European Midday Briefing : Stocks Higher Ahead of Expected Rate Cut

MARKET WRAPS

Stocks:

European stocks traded higher on Thursday ahead of an expected interest-rate cut by the European Central Bank.

Investors have fully priced in a 25 basis-point cut, bringing the deposit rate to 2%, and will be looking for clues on longer-term monetary policy.

Lazard Asset Management expects rates to be reduced to 1.5% by year-end "given a more aggressive U.S. trade posture against the European Union".

The ECB is unlikely to give a clear signal for its July meeting, with risks leaning toward signaling a pause , Pictet Wealth Management said.

In morning trade, the DAX reached a new record intraday high in a session with modest but broad-based gains across major European stock indexes.

Economic Insight

A recovery in German industry remained underway, ING said, after its factory orders unexpectedly rose at the start of the second quarter.

Rising order books over the previous three months had been pinned to a rush from U.S. importers to stock up ahead of tariffs, but that now looks only part of the story.

Stocks to Watch

UBS Group looked set to face stricter capital requirements due to new Swiss banking rules and this could put its returns under pressure, Morningstar said.

BP continues to expect that half of its target to boost free cash flow 20% by 2027 will be achieved in 2025, Citi said.

Bayer's strong start to the year and signs of a recovery in its pharmaceutical business suggests earnings expectations might have bottomed out, according to Goldman Sachs.

Forex:

The euro rose but a significant reduction of ECB inflation forecasts would likely limit its gains against a weaker dollar, XTB said.

Recent weak eurozone inflation data mean inflation forecasts are expected to be reduced along with interest rates.

The euro has gained ground against the dollar over the past month, despite European bond yields lagging the U.S.

The dollar edged slightly higher against a basket of currencies in early European trade but remained weak and close to six-week lows.

The greenback fell Wednesday after weak U.S. ADP private payrolls data, while trade-policy uncertainty also weighed on the U.S. currency.

"Interestingly, the U.S. dollar is one of the few assets reflecting trade pessimism," Swissquote Bank said.

Bonds:

Treasury yields were stabilizing after sharp declines Wednesday prompted by weak data.

The falls were prompted in part by a below-consensus ADP jobs report, which put Friday's nonfarm payrolls data under even bigger scrutiny than usual.

However, further signs of weakness in the labor-market data were needed before the Federal Reserve could cut interest rates, Metzler said.

The 10-year Bund yield was flat shortly after the open.

France's EUR10 billion to EUR12 billion issuance of long-dated government bonds on Thursday looked set to weigh on Bunds in the earlier part of the session, Commerzbank Research said.

However, this potential rise in Bund yields could be used for tactical long positions ahead of the ECB meeting.

Significant falls in Treasury yields on Wednesday following weak data left German Bunds unfazed.

Energy:

Oil prices edged higher after slipping in the previous session amid persistent concerns over excess supply and softening demand.

A bigger-than-expected drawdown in U.S. crude inventories was offset by builds in gasoline and diesel stocks, reflecting weaker demand in the world's top oil consumer.

Meanwhile, fears of a supply glut continue to weigh on sentiment after Bloomberg reported Saudi Arabia was seeking another big production increase at next month's OPEC+ meeting.

European natural gas prices rose in early trade as traders focus on replenishing storage ahead of the winter.

Supply tightened as flows from Norway--Europe's largest single supplier--declined due to a new round of planned maintenance.

Metals:

Gold futures slipped but held near monthly highs. The precious metal had rallied in the prior session as weaker-than-expected U.S. economic data raised hopes for rate cuts, ANZ Research said.

Lower hiring and a contraction in U.S. services activity have raised expectations of monetary policy loosening to avoid a recession.

At the same time, safe-haven demand for gold has also been prominent, ANZ added.

State Street Global Advisors said the gold market had likely transitioned to a higher price regime north of $3,000/oz for the rest of this year.

"Our bull case scenario (30% probability) sees gold approaching $4,000/oz over the next six to nine months under certain macroeconomic conditions, including stagflation and accelerated de-dollarization."

Comex futures ' bullish momentum was re-accelerating, based on the daily chart. RHB Retail said futures may extend gains toward $3,500/oz if a bullish breakout above resistance at $3,400/oz occurs.

