MARKET WRAPS
European shares were rising Thursday, lifted by energy stocks as investors looked past renewed tensions in the Middle East
and toward the European Central Bank's expected rate decision.
A 25-basis-point interest-rate hike seems a foregone conclusion , according to Metzler, adding that the more crucial question is the signal this will send regarding the future.
"We don't expect any clear indications from the projections in this regard, as inflation forecasts for 2026 and 2027 are likely to be revised upwards, while growth forecasts are expected to be revised downwards."
Jefferies, like Metzler, believes any further increase in interest rates
would come in September.
"In an optimistic scenario, war would be over and oil prices close to $80 by then, which would reduce the need for another hike."
The ECB's main concern
is that a short-term energy shock becomes a longer-lasting inflation problem, eToro said.
"Higher oil and gas prices could feed into wider price pressure if consumers start to expect inflation to stay higher, workers push for higher wages, and companies pass on rising costs. For markets, this brings back the risk of 'higher for longer' rates in Europe."
According to iCapital, the interest-rate hike the ECB is set to deliver Thursday is more symbolic than problematic , and aims to maintain the bank's credibility in the fight against inflation.
Approaching midday the FTSE 100, the CAC 40 and the DAX were in positive territory and the pan-Europe Stoxx 600 index was up.
U.S. Markets:
Stock futures pointed to a higher open Thursday, recovering some ground lost after the conflict with Iran and inflation weighed on equities in the prior session.
Forex:
The euro
rose modestly against the dollar as Europe's central bank was widely expected to raise interest rates.
The ECB is unlikely to signal more rate rises than already anticipated as oil prices are well past the peak and inflation expectations have corrected slightly downward, Commerzbank said.
"For the euro, this means that risks are likely to be skewed to the downside today."
It added the euro would likely
recover slowly
versus the dollar if the U.S. and Iran soon reached a deal to resolve the conflict.
The dollar
traded steady against a basket of currencies as investors considered the latest developments in the Middle East and digested Wednesday's U.S. inflation data.
Sterling
rose against the dollar and was flat against the euro. The currency was likely to trade on external factors Thursday given an empty U.K. calendar, Monex Europe said.
The ECB's policy decision at 1215 GMT, U.S. wholesale inflation data at 1230 GMT and headlines on the Middle East conflict will likely drive sterling's performance.
"We continue to look for [the sterling-dollar exchange rate] to hold a tight, dollar- and oil-led range with a downside bias."
Bonds:
Eurozone bond yields
responded to oil prices, while investors focused on the ECB's upcoming rate decision.
"For markets, the key question is how this move is framed: 'one and done' or the beginning of a tightening cycle," Barclays Private Bank said.
Treasury yields were stable
as a fragile U.S.-Iran ceasefire remained in place despite the recent bout of fresh escalation.
"Despite this escalation, price action through the night has been relatively modest although Brent crude is moving higher," Danske Bank said.
A 25-basis-point interest-rate hike, emphasizing data-dependence, by the European Central Bank is well priced in and is supportive for a small rally in euro rates , TD Securities' rates strategists said.
Yields on U.K. government bonds
climbed after the U.S. and Iran attacked each other Wednesday, raising concerns about an escalation in the conflict. Renewed fighting led to higher oil prices, causing investors to price in inflation risk.
Government bond supply in the eurozone
is set to slow on Thursday, rounding off a heavy week of issuance. Only Italy is set to conduct an auction, launching a new three-year nominal government bond.
Energy:
Oil prices
fell in early European trading despite a fresh wave of attacks between the U.S. and Iran which dimmed hopes for a near-term resolution of the conflict.
"What is clearer is that the probability of a near-term deal has narrowed from our prior assessment of around 40% a few weeks ago. The direction of travel is now more uncertain, and the next few days will be critical in determining whether diplomacy can reassert itself or whether the conflict moves into a more sustained escalation cycle," Rystad Energy said.
It added oil could rise to $150 a barrel
if the U.S. and Iran were to fully resume hostilities.
Metals:
Gold prices
continued to retreat as investors assessed the U.S. monetary policy outlook.
In early trading, New York futures fell Thursday and were down more than 8% on the week.
