would begin tapering bond purchases. Data Tuesday showed that retail sales dropped in May while producer prices rose, offering a mixed picture of the recovery.

"We've had the initial exuberance and we are catching up a little bit to reality. Markets are less liquid-being summertime-and they are also digesting some of this anticipation," said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management. "There have been some data points that have come in lower than expected, such as retail sales. It has reduced the cause for concern that the Fed could taper faster than expected."

The Fed will release its latest monetary policy decision at 2 p.m. ET. The central bank will also release individual policy makers' updated quarterly economic projections. The new forecasts could show officials expecting to raise interest rates sooner than they anticipated in March. They are also likely to begin discussing when and how to start scaling back bond purchases.

"We are in the camp that everything we've seen so far isn't the kind of thing that will make the Fed change its policy outlook at all. Employment comes first, inflation second," said Samy Chaar, chief economist at Lombard Odier. "The Fed will stick to its pre-set course and tolerate inflation until the labor market improves."

Data on housing starts in the U.S. in May is due at 8:30 a.m. Economists are expecting an increase from strong demand, at the same time that higher costs for building materials and worker shortages are propelling house prices.


The dollar may rise if the Federal Reserve signals it will soon begin talks about tapering bond purchases but gains are unlikely to be strong or long-lasting, Unicredit said.

The dollar's moves would also probably depend on the reaction of stocks and bonds in particular, considering the 10-year U.S. Treasury yield is struggling to rise above 1.50%, Unicredit analysts said.

"Recent EUR/USD lows of around 1.2090 will probably be breached on the Fed announcement, but we doubt that the USD recovery will be strong enough to drag the common currency below the 1.2050-1.20 key support levels and test additional downside potential." EUR/USD was last flat at 1.2128.

The pound rose after data showed annual U.K. inflation reached 2.1% in May, above a Wall Street Journal poll forecast of 1.9% and exceeding the Bank of England's 2.0% target for the first time in almost two years.

Gains are limited, however, ahead of a Fed decision later which has the potential to boost the dollar and weigh on risk appetite, sending the pound lower.


Perhaps the best one can expect from the Fed's meeting is "some slightly more detailed guidance on the conditions that need to be met before the Fed will consider tapering initiatives," said David Norris, head of US credit at TwentyFour Asset Management.

This could include more of the same that Fed Chairman Jerome Powell has said before as substantial further progress on inflation and employment goals is needed before the Fed will look at cutting its $120 billion of monthly bond purchases, Norris said.

TwentyFour AM will focus its attention on comments from the various regional Fed presidents on conditions that could prompt tapering in the future, he said.


Oil prices rose after oil proved an exception to downbeat commodities trading Tuesday. Brent broke through levels not seen since April 2019 and is gaining further after the API reported that U.S. crude inventories fell by much more than expected in the most recent reporting week, according to ING's Warren Patterson.

Still, "while the recent move higher in the oil market has been driven by optimism over the demand outlook, refinery cracks suggest that the rally in crude oil may be getting a bit ahead of itself," he added.

If demand were as strong as crude prices suggest, gasoline and heating oil cracks wouldn't be coming under pressure, Patterson said.

Gold prices edged higher as investors awaited the Fed meeting. Comex gold futures rose 0.3% to $1,862 a troy ounce. Gold, which has edged down 2.3% so far this month, is likely pricing in expectations that the Fed will offer clues on tapering, suggesting it won't move greatly on such news, said Carsten Fritsch, an analyst at Commerzbank.


HSBC Reshuffles Top Team as Alternatives Push Takes Off -- Financial News

HSBC Holdings PLC's fund management arm has created a new division that will bring together 150 staff and alternative assets representing more than $50 billion, shaking up its top team in the process.

The unit called HSBC Alternatives will draw from HSBC Alternative Investments --which includes third party hedge funds and private market funds-- as well as teams from its private debt, venture capital and direct real estate businesses.

Turkey's Troubles Point to Emerging-Market Risks as Economies Recover

Any signal that the Federal Reserve will tighten policy on Wednesday could ripple across emerging markets that are dependent on the U.S. dollar. Prime among them is Turkey.

The Turkish lira has come under pressure in recent weeks as investors try to assess whether the country's central bank will heed the demands of its president to cut interest rates. But a rate cut could drag the lira down further at the same time that the country's high inflation rate is already diminishing the currency's buying power.

Ifo Institute Cuts Its 2021 German Economic Growth Forecast to 3.3%

The Ifo Institute has lowered its forecast for economic growth for Germany in 2021 to 3.3% from 3.7% forecast in March, because of bottlenecks in the supply of intermediate products.

"Reopening businesses triggered a strong recovery, but this is now getting pushed back a bit further than we thought in the spring," Timo Wollmershaeuser, head of forecasts at Ifo, said.

UK Inflation Rose Above Bank of England's 2% Target in May

Annual inflation in the U.K. exceeded the Bank of England's target in May for the first time in almost two years.

The data add to signs of inflationary pressure worldwide, though BOE officials have said they expect any pickup in price growth to prove transitory.

SSAB, Volvo Cars Explore Development of Fossil-Free Steel for Use in Automotive Industry

Swedish steelmaker SSAB AB said Wednesday that it is teaming up with Volvo Cars to jointly explore the development of fossil-free steel for use in the automotive industry.

As part of the collaboration, Volvo Cars will be the first car maker to secure SSAB steel made from hydrogen-reduced iron from the company's Hybrit pilot plant in Lulea, Sweden. This steel will be used for testing purposes and may be used in a concept car, it said.

Made.com Group to Be Valued at $1.09 Bln in London IPO

Made.com Group PLC has priced its initial public offering at 200 pence a share, implying a market capitalization of 775.3 million pounds ($1.09 billion) when conditional trading starts on the London Stock Exchange on Wednesday.

The homewares and furniture company, which confirmed its IPO plan earlier this month, said it is raising GBP100 million of new money which will be used toward growth in existing markets, improving its service, scaling its homeware range and giving the group increased working capital flexibility.

Israeli Airstrikes Hit Gaza As Nationalist March in Jerusalem Stokes Tensions

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06-16-21 0614ET

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