MARKET WRAPS
Stocks:
Shares in aircraft manufacturers Airbus and Boeing lifted off on Tuesday, ahead of the expected settlement of a long-running trade dispute between the European Union and U.S. over state aid to the two groups.
Airbus stock climbed near 1.5% in European trading, while shares in Boeing rose near 1% in the U.S. premarket.
The 17-year trade spat centres on state subsidies from the U.S. to Boeing and the EU to Airbus. Both companies, rivals, are jewels in the manufacturing crowns of the U.S. and Europe, respectively, with Airbus manufacturing taking place in the U.K., Germany, France, and Spain. The U.S. suspended tariffs on U.K. goods related to the dispute in March.
A formal announcement on the agreement is expected on Tuesday, after an accord was sought among EU member states on Monday, according to Bloomberg. A settlement also paves the way for lifting a cumulative $11.5 billion in tariffs between the U.S. and EU on each other's exports.
The news met an upbeat day for markets in Europe as stocks traded at all-time highs.
The pan-European Stoxx 600 rose 0.3%, hitting a new record, while the FTSE 100 in London ticked up 0.3% after opening at the highest level since February 2020. In Paris, the CAC 40 lifted 0.5% while Frankfurt's DAX climbed 0.6%. Dow industrials futures were up around 40 points, set for a soft but positive open after the index fell 85 points on Monday to close at 34,393.
Analysts noted that stocks were looking for direction ahead of a key announcement on rates and stimulus from the Federal Open Market Committee of the U.S. Federal Reserve on Wednesday.
"Markets appear to be taking the line of least resistance, which is a slow incremental move higher with a 'two steps forward and one step back' approach, over the past week or so," said Michael Hewson, an analyst at CMC Markets.
"Today's European open looks set to play out in a similar fashion with a modestly positive open, with the main focus, apart from the FOMC conclusion tomorrow, on today's U.K. unemployment numbers and U.S. retail sales and PPI [producer price index] for May."
H&M stock fell near 2%, after blowout second-quarter sales at the fashion retail giant fell short of expectations. Sales in local currency jumped 75% from March to the end of May compared with the same period in the year prior, to 46.51 billion Swedish kroner, which fell short of analysts' expectations of SEK 48.09 billion. The company said that by June 13, 180 of its stores remained closed due to COVID-19 restrictions.
After rising as much as 1.5% higher, shares in Lufthansa fell 0.5%, after the German airline announced its targets for 2024 late on Monday, including plans for a possible capital increase. Lufthansa said it would target an adjusted earnings before interest and taxes margin of 8% by 2024, up from 5.6% in 2019 and minus 40% in 2020.
Shares in EDF, the French multinational energy group, fell as much as 2% before settling 1% lower, after reports that one of its nuclear power plants in China could be experiencing a leak. EDF, which jointly owns the plant with the China General Nuclear Power Group, said on Monday that it was dealing with "performance" issue at the facility but that operations remained within safety guidelines.
U.S. Markets:
Stock futures edged higher ahead of fresh data that will indicate how much Americans spent in stores, at restaurants and online last month.
Futures tied to the S&P 500 ticked up 0.1%, indicating that the broad benchmark index is on track to notch its thirtieth record close of the year. Nasdaq-100 futures gained 0.2%, pointing to gains in technology stocks after the opening bell.
Investors expect that stocks will climb through the rest of the year due to easy monetary policies. Many people are also betting that higher inflation, due to the easing of economic restrictions and supply-chain bottlenecks, will be temporary. Signs that inflation will be elevated for a prolonged period or that the Federal Reserve may retrace its support could shake that confidence, money managers said.
"Investors seem a bit more convinced the Fed will do what it says it is going to do and stay put," said Edward Smith, head of asset allocation research at U.K.
investment firm Rathbone Investment Management. "That should mean we have relatively easy financial conditions and that should be good for equity markets."
Data on Americans' retail spending last month are due at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal expect retail sales to have fallen as auto sales declined, fiscal support for consumers faded and Americans shifted their spending toward services and away from goods.
The market could see slightly weaker spending data as yet another sign that Americans aren't worried about rising consumer prices, said Sebastien Galy, a macro strategist at Nordea Asset Management. "Households don't need to purchase as quickly because they don't fear inflation," he added.
Forex:
Strong U.S. retail sales, industrial production and producer prices data later Tuesday could lift the dollar ahead of Wednesday's Federal Reserve decision, Commerzbank said.