"While geopolitical uncertainty and central bank buying continue to offer longer-term support, near-term price direction is likely to remain closely tied to U.S. economic data, Treasury yields and expectations for Federal Reserve policy," ING said.
While spot gold prices may face near-term struggles amid oil-driven volatility, structural demand for metal persists , State Street Investment Management said.
Gold is likely a potential hedge against duration exposure and currency debasement, as debt and inflation keep long-term yields higher. Global demand for physical gold, meanwhile, from Chinese retail to central banks could further support prices, it said. Spot gold was 0.7% higher at $4,100.44 an ounce.
EMEA HEADLINES
Halma Shares Drop After Guidance Disappoints
Halma shares fell to the bottom of the FTSE 100 after the company issued guidance for the year ahead that pointed to a smaller boost from its photonics business, which is booming due to data-center demand.
Shares in Halma were down 11% in European morning trading Thursday, erasing part of the stock's gains over the past few months to leave it up 17% since the start of the year. If sustained until close, this would be the worst one-day percentage fall for Halma's shares since March 2020, at the height of the Covid-19 pandemic.
Hugo Boss Targeted for Takeover, Boosting Shares
Shares in Hugo Boss climbed after Mike Ashley's Frasers Group said it would launch a cash offer of around 1.98 billion euros ($2.29 billion) to take full control of the German premium-apparel company.
The U.K. group said late Wednesday that it would offer EUR38 a share for the approximately 74% stake it doesn't already own.
Wizz Air Withholds Guidance Due to Middle East Conflict
Low-cost carrier Wizz Air posted a slump in net profit for its fiscal year through March and said it wasn't providing guidance for fiscal 2027 due to uncertainty stemming from the conflict in the Middle East.
The London-listed airline on Thursday said that while it wouldn't provide full guidance for the year, it expected capacity growth of 15% in the first quarter and 20% in the second.
Flutter Expects Up to 100,000 World Cup Bets a Minute
The 2026 FIFA World Cup kicks off Thursday, and Flutter, the largest betting brand in the world is preparing to handle an avalanche of wagers on the tournament. At peak times, the firm says it expects to manage 100,000 bets a minute.
According to FIFA, the 2022 World Cup final was watched by nearly 1.5 billion fans, about a fifth of the world's population. Barron's has reported that the future of sports betting in the U.S. looks uncertain, but the global nature of the World Cup makes Flutter a clear beneficiary of the betting bonanza.
GLOBAL NEWS
China Is Propping Up the World Economy by Importing a Lot Less Oil
A sharp fall in China's crude oil imports during the Iran war has been instrumental in holding down oil prices and keeping the global economy humming.
Clues are emerging in the mystery of the missing three million barrels-the oil that China would normally be importing but isn't now. Chinese people are driving fewer gasoline-powered cars and taking trains instead of planes. The country is dialing back operations at the plants that turn crude oil into feedstock for materials such as plastics. And Beijing is beginning to draw down reserves.
Despite U.S.-China Truce, American Companies See Little Improvement in China
President Donald Trump and Chinese leader Xi Jinping's truce and talk of stability aren't giving U.S. companies operating in China much solace. The annual survey by the U.S.-China Business Council released Wednesday found that 80% of companies think the business climate hasn't improved or has deteriorated. It also reflected increased worries about eroding U.S. competitiveness.
Among the 175 U.S. companies surveyed by the group in February and March, U.S.-China relations-with tariffs, export controls, and investment restrictions-topped the list of concerns, with more companies this year citing them as an issue than a year ago, despite the detente. Only 13% of the companies surveyed said the improvement in ties was sufficient to change investment plans; 87% said it wasn't enough or that they remain in wait-and-see mode.
Bondholders Want Fed to Focus on Inflation. Warsh Ignores Them at His Peril.
Kevin Warsh pitched cutting interest rates before his nomination, and later used the confirmation hearing to call for shrinking the Federal Reserve's massive $6.7 trillion balance sheet. The newly installed chairman of the Fed is unlikely to do either in his early days.
The U.S. spends close to $2 trillion more than it collects each year. The people plugging this shortfall are buyers of U.S. debt. They are getting impatient with the Fed's inability to control inflation that has contributed to rising yields and sinking bond prices.
World Cup Puts Mexico's Cartel Crisis on the Global Stage
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06-11-26 0518ET
