European Midday Briefing : Interest Rates Back in Focus

MARKET WRAPS

Stocks:

European stocks struggled for direction on Tuesday as investor focus again turned to the prospects of further interest rate rises.

"The absolute upside for equity markets is currently constrained by high valuations and the prospects for interest rates to remain higher for longer than the market has been pricing," SPI Asset Management said.

In a speech to the ECB Forum on central banking in Sintra, Portugal, Christine Lagarde said the bank had made significant progress, but faced with more persistent inflation, it couldn't declare victory yet. Track Lagarde's comments here.

However, supporting some risk appetite were comments from China's premier Li Qiang, who said the world's second-largest economy remains on track to achieve its annual growth target of around 5% and that Beijing would roll out policies to expand domestic demand and open markets.

Read China's Premier Confident of Meeting GDP Growth Target

Stocks to Watch

Airbus could deliver roughly 65 aircraft to customers in June, UBS said after factoring in that the plane-spotting community identified 46 deliveries to June 23.

"This is broadly in line with where we would expect Airbus to be in order to meet the FY guidance for 720 aircraft, based on the historical seasonality pattern," UBS said.

The plane-spotting community identified 36 A320s, three A220s, one A330 and six A350s that were already delivered, it noted.

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Daimler Truck's capital markets day on July 11 will likely come with a share-buyback announcement, Stifel said.

The company considers between EUR4 billion and EUR6 billion in industrial net cash a sufficient sum to run its company, but will have about EUR8.3 billion on hand by year's end, it said.

"We believe investors widely anticipate DTG to announce a share buyback program, and we think it could reasonably announce one for EUR2 billion over two years."

That buyback, along with its dividend policy, implies that shareholders will get around EUR2.3 billion per year, or 9% of the market cap, which would mostly be covered by free cash flow, Stifel added.

U.S. Markets:

Stock futures edged higher as investors continued to brush off the weekend's mutiny in Russia, focusing instead on more conventional market drivers.

Investors are watching for clues about the path of interest rates around the world at the ECB annual forum.

Economic updates set for release include durable goods orders for May, the S&P Case-Shiller home price index for April, May new home sales, and the June consumer confidence reading.

Stocks to Watch

Eli Lilly was rising 1% in premarket trading. The company's experimental drug retatrutide in a mid-stage trial helped patients with obesity lose up to 24.2% of their body weight after 48 weeks.

Lordstown Motors, the electric-truck startup, once cheered by investors during the SPAC boom, filed for bankruptcy. Shares were down over 50% in premarket trading. Read more here .

Follow WSJ markets coverage here

Forex:

The euro was firmer in early trading, and the prospect of data on Friday revealing strong eurozone inflation should keep it supported this week, despite signs of a weakening economy, Commerzbank said.

"It is not the economy that is decisive for the ECB's monetary policy decisions but inflation developments," it said, adding that there are concerns that "core inflation will remain stubborn."

Weak German Ifo data followed weaker eurozone purchasing managers' surveys. Growth weakening more than the ECB has projected may cast doubts on an interest-rate rise in September but it's "premature" to bet on a pause yet, Commerzbank said.

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The dollar was softer as equities rose, dampening demand for safe-haven currencies, but investors should be wary of anticipating further declines, ING said.

Focus will now turn to data and further Fed comments for any signs of whether interest rates will rise again after July, ING said.

Friday's U.S. Conference Board consumer confidence, durable goods and Richmond Fed manufacturing index data are likely to be relatively strong.

Meanwhile, a speech by Powell on Wednesday is unlikely to contain a "dovish turn" and therefore "an acceleration in the dollar decline does not seem very likely."

Read Morgan Stanley Now Sees Fed Hike in July

Bonds:

Central bank comments from Sintra will dominate Tuesday's eurozone government bond trading as the yield curve keeps hitting new extremes, Commerzbank said.

"The euro curve inversion keeps hitting new superlatives with front-end forwards till glued on a 4% depo rate (almost fully priced for October) while macro data keeps disappointing," the bank said, referring to the release of German Ifo business sentiment index on Monday.

However, this dynamic is unlikely to change a view of Sintra and eurozone inflation later this week, it added.

Read Tighter Eurozone Bond Spreads Signal Affordability of Funding Costs

Read Italian BTP-German Bund Yield Spreads Resist Hawkish ECB Stance

Energy:

Oil prices rose but remained largely rangebound, as concerns over demand counter uncertainty in Russia.