Signs of rising inflation have been offset by recent weak jobs data, but signs of strong demand in Tuesday's figures could increase speculation that the Fed may scale back monetary easing early, said Esther Reichelt, currency strategist at the bank.
This could mean the Fed might focus more on inflation risks on Wednesday "and might signal an imminent reduction in asset purchases," she said.
However, the Fed's decision remains uncertain and dollar traders won't want to take "too clear a position" before then, she added. The DXY dollar index was down 0.1% at 90.4120.
The EU and U.S. have reportedly agreed to resolve a long-running dispute over aircraft subsidies to Airbus and Boeing but that won't provide a significant boost to the euro, ING said.
"Signs of further unwinding of the Trump-era protectionist agenda by President Biden should be welcomed by European sentiment, although there is likely very little priced in when it comes to EU-U.S. trade-related downside risk to the EUR, so the currency impact should not be material today," ING analysts said.
A formal announcement on the agreement for aircraft subsidies, which would lift the threat of punitive tariffs on the EU and U.S., is expected later Tuesday, according to media reports. EUR/USD was steady at 1.2123.
Bonds:
In bond markets, the yield on the benchmark 10-year Treasury note edged down to 1.487%, from 1.499% on Monday.
Commodities:
Oil prices rose after Brent notched new multiyear highs on Monday. Recent gains have come despite the decreasing likelihood that the U.S. will rejoin the Iranian nuclear deal before the Iranian presidential elections later this week. If talks do drag on into the second half of the year, expected Iranian supply is at risk, ING's Warren Patterson said.
While one might assume this would be bullish for prices, "it would [also] mean that other OPEC+ members would have more room to increase output later this year," he added.
Traders are also observing low investment in production. Angola's output is below its OPEC+ quota and has been declining for years, he said.
Copper prices fell to their lowest level since April amid growing jitters about possible Chinese measures to tamp down rising commodity prices.
Three-month copper on the LME fell 3.3% to $9,624.50 a metric ton, its biggest one-day decline since early March. Chinese markets reopen Tuesday following a holiday, giving traders there the first opportunity of the week to respond to continuing rumors that China was planning to release state reserves of copper, aluminum and zinc as part of a broader push to crackdown on speculation in the metals market and protect domestic consumers of metals from high prices amid inflation concerns.
EMEA HEADLINES
U.S. and EU Near Deal on Boeing-Airbus Trade Fight
The U.S. and the European Union are near to a deal that would suspend their trade dispute over government subsidies to Boeing Co. and Airbus SE, in a sign of easing trade tensions, a top EU official said.
European Commission President Ursula von der Leyen said Tuesday she is "very positive and convinced" a deal would be announced later in the day. "It is in our common interest to solve it," she said of the dispute.
Lufthansa Sets 2024 Targets, Prepares Possible Capital Increase -- Update
Deutsche Lufthansa AG has presented its 2024 targets and revealed plans for a possible capital increase, as it sees growing bookings and prepares for a rebound in passenger demand.
The new targets come as the company and the industry expect a business recovery thanks to a gathering pace of vaccination plans and the progressive lifting of travel restrictions. Lufthansa forecasts a positive operating cash flow in the second quarter.
H&M 2Q Sales Rise Slightly Less Than Expected
Swedish fashion retailer Hennes & Mauritz AB said Tuesday that sales in its fiscal second quarter rose 62% on the year, a slightly smaller-than-expected rise as the recovery continued but stores in markets such as France and Germany remained closed almost throughout the quarter.
Sales in the quarter ended May 31 rose to 46.51 billion Swedish kronor ($5.59 billion), shy of the SEK48.09 billion expected in a FactSet poll of analysts.
AstraZeneca: AZD7442 Trial for Prevention of Symptomatic Covid-19 Didn't Meet Primary Goal
AstraZeneca PLC said Tuesday that a Phase 3 trial to assess the safety and efficacy of a long-acting antibody combination called AZD7442 for the prevention of symptomatic Covid-19 after exposure didn't meet the primary goal.
The Cambridge, U.K.-based pharmaceutical company said AZD7442 reduced the risk of developing symptomatic Covid-19 in unvaccinated adults with confirmed exposure to a person with a case of the SARS-CoV-2 virus within the past eight days by 33% compared with placebo, which wasn't statistically significant.
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06-15-21 0620ET
