European Midday Briefing : Nerves Running High Ahead of BOE Decision

MARKET WRAPS

Stocks:

European stocks were sharply lower on Thursday as investors awaited the Bank of England interest rate decision.

Most expect the BOE to raise rates by 25 basis points to 4.75%, but Wednesday's higher-than-expected inflation data leaves a possibility of a bigger 50 basis-point increase or at least further rate rises in the coming months.

Read BOE Watchers Could Be Focusing Too Heavily on Monthly Inflation Data

Vantage Markets said the pressure is rising on the BOE to raise interest-rates by 50 bps.

"The notable upside shock in U.K. inflation, the fourth in a row, combined with the recent hot jobs and wage growth data, money markets now think there is a one in three chance of a half-point move," it added.

The BOE decision follows a hawkish surprise from Norges Bank, which raised rates by half a percentage point to 3.75%.

Read Norway Central Bank Raises Key Rate by Half Percentage Point to 3.75%, Sees Further Hike in August

U.S. Markets:

Stock futures were falling following three straight days of losses for Wall Street. Jerome Powell again will be delivering testimony before Congress.

Government bonds yields gained. The 10-year Treasury note's yield rose to 3.762%, from 3.722% Wednesday.

Stocks to Watch

Intel dipped and Advanced Micro Devices edged slightly higher in premarket trading. The stocks fell 6% and 5.7%, respectively, on Wednesday after Intel disclosed plans to make its foundry business more competitive.

Nvidia declined 1.2% to $425.43. Lynx said "investor expectations of NVDA have reached frothy levels." It set a $360 target price on the stock.

Tesla was falling 1.8% in premarket trading after shares tumbled 5.5% in the previous session following a downgrade to Hold from Buy from analysts at Barclays.

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Forex:

The Swiss franc fell to its lowest in nearly seven weeks against the euro after the Swiss National Bank raised interest rates.

Although the decision was broadly as expected, some analysts had anticipated a larger 50 basis-point increase while the SNB also lowered its inflation forecast for this year, pointing to lower oil and gas prices and a stronger Swiss franc.

The SNB said it remains willing to intervene in the foreign exchange market as necessary, with the current focus on selling foreign currency.

Meanwhile, the Norwegian krone rose by well over 1% against the euro and the dollar after the Norges Bank's bigger-than-expected rate rise.

The central bank also said wage growth was set to be higher than in 2022, while activity "remains high amid continued tightness in the labour market."

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The dollar stayed weak after dropping sharply following testimony by Jerome Powell that reiterated the message from last week's policy decision, when rate increases were paused, MUFG says, adding that the currency risks falling further.

"The absence of a more hawkish message yesterday leaves the U.S. rate market comfortable to price in only one further hike at this stage," MUFGsaid, adding it expects further dollar weakness this year as evidence of disinflation pressures build.

Energy:

Oil prices drifted lower, as global macroeconomic weakness and hidden supply rises helped to offset recent cuts to output from OPEC and better demand in China.

"Sanctions on Russian oil exports haven't greatly constrained supply to the international market, and exports from Iran and Venezuela have been surprisingly strong...even the OPEC+ quota reductions have not lowered production as much as agreed," ANZ Research said.

It said higher interest rates have also raised the costs of holding stock, causing inventories to run down.

Read Thermal Coal Looks Hot Heading Toward Year-End

Metals:

Industrial metals remained range bound as macroeconomic uncertainty continues to weigh on demand.

"Powell's Congressional comments didn't shift the macro narrative," Peak Trading Research said.

"The Fed will remain data dependent and could hike rates again later this year. Bond markets are still pricing a 70% probability of a July hike."

Peak said that after the BOE rate decision later on Thursday, there are few major macro catalysts until early July.

Gold

Gold prices were weaker as attention shifts to Chinese buying, which seems to be slowing down after strong sales earlier this year.

"Gold prices have been underpinned by strong physical demand in China," ANZ Research said, noting the PBOC has added gold to its reserves for seven straight months while consumers bought jewelry, bars and coins following the lifting of lockdowns.

