European stocks traded slightly higher on Wednesday, steadying after recent sharp losses, with a muted reaction in markets evident after Jerome Powell's comments on the outlook for U.S. interest rates.

The market lowered its rate-cut expectations slightly after Powell's comments but continues to discount between one and two cuts this year and a high probability of a cut in September, SEB said.

"Tonight's Beige Book from the Fed will be another central bank piece of the puzzle."

Shares on the Move

Shares in ASML fell after its's quarterly orders undershot analysts' expectations.

Stocks to Watch

Anglo American's copper business has upside potential, as the rally from copper-exposed peers show, Citi said.

The company's share always looked cheap on a sum-of-the-parts valuation--the value of individual segments if the company was broken up--basis, and its copper business contributes to around 40% of its Ebitda. Given Citi's 2025 forecasts for the ore, the business alone is worth around GBP30 a share and 35% higher than Anglo American's current share price.

However, Citi noted that despite a SoTP low valuation shouldn't be the main metric for investors, the upside potential could trigger calls for a break-up to realize value if it remains low for too long.

U.S. Markets:

Stock futures rose modestly after Powell discussed a lack of further progress in reaching the central bank's inflation goal of 2%, pushing back Wall Street's expectations for interest-rate cuts to later in the year.

Stocks to Watch

Autodesk said a probe of its accounting practices is continuing and that it won't be able to file its annual report with regulators within a given extension period. Shares were down 3.3%.

United Airlines reported a jump in first-quarter revenue, boosted by strong demand for flights. Shares rose 5% premarket.


Jerome Powell's comments on Tuesday that firm inflation questioned whether rates will be cut without an unexpected economic slowdown are likely to lift the dollar in the near term, MUFG said.

The Fed looks on course to lag behind the European Central Bank, thus "opening up a window of monetary policy divergence in the near-term that is supportive for a stronger U.S. dollar."

Powell's comments suggest U.S. rates might not be cut until September, MUFG said.

DZ Bank Research said the Fed's monetary policy outlook remains a key driver for the dollar.

"The situation in the Middle East remains unclear, but the dollar is mainly driven by speculation that the Federal Reserve may not be able to lower its key interest rate."

The increased uncertainty over the Fed's future monetary policy path means that its Beige Book should receive a lot of attention.

Sterling gained after U.K. data showed annual inflation eased but was still higher than expected in March at 3.2%, casting doubt on whether the Bank of England will cut rates before autumn.

The currency rose to its strongest in nearly six weeks against the euro as the European Central Bank still looks likely to cut rates in June.

"It is looking increasingly likely that the first rate BOE cut will only come in August," ING said.

It noted that annual services CPI only slowed from 6.1% to 6.0%, against consensus and the BOE's own projections for 5.8%.


The 10-year Bund yield, which briefly broke above 2.5% on Tuesday, is trading at that level again, after comments from Powell added new uncertainty over whether the Fed would be able to lower interest rates this year without signs of an economic slowdown.

Later in the eurozone, Germany will auction EUR2 billion in August 2050- and August 2054-dated Bunds, while Greece will offer up to EUR200 million in February 2035-dated bonds.

Powell's comments that it was likely to take "longer than expected" to achieve the level of confidence needed to cut rates had a relatively muted market reaction, "but we think that's coming, or at least part of a process that will ultimately see the 10-year [Treasury yield] back in the 5% area," ING said.

The route to 5% consists of two components-the downsizing of rate cut expectations and the re-build of term premium, ING said.

European data remains on the weak side, disinflation trend is still intact in Europe and the ECB is set to cut interest rates in June, and this backdrop suggests that there should be limited upside for Bund yields from current levels, Jefferies said, initiating a long position in German rates.

"We will be keeping a tight stop loss given the macro volatility," Jefferies said.


Oil prices edged lower as gains sparked by growing geopolitical risks were curbed by the Federal Reserve signaling elevated inflation will likely delay interest-rate cuts this year, and reports of a rise in U.S. crude inventories.

The price rally sparked by fears of a widening conflict in the Middle East stalled in recent session, with markets now focused on Israel's looming retaliation plans.

