MARKET WRAPS
Stocks:
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 in May.
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 hold.
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 for evolution.
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.
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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 Strategy Update
Read Greek Banks Supported by Election Result, Tourism Activity
U.S. Markets:
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
https://urldefense.com/v3/__http://C3.ai__;!!F0Stn7g!FYA4YlBtQSMhMojL8AyL_i7NX7sSLrxIBMejB0uLbWy31PGFvb77pJ6_GtJTWBgEHjAi5QNx7mMud6MmLtg20-ZppZkUMj6bn4g-fldu5R4$ 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 spending.
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Forex:
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.
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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.
Bonds:
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.
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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 inevitable.
Moves in eurozone yields are likely to be smaller than those in Treasury yields, but the trend still points to lower Bund yields, it added.
Read Current Economic Cycle Likely a Boost for Bonds
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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, Citi added.
Energy:
Oil prices edged higher as Chinese data pointed to expanding factory activity.
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 said.
Metals:
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
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
Copper
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 period.
DOW JONES NEWSPLUS
EMEA HEADLINES
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 Demand
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 slide.
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.
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06-01-23 0610ET
