European Midday Briefing : Positive Start to Busy Week Ahead as Rate Decisions Loom

MARKET WRAPS

Stocks:

European shares made solid gains on Monday as investors look to this week's main events, including U.S. inflation data and interest rate decisions from the Federal Reserve and the European Central Bank.

"With the ECB all but certain to go with another 25bps this week, likely to be followed next week by the Swiss National Bank and the Bank of England, the Fed could well turn out to be an outlier," CMC Markets said.

"Just before Fed policymakers went into their blackout period there were some heavy hints about a skip or pause in June with the potential for another hike in July."

U.S. Markets:

Stock futures rose, with investors largely in wait-and-see mode ahead of this week's inflation data and Fed decision.

Government bonds fell in price. The yield on 10-year Treasury notes rose to 3.768%, from 3.744% Friday. Yields have risen for four of the past five weeks on evidence of strength in the economy.

Stocks to Watch

Biogen shares rose nearly 4% premarket after an advisory committee recommended the FDA approve Leqembi, an Alzheimer's drug from Biogen and its Japanese partner Eisai.

Illumina's CEO Francis deSouza resigned, having lost support from some board members after a $7 billion deal was rejected by regulators and triggered a proxy battle with Carl Icahn. The stock inched higher in premarket trading.

Tesla shares gained more than 1% ahead of the opening bell.

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Forex:

Sterling could be exposed to a potential scaling back of the market's interest rate rise expectations for the Bank of England if upcoming U.K. wage and inflation data are weaker, ING said.

The U.K. employment report on Tuesday will therefore be key for the sterling, ING said, adding that for now, the currency should hold onto its recent gains given a lack of catalysts.

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The dollar traded flat as investors await the Fed's interest rate decision, with investors expecting a rate rise in the future but not on Wednesday, Commerzbank said.

"That means whether the dollar will be able to defend the gains made over the past weeks will depend heavily on how clearly the Fed leaves the door open for future rate hikes and of course on whether and if so to what extent the European Central Bank closes the door to further rate hikes on Thursday."

Read Dollar Might Fall if Fed Signals End to Rate Rises

Read Norges Bank Could Deliver Larger Rate Rise, Lifting Krone

Bonds:

Eurozone government bond yield spreads may continue tightening, but the 10-year Italian BTP-German Bund spread is at fair levels, Bank of America Global Research said.

"At 165-170 basis points, we think BTP spreads trade at fair levels considering the context of" over-restrictive policy rates and deteriorating economic activity indicators, it said.

Possible further acceleration of financial conditions tightening after the repayments under the ECB's Targeted Longer-Term Refinancing Operations this month also suggests that spreads trade at fair levels.

BofA sees implementation risks around the EU's NextGenerationEU project, with the risk of a freeze of the country's next loan tranche and the resulting political repercussions.

Read Core 5-10 Year Bonds Seen a Fit for Coming End of Monetary Tightening

Energy:

Oil futures were close to 1.5% lower, with concerns about the economic outlook driving prices down and as investors, for now, ignoring signs of a sharply tightening market.

Bank of America said oil was caught between "bearish asset allocators who point to monetary contraction and bullish oil speculators expecting lower inventories."

As a result, Tuesday's inflation figures and the Fed meeting will be key for the direction oil takes.

Read Goldman Sachs Trims Oil Forecasts Despite Saudi Cut

Metals:

Metals were subdued at the start of a busy week of macroeconomic data.

"Gold traders will be reading between the [Fed] lines and looking for any signal from Powell that the U.S. is heading for a recession or that core inflation remains sticky," Royal Mint said.

Aluminum Outlook

Aluminum prices are likely to remain under pressure, according to SDIC Essence Futures.

It said producers in China have been rapidly raising production activity and output volume, and it expects supply excess to emerge in the third quarter, which could pose a downside risk for the metal's prices.

SDIC advises taking profit on any short-term rebound.

DOW JONES NEWSPLUS

EMEA HEADLINES

Glencore Approaches Teck Over Its Coal Business

Swiss mining and trading giant Glencore has approached Canadian miner Teck Resources over buying its coal assets, the companies said, providing an alternative to Glencore's original proposal for a full-blown merger between the two miners.

