EMEA Morning Briefing : Shares Set to Rebound as ECB Signals Moving Closer to Rate Cut

MARKET WRAPS

Watch For:

Germany CPI, balance of payments; UK industrial production, GDP monthly estimates; no major corporate updates expected

Opening Call:

Shares in Europe could bounce back in opening trade. In Asia, stock benchmarks were mixed; Treasury yields slipped; the dollar consolidated; while oil and gold gained.

Equities:

European stocks could rebound from overnight losses following the European Central Bank's decision to keep interest rates unchanged.

The ECB, however, gave the clearest indication yet that it could cut interest rates in June, signaling a possible divergence with the U.S. Federal Reserve, which hasn't communicated a date to start cutting rates.

Wall Street has continued to revise projections about the Fed's interest-rate policy.

Bank of America said it now sees one rate cut this year, in December. Traders entered the year pricing in six or seven Fed rate cuts in 2024, but now view one or two cuts as more likely, according to federal-fund futures. Some see no cuts at all this year.

Forex:

The dollar consolidated in Asia after U.S. March producer prices cooled more than expected, while weekly data showed layoffs still running low.

The ECB kept rates steady but its communication was seen as dovish, weakening the euro.

The ECB said it "is not pre-committing to a particular rate path" and will reduce rates when it is confident that inflation is converging to the 2% target in a sustained manner.

Bonds:

Treasury yields weakened in Asia in the wake of lower-than-expected U.S. producer prices.

March PPI was at 0.2%, down from February's 0.6% and cooler than the 0.3% forecast by economists surveyed by The Wall Street Journal.

Weekly jobless claims were also lower than expected, supporting the view that the Fed has little room to cut interest rates this summer as consumer inflation and jobs markets remain hot.

Investors are pricing in no more than two interest rate cuts this year, with higher odds that the first one would come as late as in September, according to the CME's FedWatch tool.

Energy:

Oil rose, buoyed by prospects of potential supply disruptions.

Israel is said to be preparing for a direct attack from Iran as soon as the next 24 to 48 hours, according to a WSJ report, citing a person familiar with the matter.

TD Securities' analysis of three quarter-centuries of geopolitical risk premiums in oil markets suggests a broader conflict creates risks of significantly higher prices.

Metals:

Gold was higher, extending its overnight rally.

U.S. March PPI came in lower than expected, easing concerns that rate cuts by the Fed were off the table, ANZ Research said.

However, the safe-haven asset remains appealing amid geopolitical risks and rising demand from central banks.

---

Copper edged higher, lifted by supply risks.

Ongoing supply tightness will likely continue to support prices, the ANZ Research team said.

Market chatter of Chinese copper smelters cutting production could also end support.

Weakening market sentiment from damped hopes of Fed rate cuts after U.S. CPI came in hotter than expected has capped gains across base metals however, it said.

---

Iron ore prices rose in anticipation of more stimulus policies from China.

The country's soft March consumer and producer price data trigger hopes of more stimulus from Beijing to underpin the economy, Huarong Rongda Futures said.

Improving iron-ore demand amid better profitability at steel mills and the recovery of market sentiment have driven the recent iron ore rally, although there are still doubts on whether there is room for incremental demand, Baocheng Futures said.

TODAY'S TOP HEADLINES

China's Economy Isn't Gaining Much Steam. Why That Could Be a Problem.

China's economy appears to have turned a corner in the first quarter, but a new batch of indicators from the independent research firm China Beige Book shows that the momentum needed for a sustained rebound has yet to develop.

It's a problem because there is little sign the government is going to change the way it is trying to stimulate the economy. And that approach is creating friction with China's trading partners.

Iranian Attack Expected on Israel in Next Two Days

TEL AVIV-Israel is preparing for a direct attack from Iran on southern or northern Israel as soon as the next 24 to 48 hours, according to a person familiar with the matter. A person briefed by the Iranian leadership, however, said that while plans to attack are being discussed, no final decision has been made.

Iran has publicly threatened to retaliate for an attack last week in Damascus, Syria, that Tehran said was an Israeli airstrike on a diplomatic building. The strike killed top Iranian military officials, including a senior member of the Islamic Revolutionary Guard Corps' elite Quds Force.

Israel Wins Gaza Battles but Risks Losing the War

TEL AVIV-For six months, Israel's military has won battle after battle against Hamas. But as the fight loses momentum and postconflict plans fail to gel, Israel is facing the prospect of losing the war.

The invasion of the Gaza Strip is stalling. Most Israeli troops have gone home. And Hamas is returning to areas that previously had been cleared of militants.

U.S. and Russia Pursue Secret Prisoner Swap Talks, Russian Diplomat Says

The U.S. and Russia are using a confidential channel to discuss the issue of exchanging prisoners that could include the release of jailed Wall Street Journal reporter Evan Gershkovich, a senior Russian diplomat said Thursday.

Russian deputy foreign minister, Sergei Ryabkov, told reporters that "dialogue on this topic is being conducted through a specialized closed channel," but said he wasn't authorized to comment on the exchange of information or "the signals that pass through this channel," Russia's state news agency TASS reported.

Amazon's stock finally clinches a fresh record close

It's been almost three years since Amazon.com Inc.'s stock last fetched a record close, but shares finally broke through the barrier on Thursday.

Amazon shares AMZN finished the trading day up 1.7% at $189.05. That marked their first all-time closing high since July 8, 2021, when they ended at $186.57.

Write to [e-mail]

Expected Major Events for Friday

04:30/NED: Feb International trade

05:00/FIN: Feb Balance of Payments

06:00/UK: Feb UK trade

06:00/UK: Feb Index of Production

06:00/UK: Feb Index of services

06:00/UK: Feb Monthly GDP estimates

06:00/GER: Mar CPI

06:00/ROM: Feb Industrial production

06:00/SWE: Mar CPI

06:30/HUN: Feb Construction

06:45/FRA: Mar CPI

07:00/SVK: Feb Employment and average monthly wage in selected branches

07:00/SVK: Feb Turnover in selected branches of economy, incl Industry & Construction

07:00/SPN: Mar CPI

08:00/ITA: Jan Industrial turnover

08:00/CZE: Feb Monthly Balance of Payments

08:00/FRA: Apr IEA Oil Market Report

11:30/UK: Mar NIESR Monthly GDP Tracker

12:00/POL: Feb Balance of Payments

All times in GMT. Powered by Onclusive and Dow Jones.

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

04-12-24 0017ET