European Midday Briefing : Stocks Struggle With U.S. CPI Data Awaited

MARKET WRAPS

Stocks:

European stocks traded mixed on Tuesday in a cautious session ahead of U.S. inflation data.

Weaker data could pave the way to interest-rate cuts while yet another strong set of data would suggest rate cuts remain some way off.

"All eyes are on Wednesday's U.S. CPI data to see if upside inflation surprises in Q1 were temporary or a concerning trend," IG said.

Before that, investors will get a fresh insight into inflationary pressures from producer-price data due later on Tuesday.

Market Insight

Although European Parliament elections are a significant political event, they are expected to trigger little to no market reaction, Danske Bank said.

"Historical data suggests that these elections typically have a minimal effect on markets, and we anticipate a similar scenario this time."

Current polling data ahead of June elections indicates a surge in right-wing populist parties, but not to a degree that would threaten the prevailing majority held by conciliatory, pro-EU factions, Danske Bank added.

U.S. Markets:

Both stock futures and benchmark Treasury yields were little changed ahead of the release of the producer-price index.

The PPI is seen rising 0.3% in April, according to economists polled by WSJ, an uptick from March's 0.2% monthly rate.

Jerome Powell is due to speak later in the day.

Stocks to Watch

GameStop was up 37% in premarket trading after closing 74% higher on Monday. Investor Keith Gill, who goes by the handle "Roaring Kitty," on Sunday made his first post on his X account since 2021.

AMC Entertainment, another popular meme stock, rose 78% on Monday following Gill's posts. Shares were up another 37% in premarket trading.

Forex:

Sterling fell after U.K. labor market data showed a rise in the unemployment rate to 4.3% in the three months to March and Bank of England's Huw Pill said a rate cut is possible over the summer.

TickMill Group said traders have focused on these factors but should be wary that the data also showed wage growth remaining very high, at 6% excluding bonuses, while Pill warned about the risk of inflation staying elevated.

"The stickiness in wages at current levels seems to endorse Pill's warnings around persistent inflation meaning that sterling is unlikely to see a steady selloff from here," TickMill said.

The dollar was steady, trading within a relatively tight range ahead of the inflation data on Wednesday, which could be a key indicator for the timing of any U.S. interest-rate cut and could move the currency in either direction.

"A figure in line, or ideally below expectation, should give a sigh of relief to the Fed doves, let the dollar soften against major peers and help lift appetite in risk assets," Swissquote Bank said.

On the other hand, an above-forecast reading would further dampen rate-cut expectations and "give a boost to the dollar."

Bonds:

U.S. rates are febrile, having moved constantly for over a year now in line with changes in Fed Funds rate expectations and inflation data, Natixis Research said.

"Barring any new surprises [in CPI data] on Wednesday... rates could be entering a phase of relative stability, even if it will probably be temporary, much as experienced between November 2022 and May 2023."

With the prospect of Fed interest rate cuts pushed back in time, logic would dictate that rates should become more rangy and volatility should subside, Natixis said.

Energy:

Oil prices continued to trade in a fairly narrow range ahead of U.S. PPI data and Jerome Powell's speech.

A hotter-than-expected inflation print would further dampen expectations that the U.S. central bank could cut rates soon, boosting the dollar and weighing on the commodities complex.

On Wednesday, investors will also see the release of the CPI report. Meanwhile, the market awaits further clarity on OPEC+'s next policy move, with many analysts expecting an extension of output cuts.

Iraq's recent comments added to the uncertainties, with the oil minister reportedly saying the country would stick to whatever OPEC decides, after previously indicating that it won't agree to more cuts.

OPEC+ Meeting

OPEC+ is expected to extend output cuts at its June meeting, but recent mixed messages from Russia and Iraq suggest no final decision has been made yet, Goldman Sachs said.

"Based on recent inventory upside surprises and our model estimates, we now expect OPEC+ supply to stay lower for longer," it said.

Yet, "our forecasting model suggests that an extension of cuts is not a done deal."

There is a 53% probability that the cartel and its allies will extend curbs and a 37% probability that they will increase production, according to Goldman's estimates.

Metals:

Base metals and gold prices were broadly flat as investors shifted attention to key U.S. inflation reports due this week.

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GLOBAL NEWS

Biden Levies Sweeping Tariffs on China, Intensifying Trade Fight With Trump

WASHINGTON-One day after news broke that President Biden was planning to raise tariffs on Chinese electric vehicles to roughly 100%, Donald Trump moved to one-up his rival for the White House.

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

(END) Dow Jones Newswires

05-14-24 0551ET