MARKET WRAPS
Stocks:
European stocks extended their losses on Wednesday, with with luxury goods, property stocks and oil majors among the biggest fallers, after data signaling a slowing Chinese economy sparked risk-off trading across global markets.
An official gauge of China's manufacturing activity slipped unexpectedly to 48.8 in May, falling deeper into contractionary territory even as the broader economy has been unshackled from three years of strict zero-Covid restrictions.
Meanwhile, services activity softened, a worrying sign that the segment of the economy now driving the rebound may be losing momentum.
Read China's Recovery Slows Further as Factory, Services Activity Pulls Back
Read ANZ Cuts China 2023 GDP Growth Forecast to 4.9% After Weak PMIs
Stocks to Watch
Airbus stands to benefit from the fast-growing use of generative AI, UBS said, citing potential for cost reductions, safety improvements and product innovation.
"We view AI primarily as a growth opportunity in the aerospace and defense sector," UBS said.
The technology could help plane certification, simplifying the development of new aircraft, while surveillance and pilot support systems will build on safety for passengers and crew, it added.
Better network planning, maintenance and defects monitoring will also help cut immediate costs of materials and labor, UBS said.
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Tailwinds for European telecoms from a recent wave of price increases as well as energy and salary costs look set to be key topics going into the second-quarter earnings season, Citi said.
Telenet, BT, Infrastrutture Wireless Italiane, Freenet, Orange, Tele2 and Cellnex Telecom have been the best share performers year-to-date, but the past performance of current winners isn't guarantee of future success and the time has come for a reshuffling of preferences, Citi said.
Heading into the second-quarter reporting season, Citi said BT and Hellenic Telecommunications are its top picks in the industry.
U.S. Markets: Markets:
Stock futures and U.S. government-bond yields edged lower with investors waiting to see if the debt-ceiling agreement can be implemented by the June 5 deadline.
Stocks on the Move
https://urldefense.com/v3/__http://3c.ai__;!!F0Stn7g!HxhRNoOhnL849LBpsb87-jD8pCNAonIj5crR1MGBFfw_Rn8dhTBm_es5iygl8mV8plC3gnz5gLMHi_8D6azM6TNA4rlIN6Lm5EfSZfIxpjA$ rose 7% premarket on heavy volume, adding to the nearly 300% gain it has enjoyed this year
Hewlett Packard Enterprise fell 7% after revenue came in below the company's own guidance.
Nvidia retreated in premarket trading a day after it briefly became the first chip company with a $1 trillion market value.
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Forex:
The euro hit a 10-week low against the dollar following the weak Chinese manufacturing data and a deceleration in Spanish and French inflation data.
With markets fully pricing in two more European Central Bank interest rate rises by September, the euro is vulnerable to a scaling back of those expectations on any further signs of inflation slowing faster than expected, ING said, adding that EUR/USD may soon test 1.0600.
German inflation data are due at 1200 GMT followed by eurozone inflation data on Thursday.
Meantime, the dollar held its gains, still benefiting from the recent upward correction in Federal Reserve interest rate expectations and from weak equities, especially in Asia this morning, UniCredit Research said.
Markets still await a likely final approval of the U.S. debt-ceiling deal, UniCredit said.
Bonds:
The inflation-driven rally in eurozone rates markets looks set to continue with national consumer price indices likely to slow markedly, Commerzbank said.
"The broad rally continued across bond markets with inflation break-evens falling noticeably on the back of below consensus national CPIs in Spain and Belgium," Commerzbank said..
Read National Inflation Data to Signal Direction of Eurozone Print
Energy:
Oil prices extended Tuesday's steep losses, after Chinese PMI data showed a slowdown in manufacturing activity in May.
"Markets are worried that China's commodity demand is weakening more quickly than anticipated," Commonwealth Bank said.
Concerns the U.S. debt deal could fail to make it through Congress, and uncertainty about what OPEC+ may do at a meeting this weekend have also weighed on crude prices, CBA said.
Metals:
Industrial metal prices were weaker with China's disappointing economic recovery continuing to weigh on the demand outlook, according to ANZ.
"Lackluster earnings have stoked fears of further economic weakness. The market appears to be struggling with the adjustment that China's era of rapid growth is over," ANZ said.