Economic concerns have continued to tamp down crude prices. Meanwhile, the aborted mutiny in Russia has added only a modest risk premium to prices, analysts said.

"The more hawkish tone from the Fed appears to be capping oil prices and the broader commodities complex, while there remain broader concerns over China's economic recovery," ING said.

Metals:

Base metals and gold pushed higher, as the dollar faltered, helping provide a tailwind for industrial goods.

Markets largely remained focused on Russia, but ING noted that copper spreads in London were strengthening, with material available for prompt delivery in short supply.

DOW JONES NEWSPLUS

EMEA HEADLINES

Aston Martin Says It Is on Track to Meet Financial Targets; Plans $2.5 Bln in New Investment

Aston Martin Lagonda Global Holdings said Tuesday that it is on track to deliver on its 2024-25 financial targets and set out a range of new targets for 2027-28, and said it expects to invest around 2 billion pounds ($2.54 billion) over the next five years.

The luxury car maker said ahead of its capital markets day that it expects to meet its near-term targets of GBP2 billion in revenue and around GBP500 million in adjusted earnings before interest, taxes, depreciation and amortization by 2024-25. The company said it expects to achieve the targets in 2024, and with persistent momentum, is likely to exceed them in 2025.

U.K. Shop-Price Inflation Falls in June on Cheaper Staples, Report Says

Shop-price annual inflation in the U.K. decelerated in early June on the back of cheaper fresh food as retailers cut prices of many staples such as milk, cheese and eggs, the latest report by NielsenIQ and the British Retail Consortium said Tuesday.

Prices at U.K. stores in the period June 1 to June 7 were 8.4% higher on year, but lower than May's record high of 9.0% and below the three-month average rate of 8.7%, the report showed.

Russia Set to Overtake Saudi Arabia in Battle for China's Oil Market

Russia is on the cusp of overtaking Saudi Arabia as the biggest oil supplier to China, in a shift that shows the limits of the kingdom's influence over global markets that have been turned upside down by the Ukraine war.

Since the beginning of the war, Saudi Arabia has been steadily losing market share in China-the world's biggest energy market-thanks to Russia selling its oil at steep discounts. A production cut from Saudi Arabia earlier this month didn't have the desired effect of boosting prices to compensate for the dip in demand.

GLOBAL NEWS

Japan Finance Minister Calls Yen's Moves 'One-Sided and Rapid'

TOKYO-The current movement of the yen-dollar exchange rate is "one-sided and rapid," Japan's minister of finance Shunichi Suzuki said Tuesday.

The yen was trading at about 143.38 to the dollar midday in Tokyo Tuesday, weaker than around 140 to the dollar earlier this month.

The Stock Market Isn't as Calm as It Seems

Don't be fooled by the sleepy stock market.

Stocks have quietly climbed through the first half of the year, sending the S&P 500 up 13% and measures of market volatility to depths not seen since before the start of the Covid-19 pandemic.

Private-Equity Giants Settle for Bite-Size Deals

Megadeals are out. Little deals are in.

Blackstone, KKR and other buyout giants are using their record war chests to snap up smaller companies in deals that typically are easier to accomplish in an era of soaring borrowing costs and economic uncertainty.

Montana Emerges as Early Test of Republicans' Senate Election Strategy

WASHINGTON-Senate Republican leadership is taking an early stand in the Montana primary to try to help the party win back the majority in 2024 after a dispiriting result last year.

Steve Daines (R., Mont.), the head of the Senate Republicans' campaign arm, threw his support behind military veteran and businessman Tim Sheehy, who announced Tuesday that he would run for Senate in the state. His entrance could put the party on course for a contentious primary fight.

Ron DeSantis Asks Judge to Toss Disney's Lawsuit

Florida Gov. Ron DeSantis on Monday asked a federal judge to toss out Walt Disney Co.'s lawsuit against him and another state official, arguing the company lacks standing to sue them.

The motion to dismiss the case marks the latest move in the long-running battle between the entertainment giant and the 2024 Republican presidential candidate. In dueling lawsuits in federal and state courts, DeSantis and Disney are locked in a fight over corporate power, governmental control and freedom of speech.

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06-27-23 0609ET