EMEA HEADLINES

Wise Shares Rise on Move to Switch Main Listing to U.S.

Wise shares rose after the company said it plans to transfer its main listing to the U.S., the biggest market for the company's products, dealing a further blow to the London bourse, which has been suffering over the past couple of years.

Shares were up 63 pence, or 5.8%, at 11.46 pounds in early morning European trading. They are currently up 2.25% over the year to date.

Germany's Leader Has a Message for Trump: We Need You, but You Also Need Us

Germany's new chancellor will have a mission when he meets President Trump in the Oval Office for the first time Thursday: keeping him invested in the fate of Europe.

Friedrich Merz is the latest in a string of European leaders who have traveled to the White House in recent weeks in a coordinated campaign to cajole Trump into backing new sanctions on Russia, striking a trade deal with the European Union and reaffirming America's security commitment to the region.

Global Markets Are On a Tear. These Stocks in Europe and Japan Are Still Bargains.

Sarah Ketterer hunts the globe for out-of-favor value stocks. It's a strategy that requires patience-not least in the past few years, when the market relentlessly rewarded U.S. growth stocks.

That may be changing. Policy uncertainty in Washington is weighing on the U.S. market while foreign shares leap ahead. The S&P 500 is up just 0.9% this year while the MSCI EAFE index of developed countries has vaulted ahead 17%. A weaker dollar is fueling gains for foreign stocks when translated into U.S. currency, but other tailwinds are helping.

GLOBAL NEWS

Why the S&P 500 Could Hit 6200 Despite a 5% Bond Yield

The S&P 500 could hit 6200-a level never seen before-even if the yield on the 10-year Treasury note reaches 5%.

The general understanding is that higher yields make stocks less attractive, because companies' projected earnings are worth less when measured against these higher rates. The higher yields go, the more favorable Treasury bonds' guaranteed returns look, such as the almost 5% available on the 10-year in 2023.

China Services Sector Picks Up Slightly Despite Lower Orders

A private gauge of China's services sector signaled that activity picked up in May, despite a renewed fall in new export orders.

The Caixin services purchasing managers index rose to 51.1 last month from 50.7 in April, Caixin Media and S&P Global said Thursday. That marked the 29th month above the 50-mark separating expansion from contraction.

Cracks Are Appearing in the Tariff-Era Economy. Think Stagflation.

People watching the U.S. economy received a jolt of reality Wednesday through feedback from the men and women closest to its key growth engine, and from company bosses who manage the country's 170 million-strong workforce.

The message wasn't great. The latest data suggest slowing economic growth with the potential for faster inflation. It could be a toxic combination in that the inflation risk could make it harder for the Federal Reserve to lower rates to prop up the economy as it normally would.

Trump Bans Citizens of 12 Countries From Traveling to U.S.

WASHINGTON-President Trump on Wednesday signed a sweeping travel ban on 12 countries, largely in the Middle East and Africa, and introduced more-limited travel restrictions on seven others, reintroducing a controversial immigration policy that came to define the early days of his first term.

The ban will completely bar travel to the U.S. by citizens of Afghanistan, Myanmar, Chad, the Republic of the Congo, Equatorial Guinea, Eritrea, Haiti, Iran, Libya, Somalia, Sudan and Yemen.

Big Cuts at the Education Department Stall Civil-Rights Cases

WASHINGTON-Much of the nation's apparatus for rooting out civil-rights violations in schools has ground to a standstill because of recent staffing cuts, raising alarm bells across the political spectrum.

The Education Department's civil-rights office investigates and seeks resolution on thousands of complaints involving students with disabilities and those facing discrimination, aiming to avoid the disruption of a student's educational experience. But parents, lawyers and conservative activists say staffing shortages have made it difficult for the office to conduct these complex investigations in an adequate amount of time.

Trump Orders Investigation Into Biden's Actions as President

President Trump ordered an investigation into Joe Biden's actions as president, including his use of an autopen, alleging that his predecessor's aides hid evidence of what he called Biden's "serious cognitive decline."

Trump ordered the White House counsel, in consultation with the attorney general, to review whether Biden's team conspired to deceive the public about his mental state and unlawfully exercise presidential authority. Trump alleged that "Biden's aides abused the power of Presidential signatures through the use of an autopen to conceal Biden's cognitive decline."

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06-05-25 0520ET