European Midday Briefing : Investors Remain Wary Ahead of Central Bank Decisions

MARKET WRAPS

Stocks:

European shares were in the red on Friday, with investors cautious in the run up to next week's key central bank meetings.

Thursday's bigger-than-expected rise in U.S. initial jobless claims had helped market sentiment as it could lessen the chances the Federal Reserve will raise rates next week, but the outcome remains uncertain and traders remain wary.

The European Central Bank is also widely expected to lift rates at its next meeting.

"Rate hikes this week in Australia and Canada have unnerved investors, and so caution could well prevail over the first half of next week," IG said.

Stocks to Watch

Jefferies said Societe Generale's shares have recently underperformed, trading 3% lower than what they were a year prior, attributing this to declining French net interest income and the bank being short of its Basel IV target for 2025.

That said, these issues are well-understood by the market and investors can look forward to the bank's buyback launch expected in June, the potential for 2025 target upgrades during SocGen's September investor day and efforts by management to plug the Basel IV capital shortfall, Jefferies said.

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Telecom Italia is likely to get new, slightly improved offers from the two bidders for its fixed-network assets known as Netco before a deadline expires later on Friday, Equita Sim said.

Both KKR and the consortium formed by Italian state lender CDP and Macquarie seem likely to submit bids to the TI based on recent press reports, Equita said.

U.S. Markets: Markets:

Stock futures edged lower after the S&P 500 entered a new bull market on Thursday.

Big tech stocks, which have propelled the market higher, were mixed on Friday. Tesla and Netflix were poised for more gains, while Apple and Amazon wavered in premarket trading.

Friday's economic data and earnings calendars are empty, leaving investors in wait-and-see mode ahead of next week's inflation data and Fed decision.

Treasury yields edged higher. The yield on the 10-year note edged up to 3.751%, from 3.714% a day earlier.

Stocks on the Move

DocuSign, the electronic-signature company, was up 7.1% in premarket trading after fiscal first-quarter revenue and billings beat the company's own guidance, and it raised its outlook for the fiscal year ending in January.

General Motors gained 3.4% in premarket trading after the automaker said its electric vehicles will be able to access Tesla's supercharging network in 2024. As for Tesla, the stock was up 4.4% in premarket trading.

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Forex:

The dollar remained under pressure after it fell sharply following the U.S. initial jobless claims, but UniCredit Research said the currency could steady from here as traders stay cautious ahead of key events next week.

"The light economic agenda today might lead to further position adjustments but is unlikely to induce more dollar weakness. The risk, if anything, is that the DXY might return closer to 104."

Bonds:

Further interest-rate rises by the ECB this year are unlikely to trigger another leg up in long-term eurozone government bond yields, Capital Economics said, which forecasts the 10-year Bund yield to retreat to 2.25% from around 2.5%.

Capital's downbeat growth forecasts feed into its view that safe assets will fare better than risky ones over the remainder of 2023.

" As such, we think that 'core' euro-zone government bond yields will end the year around their current levels, or slightly lower, even if the ECB continues to raise its policy rates ," Capital said.

In recent weeks, the rates market has moved predictably and stayed within ranges, with the 10-year German Bund yield stuck between 2.25% and 2.50% and Jefferies said it has taken advantage by trading this range.

Its bias remains to use any selloff to establish long positions in 10-year Bunds, buying the bonds as yields reach 2.50%.

"In our portfolio, we have been playing the range of 2.25% to 2.50% for Bunds and that has worked well."

Energy:

Oil futures extended their retreat, with losses prompted by reports that Iran and the U.S. had reached a temporary deal on Tehran's nuclear program and increasing its oil exports.

However, prices pared Thursday's hefty losses after U.S. officials refuted the reports.

Still, Brent in on course for a 0.7% weekly drop as concerns about global demand have overpowered a Saudi plan to slash oil output, following an OPEC+ meeting.

Metals:

Aluminum prices extended their recent gains as a drought in China threatens to undermine production of the metal.

Rainfall in China's Yunnan region has fallen to multidecade lows, undermining hydroelectric power output, which is crucial for powering the region's vast and power-hungry aluminum smelters, ANZ said.

Other base metals also posted modest gains on the LME.

DOW JONES NEWSPLUS

EMEA HEADLINES

Turkey Names Former First Republic Executive as Head of Central Bank

ISTANBUL-Turkey's President Recep Tayyip Erdogan appointed a former First Republic Bank executive to lead the central bank, a likely shift away from the unorthodox economic policies that have sown economic instability and driven away foreign investors.

The new central-bank governor is Hafize Gaye Erkan, who until late 2021 was the co-CEO of First Republic Bank, which collapsed and was sold to JPMorgan Chase last month. She previously worked for Goldman Sachs and served on the board of Tiffany & Co.

UBS inks pact with Swiss government as Credit Suisse deal may close next week

UBS said Friday that it's signed a loss protection agreement with the Swiss government covering up to 9 billion francs ($10 billion) of losses once the takeover of Credit Suisse is completed.

The finalized deal sets the stage for the merger of the Swiss banks to be completed as early as June 12.

AstraZeneca Reaches Agreement With Quell Therapeutics for Treg Cell Therapies

AstraZeneca said Friday that it has reached an agreement to develop, manufacture and commercialize engineered T-regulatory, or Treg, cell therapies for autoimmune diseases with Quell Therapeutics.

Tregs are specialized T-cells-a type of white blood cells-that act to suppress immune response and maintain homeostasis and self-tolerance.

Dassault Systemes Targets Significant Mid-Term Growth; Names Pascal Daloz CEO

Dassault Systemes plans to reach double-digits revenue growth and double its earnings per share in the mid term, it said on Friday ahead of the capital markets day.

The French software company's aim is to grow revenue and reach non-IFRS EPS of between 2.20 euros and 2.40 euros ($2.36-$2.58) in 2028. Non-IFRS EPS was EUR1.13 in 2022.

GLOBAL NEWS

China's Inflation Problem? It Has None

SINGAPORE-As Western central banks continue to jack up interest rates in an effort to douse stubbornly high inflation, China faces a growing risk of the opposite problem-deflation.

Prices charged by Chinese factories tumbled in May at their steepest annual pace in seven years, while consumer prices barely budged, fresh signs of the challenges faced by the world's second-largest economy both at home and abroad.

China's Producer Prices Declined Further in May

China's factory-gate price index tumbled to its lowest reading in more than seven years, while consumer prices edged up slightly in May, thanks to higher food prices, official data showed Friday.

The producer-price index declined 4.6% from a year earlier in May, compared with the 3.6% decline in April and marking the weakest reading since February 2016, when PPI fell 4.9% from a year earlier, according to data released by the National Bureau of Statistics.

Trump Indicted in Classified Documents Case

WASHINGTON-Donald Trump was indicted Thursday by a federal grand jury in the investigation into his handling of classified documents at his Mar-a-Lago resort in Florida, marking the first time in history that the federal government has brought charges against a former president.

Trump was charged with seven counts, a person familiar with the matter said, including violations of the Espionage Act, which bars the misuse of classified information, as well as obstruction and false statements. A lawyer for Trump, James Trusty, confirmed those counts on CNN.

Cuba Spy Station Brings China Rivalry to America's Doorstep

China's plan for an eavesdropping station in Cuba serves as a marker for Beijing's global power ambitions, planting its spiraling rivalry with the U.S. on America's doorstep.

The listening post, which will be 100 miles off Florida, would potentially give the Chinese military capabilities to monitor communications across a wide stretch of the southern U.S.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

06-09-23 0531ET