DOW JONES NEWSPLUS
EMEA HEADLINES
French Inflation Dropped More Than Expected in May as Energy, Food Prices Ease
French inflation fell more than expected in May, on a slowdown of energy, food and services prices, though still remains stubbornly above the target set by the European Central Bank.
France's consumer price index rose by 5.1% on year in May, measured by national standards, compared with April's 5.9% increase, according to preliminary data from the country's statistics office Insee released Wednesday.
Handelsbanken Sells Parts of Finnish Ops For Around $1.4 Bln
Svenska Handelsbanken said Wednesday that it has agreed to sell parts of its Finnish operations to S-Bank, Oma Savings Bank and Fennia Life Insurance Company for around 1.3 billion euros ($1.4 billion).
The private customer, asset management and investment services operations will be sold to S-Bank, who will also take over lease agreements for branch offices, while the small and medium-sized enterprise operations are to be sold to Oma Savings Bank and the life insurance operations will be sold to Fennia Life Insurance Company, it said.
Antony Blinken, in Europe, Sees Alignment on China
LULEA, Sweden-The U.S. and Europe are converging in their views on how to approach China, with recent statements from the European Union closely mirroring U.S. policy, Secretary of State Antony Blinken said.
Blinken made the remarks at the start of a gathering in northern Sweden of the EU-U.S. Trade and Technology Council, where top officials are discussing issues including artificial intelligence and green supply chains. The meeting is the fourth since the forum's creation in 2021.
GLOBAL NEWS
China's Recovery Slows Further as Factory, Services Activity Pulls Back
HONG KONG-China's factory activity contracted for a second straight month while growth in the services sector slowed, the latest signs that the country's reopening growth momentum is struggling to take hold.
An official gauge of the country's manufacturing activity slipped unexpectedly to 48.8 in May, falling deeper into contractionary territory even as the broader economy has been unshackled from three years of strict zero-Covid restrictions.
U.S. Manufacturers Seek China Alternatives as Tensions Rise
Fears of military conflict and increasing security worries have some U.S. manufacturers re-evaluating their reliance on China.
Executives are plotting alternate supply chains or devising products that can be made elsewhere should China's hundreds of thousands of factories become inaccessible. That prospect became more conceivable, they said, after the 2022 invasion of Ukraine prompted companies to sever ties with Russia, sometimes taking huge write-downs.
Debt-Ceiling Bill Faces Test as Some GOP Critics Vent
WASHINGTON-House Republican leaders projected confidence Tuesday that the debt-ceiling deal struck with President Biden would draw enough support to pass, while some conservative lawmakers angrily denounced the agreement.
The bill advanced past a closely watched procedural hurdle in the Rules Committee late Tuesday, and a final House vote is expected as soon as Wednesday night. While the bill appears on track to gain sufficient Republican and Democratic votes to pass the House and then the Senate by the June 5 deadline, it could still run into procedural obstacles, complicating the race to avoid an unprecedented default. Roughly 30 House Republicans announced Tuesday they would oppose the bill, with others saying they were undecided.
Where Is the U.S. Economy Headed? Follow the Money
The stock market is near a one-year high, giving many investors comfort. But down below, debt markets are creaking under the strain of rising interest rates.
Lending conditions for companies, consumers and real-estate developers tightened this spring to levels not seen since the height of the Covid pandemic, an analysis of public and private lending data by The Wall Street Journal shows.
Uber-Wealthy Are Flocking to Short-Term Fixed Income, UBS Finds
Family offices, which manage the fortunes of many of the world's super-rich, are increasing their allocations to high-quality, short-duration fixed income. This is just one of several portfolio shifts they're making in response to changing market conditions and worries about geopolitics and inflation, according to a new report by wealth manager UBS.
"When family offices are faced with potential shocks or concerned about strength in the economy, they migrate to places that are more defensive, " says Charles Otton, UBS' head of Global Family & Institutional Wealth, Americas.
Ron DeSantis Kicks Off Early-State Swing as Policy Fights With Trump Intensify
CLIVE, Iowa-Florida Gov. Ron DeSantis kicked off his first in-person campaigning as a presidential candidate Tuesday evening by highlighting his biography and conservative record while seeking to draw a contrast with former President Donald Trump.
(MORE TO FOLLOW) Dow Jones Newswires
05-31-23 0538ET
