EMEA Morning Briefing : Investors Look to Next Week's Central Bank Decisions

MARKET WRAPS

Watch For:

Germany labor cost index; Italy industrial production; no major corporate trading updates expected

Opening Call:

European shares may open slightly higher Friday as attention turns to next week's central bank rate decisions. In Asia, stock benchmarks tracked Wall Street higher; the dollar rose slightly; Treasury yields were little changed; oil futures fell while gold advanced.

Equities:

Stock futures edged higher early Friday, as traders look ahead to next week's interest-rate decisions from the European Central Bank and the Federal Reserve.

U.S. stocks rose Thursday, ending the S&P 500's longest bear market since the 1940s and marking the start of a new bull run. The broad index powered higher over the past few months, in large part because of a handful of companies posting outsize gains.

Positioning in futures markets suggests many traders are betting the Fed will keep interest rates unchanged in June. That might offer markets some relief in the short-term, although investors warn that there could still be more policy-tightening ahead.

"Right now, the market feels reasonably comfortable that the expectation is for the Fed to stay put where it is for interest rates and not raise rates again," said Yung-Yu Ma, BMO Wealth Management's chief investment strategist. "We think that's the most likely scenario. We think a lot of the interest rate increases that already happened have yet to really play out through the economy."

"A pause does not mean they are done with rate hikes," said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

Traders are betting volatility could pick up in the coming months. The options contracts with the biggest positions tied to the Cboe Volatility Index, or Wall Street's "fear gauge," are wagers that it will surge to 30-a level associated with investor anxiety-or 60, a level only seen during stock-market crashes.

Read: S&P 500 exits longest bear market since 1948. What stock-market history says about what happens next.

Forex:

The dollar strengthened slightly early Friday ahead of next week's events. It is a relatively quiet day for the U.S. economic calendar, with market participants awaiting key data and the FOMC decision due next week, MUFG Bank senior currency analyst Jeff Ng said.

As such, there may be some consolidation in the foreign-exchange markets after prior movements, Ng added.

Meanwhile, U.S. weekly jobless claims data overnight tempered renewed concerns that the Fed may keep borrowing costs higher for longer, and could be the start of another upward trend after stabilizing over the last few months, according to Oanda's Craig Erlam.

"The timing ahead of next week's Fed meeting is interesting as it may add just a tad more comfort to policymakers leaning towards holding rates steady," he said.

In the last batch of data before next week's Fed decision, May's CPI is slated for the first day of the FOMC meeting and PPI is slated for the second day.

Bonds:

Treasury yields were little changed in Asia, after falling overnight as new jobless claims showed the number of people who applied for unemployment benefits in early June jumped to a nearly two-year high, while investors reassessed the Fed policy trajectory following unexpected interest-rate rises by central banks in Australia and Canada.

Markets are pricing in a 72.5% probability that the Fed will leave interest rates unchanged at a range of 5.0% to 5.25% after its meeting on June 14, according to the CME FedWatch tool.

However, the chance of an additional 25-basis-point rate increase in July has risen to nearly 50%, up from just 10% a month ago. And whereas a few months ago the Fed was expected to have begun cutting rates from current levels by this fall, the market is now pricing in no such reduction until next year.

Energy:

Crude-oil futures fell early Friday. There are fears that a possible U.S.-Iran nuclear deal could lead to more oil supply entering the market, ANZ said, citing media reports from the Middle East of progress in talks.

Any agreement to restore the 2015 nuclear deal could lead to the removal of U.S. sanctions that have curtailed exports of Iranian oil into the global market, ANZ added.

Metals:

Gold futures were a tad higher in Asia. The outlook for the yellow metal appears mixed as there is a lack of economic data toward the end of the week, which means market sentiment will likely drive prices, said DailyFX contributing senior strategist Daniel Dubrovsky.

Gold prices had risen sharply earlier due to a softer U.S. dollar, he noted.

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Copper prices were little changed, with the tone of the session likely to be set by newly released China CPI and PPI figures, which should provide cues on the country's economic growth.

While the metal's prices are likely to remain under pressure if macroeconomic headwinds persist, any shift in sentiment could lead to gains for industrial commodities, said ANZ.

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Chinese iron ore prices rose, extending recent gains. The steelmaking material has been rebounding from an earlier selloff on an expected improvement in real estate construction activities, a major source of iron ore and steel demand in China.

The rebound could continue further in the coming months, SDIC Essence Futures said, adding that many steel producers have been running low on iron ore inventory levels, which could lead to restocking demand and support prices.

TODAY'S TOP HEADLINES

China's Producer Prices Declined Further in May

China's factory-gate price index tumbled to its lowest reading in more than seven years, while consumer prices edged up slightly in May, thanks to higher food prices, official data showed Friday.

The producer-price index declined 4.6% from a year earlier in May, compared with the 3.6% decline in April and marking the weakest reading since February 2016, when PPI fell 4.9% from a year earlier, according to data released by the National Bureau of Statistics.

Ukraine Targets Russian Lines, as Counteroffensive Gathers Pace

KHERSON, Ukraine-Ukraine launched armored assaults on entrenched Russian forces in the southeast of the country, as a high-stakes counteroffensive by Kyiv designed to decisively shift the momentum of the 15-month war gathered steam.

Ukrainian officials said they were carrying out what they described as local attacks in the southeastern Zaporizhzhia and eastern Donetsk regions, while Russia's defense minister said Moscow's forces had repelled Ukrainian attempts to break through Russian lines.

Meta Reveals Twitter Competitor It Plans to Launch as Stand-Alone App

Facebook parent Meta Platforms unveiled to employees a stand-alone app it plans to launch through Instagram to compete with Twitter, according to people familiar with the matter.

The app was demonstrated during an all-hands meeting Thursday with Meta workers by Chief Product Officer Chris Cox, who called it Meta's response to Twitter, the people said.

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Expected Major Events for Friday

04:30/NED: Apr Manufacturing output

05:00/FIN: Apr Industrial Production

06:00/SWE: Apr New orders & deliveries in industry

06:00/SWE: Apr Industrial Production Index

06:00/GER: 1Q Labour cost index

06:00/DEN: Apr Balance of payments (provisional figures)

06:00/DEN: Apr External trade (provisional figures)

06:00/ROM: Apr International trade

06:00/NOR: May PPI

06:00/NOR: May CPI

07:00/SVK: Apr Foreign trade

07:00/SVK: Apr Industrial production

07:00/AUT: Apr Production Index

07:00/TUR: Apr Industrial Production Index

08:00/BUL: Apr Industrial Production

08:00/ITA: Apr Industrial Production

09:00/CRO: Apr Foreign Trade

09:00/CYP: Apr Foreign Trade (provisional)

09:00/MLT: Apr International Trade

09:00/GRE: May CPI

09:00/LUX: Apr Industrial Production

09:00/MLT: Apr Industrial Production Index

09:00/GRE: Apr Industrial Production Index

10:00/POR: Apr International trade statistics

15:59/UKR: 1Q GDP

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

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

(END) Dow Jones Newswires

06-09-23 0016ET