Glencore's original merger offer is still on the table, but the company has indicated to Teck that it would also be willing to buy just the coal business-which it had previously valued at more than $8 billion-if that is the only asset up for sale.

Novartis to Acquire Chinook Therapeutics for Up to $3.5 Billion

Novartis agreed to acquire clinical-stage biopharmaceutical company Chinook Therapeutics for up to $3.5 billion, in a deal that will expand its portfolio of kidney disease treatments.

The Swiss pharmaceutical company said Monday that it would merge Seattle, Washington-based Chinook Therapeutics with a newly formed Novartis subsidiary, with holders of Chinook common stock receiving $3.2 billion in cash, plus a contingent value right of up to $300 million.

Georg Fischer Makes $2.3 Bln Bid for Finland's Uponor

Industrial supplier Georg Fischer said Monday that it has made an all-share offer to buy Finnish peer Uponor for 2.1 billion euros ($2.3 billion,) as it looks to boost its water- and flow-solutions business.

Georg Fischer, based in Switzerland and also known as GF, is offering EUR28.85 for each Uponor share, a bid that it says has been approved by Uponor's board and accepted by its largest shareholder, Oras Invest.

GLOBAL NEWS

Jerome Powell's Big Problem Just Got Even More Complicated

Federal Reserve Chair Jerome Powell finds himself in a place no central banker wants to be: working to avert a credit crunch, which calls for looser monetary policy, while fighting high inflation, which demands the opposite.

Strains in the banking industry, which followed the collapse of three midsize lenders this spring, help explain why some central bank officials are leaning toward holding interest rates steady at their meeting this week-even though the economy and inflation haven't slowed as much as they expected.

Wall Street Firms Up Bets on U.S. Consumers

Inflation, slowing growth and rising interest rates often spell trouble for people with car loans and credit-card debt. Wall Street is instead laying more bets that most American borrowers will sail through.

Missed-payment rates on these loans have ticked higher from ultralow levels hit during the pandemic, but they still sit well below the heights reached during past downturns. Over the past few months, the easing of bank stress has helped keep the economy on course, and the recent debt-ceiling deal erased another source of risk.

For Some Companies, Debt Downgrades Followed Payouts to Private-Equity Owners

Private-equity firms took advantage of loose credit markets two years ago to extract record amounts of cash from companies they control. Now some of these companies are paying the price.

The postpandemic period was a golden age for dividend recapitalizations, a type of transaction in which a company borrows money to pay a special dividend to its private-equity owners. In 2020 and 2021, with interest rates hovering near zero, U.S. companies borrowed nearly $177 billion for these transactions, a record sum, according to credit-ratings company Fitch Group.

U.S. to Allow South Korean, Taiwan Chip Makers to Keep Operations in China

WASHINGTON-The Biden administration plans to allow top semiconductor manufacturers from South Korea and Taiwan to maintain and expand their existing chip-making operations in China without U.S. reprisals, according to recent remarks by a senior Commerce Department official.

Some analysts say the move will weaken U.S. export controls designed to slow China's technological advance.

White House Says China Has Had Cuba Spy Base Since at Least 2019

WASHINGTON-The White House on Saturday said that China has had a spy base in Cuba since at least 2019 and Beijing's efforts to expand its intelligence gathering are ongoing.

It added that the Biden administration has taken steps to counter Chinese expansion of its security footprint globally.

Trump to Appear in Court in Miami Tuesday Amid Flurry of Probes

WASHINGTON-Donald Trump is preparing to surrender to authorities Tuesday and be arraigned at a federal courthouse in Miami as the Justice Department's unprecedented criminal case against the former president moves to its next phase.

Law-enforcement officials are bracing for the possibility of unrest as demonstrators both supporting and opposing the former president made plans to rally around the courthouse.

Ukraine's Offensive Begins With Ground Gained, Tanks Lost

ORIKHIV, Ukraine - In the first days of their big offensive, Ukrainian troops thrust their new Western tanks at several points along the Russians' defensive lines.

Some assaults went better than others.

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

(END) Dow Jones Newswires

06-12-23 0611ET