"However, there are signs that growth is starting to slow down," ANZ said, pointing to slowing retail sales growth of gold and silver jewelry to 24% year-on-year in May from 44% and 37% in March and April, respectively.

"High unemployment amid an uncertain economic outlook could weigh further on demand."

DOW JONES NEWSPLUS

EMEA HEADLINES

Norway Central Bank Raises Key Rate by Half Percentage Point to 3.75%, Sees Further Hike in August

Norway's central bank surprised markets Thursday by raising its key policy rate more than expected as it fights to dampen stubbornly high inflation.

Norges Bank increased its key policy rate by 50 basis points to 3.75%, said that another increase is likely in August and lifted its rate path to imply a higher peak rate in this cycle.

Aegon Targets $1.32 Bln in Operating Capital Generation in 2025 on US Transformation

Aegon on Thursday outlined its financial targets for 2025 and its new strategy focused on boosting earnings from its U.S. subsidiary ahead of its capital markets day.

The Dutch insurance and asset-management company aims to increase its operating capital generation from units to around 1.2 billion euros ($1.32 billion) in 2025 from at least EUR1.0 billion in 2023. It also targets a free cash flow of around EUR800 million by 2025, from EUR600 million this year, and dividend per share to EUR0.40 from EUR0.30, it said.

SES Shares Rise After Merger Talks With Intelsat End

Shares in SES rose on Thursday after the satellite company said it ceased merger talks with competitor Intelsat.

At 0738 GMT, the stock is up 4.4% at EUR5.07.

GLOBAL NEWS

BOJ Board Member Says Lifting 10-Year Bond Yield Cap Could Delay Economic Recovery

The Bank of Japan must be mindful of the risk that lifting its cap for 10-year Japanese government bond yields could interfere with the country's economic recovery, policy board member Asahi Noguchi said Thursday.

Noguchi said raising the bond yield cap could reduce the degree of monetary easing by causing a rise in long-term yields, eventually leading to a delay in the economy's recovery.

Biden's Trade Challenge: Kicking the China Dependency Habit

China has many sources of geopolitical leverage, from its military to its vast market. Potentially, the most potent and least appreciated is the choke-point position it has built in global supply chains.

President Biden has devoted a lot of his foreign policy to addressing that vulnerability, from cultivating closer ties to India, which aspires to become an alternative manufacturing base to China, to negotiating critical minerals deals with Europe.

U.S. Offers India Drones, Jet Engines to Lure It From Russia

WASHINGTON-India is expected to purchase state-of-the-art U.S. drones and jointly produce jet-fighter engines in a multibillion-dollar deal designed to wean New Delhi off arms purchases from Russia.

The purchase is expected to be unveiled Thursday in Washington as Indian Prime Minister Narendra Modi visits the White House on a high-profile visit that includes a formal state dinner. New Delhi had long sought some of the U.S.'s most advanced weaponry and equipment, but Washington was reluctant until now to share such sensitive technology because of India's past, and continuing, purchases of Russian military gear.

House Censures Longtime Trump Foe Adam Schiff

WASHINGTON-The Republican-controlled House voted to censure Rep. Adam Schiff (D., Calif.), a longtime antagonist of former President Donald Trump, making him only the third member to suffer such a rebuke since the turn of the century.

The vote was 213 to 209 along party lines, with six Republicans voting present.

Garland Defends Independence of Hunter Biden Plea Deal Amid GOP Criticism

Attorney General Merrick Garland on Wednesday emphasized the independence of the Justice Department's criminal case against Hunter Biden, as Republicans accused him of showing leniency to the son of the president who appointed him.

Garland has sought to keep as much distance as possible from the long-running investigation into Hunter Biden, who prosecutors said Tuesday reached an agreement to plead guilty to misdemeanor tax charges and enter a diversion program that would allow him to avoid a felony firearms conviction if he meets certain terms. The deal likely lets the younger Biden skirt prison time and what would have been a politically explosive prosecution while his father campaigns for re-election.

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

(END) Dow Jones Newswires

06-22-23 0545ET