"The lack of direction in the market reflects the significant uncertainty about Israel's possible response to Iran's attack over the weekend," ING said.


Base metals prices were rising while gold futures slipped.

Powell dialed back interest-rate cut expectations following a series of firmer-than-expected inflation data releases. This knocked down gold prices, which have historically been closely linked to interest rates.

That said, persistent inflation and global tensions are keeping gold appetite close to record levels. The yellow metal is perceived as a good hedge against rising geopolitical tensions and against a potential meltdown in risk appetite due to a more hawkish Fed, Swissquote Bank said.


Gold could pull back in the short term after a recent charge higher, but won't lose its luster longer term, Pictet Wealth Management said.

The precious metal may be vulnerable to a deterioration in jewelry demand and central bank buying, as well as high opportunity costs. However, any price pullback will likely find support at around $2,100-$2,200/oz given the multitude of drivers behind the rally, Pictet said. Gold remains attractive longer-term as central banks look set to keep ramping up buying.

Pictet Wealth's current 12-month projection for gold at $2,350/oz looks timid next to current prices, it said, and could be upgraded once there's more visibility on Asian demand.


Silver may rise to around $32/oz in 2H, aided by investment demand, Citi Research said.

Silver's rally from mid-February to mid-April stems not only from short-covering activity but also from fresh long positions among investors. Also, silver ETF inflows during March-April have been the strongest since 1Q 2021, while silver derivatives traders are tilting bullish given volatility-skew steepening for calls versus puts in the options market.

In addition, passenger-vehicle and electric-vehicle demand for silver, also considered an industrial metal, looks structurally supportive of prices, Citi said.

Iron Ore

This year's iron-ore price declines are likely to have been a dress rehearsal for what's ahead, Capital Economics said.

Prices have softened on weakness in China's property sector, at one point tumbling below $100/ton before recovering slightly as steel output improved. Capital Economics said a forecast for China's property sector to halve by the end of the decade doesn't bode well for iron-ore producers' plans to ramp up production.

"What's more, China's push to control emissions from the steel industry means that iron ore consumption is set to fall even quicker than steel production."


Volvo Earnings Beat Forecasts After Price Increases Help Offset Easing Demand

Volvo posted forecast-beating first-quarter earnings after price increases implemented last year continued to feed through, helping offset normalizing truck orders and generally declining demand for construction equipment.

The Swedish truck maker said Wednesday that truck deliveries fell 9.9% in the quarter while order intake fell 19%.

Rio Tinto Maintains Annual Guidance After First-Quarter Iron-Ore Shipments Fall 10%

SYDNEY-Rio Tinto maintained its 2024 guidance after the Australian mining giant reported a 10% fall in first-quarter iron-ore shipments.

The world's second-biggest miner by market value on Wednesday said it shipped 78.0 million metric tons of iron ore from its mines in Australia's Pilbara region in the three months through March. That is a 10% decline compared with the immediately preceding December quarter, and down 5% on the same period a year ago.

Vinci Buys Majority Stake in Edinburgh Airport for $1.58 Bln

Vinci Airports said it bought a 50.01% share in Edinburgh Airport for GBP1.27 billion ($1.58 billion), expanding its network in the U.K. to three airports.

The subsidiary of the French concessions and construction company said Wednesday that the remaining 49.99% stake in Scotland's largest airport will be managed by Global Infrastructure Partners, who owns the airport since 2012.


Biden Calls for Steep Hike to Tariff on Chinese Steel

President Biden called for raising tariffs on imports of steel and aluminum from China, beginning what is expected to be a broadside of protectionist steps against Beijing during a presidential election in which trade is a flashpoint.

Biden, who will discuss the steps Wednesday during a visit in swing-state Pennsylvania, is asking his trade officials to more than triple a key tariff rate on Chinese steel and aluminum products to 25% from 7.5%. That higher levy would be in addition to a separate 25% tariff on steel and a 10% duty on aluminum imposed under the Trump administration. A senior administration official said the higher tariffs would only affect 0.6% of U.S. demand for steel.

This is why investors shrugged off Powell's 'reset' of Fed rate-cut expectations

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04-17-24 0623ET