MARKET WRAPS
Stocks:
Stocks in Europe drifted lower on Thursday after the Federal Reserve signalled it could deliver two more interest rate increases this year even as it paused its rate rise cycle.
The Fed's suggestion of more rate rises has taken some wind from investors sails, Interactive Investor said.
"The overall conclusion that the fight against inflation remains live will likely rekindle concerns over the possibility of recession should the Fed overtighten, with the central bank very much keeping its options open."
Further damping sentiment was news from China, where retail sales and industrial production data showed the world's second biggest economy continues to struggle in sustaining its post-Covid lockdown rebound.
The PBOC reacted by cutting its key policy rate for first time in nearly a year, but assets sensitive to perceptions of China demand, were still under pressure.
Read China Cuts Rates to Prop Up Flagging Recovery
And traders will have to contend with more monetary policy action when the European Central Bank is expected to increase its key rate by a quarter-point, taking rates to 3.5%.
Christine Lagarde will start a press conference half an hour after the decision and the market will be keen to see if she continues to warn of more tightening ahead.
Stocks to Watch
Inditex's unique business model makes it an attractive investment, Bernstein said, starting coverage of the fashion retailer with an outperform rating and a EUR38 target.
The Zara owner has carved out a place at the top of fashion retail thanks to its near-shore sourcing and rapid adaptation to trends, Bernstein added.
Inditex has also proved strong in both physical stores and online, giving it a healthy balance sheet and room for growth in various markets, Bernstein said, noting its strong business and financial fundamentals and an attractive valuation.
U.S. Markets:
Stock futures traded slightly lower extending Wednesday's modest, post-Fed losses.
Yields on U.S. government bonds ticked up. The yield on the benchmark 10-year Treasury note rose to 3.817%, from 3.796% on Wednesday. The yield on the more policy-sensitive two-year note rose to 4.720%, from 4.707%.
A batch of data on Thursday will provide some fresh perspective on the health of the U.S. economy.
The weekly initial jobless claims report will be published ahead of the opening bell alongside May retail sales and import prices, and the June Empire State and Philadelphia Fed manufacturing surveys.
Industrial production and capacity utilization numbers for May will be released later in the session at 9:15 a.m., all times Eastern.
Stock on the Move
Lennar reported better-than-expected fiscal second-quarter earnings and revenue. The home builder said it sees fiscal third-quarter deliveries in a range from 17,750 to 18,250 homes, higher than forecasts. The stock was up 2.2% in premarket trading.
ADRs of XPeng were up 2% after the Chinese electric-vehicle maker said it has received approval to launch its assisted-driving technology on major ring roads and expressways in Beijing.
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Forex:
A widely expected interest rate rise by the ECB is unlikely to move the euro much, but new inflation forecasts could have a major impact, Commerzbank said.
The headline inflation forecast for 2025 could be downwardly revised to the ECB's 2% target, unlike the Fed's projections on Wednesday that showed inflation remaining above 2% in 2025, Commerzbank said.
"This could argue for an end to interest rate hikes in the euro-area in the near future."
That would likely weigh heavily on the euro, particularly after the Fed signalled two further rate rises, Commerzbank said.
Read Euro Could Edge Lower as ECB Is Unlikely to Deliver Hawkish Surprise, Says ING
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The dollar gained after the Fed's so-called "dot-plot" guidance showed most policymakers expect two more 25 basis-point rate increases this year.
The dot plot created a gap between the rate path expected by the market and the rate path expected by the Fed, Commerzbank said.
However, this gap is typical and the market is used to expecting more rapid rate cuts than the Fed, it added.
"That is why yesterday's FOMC decision was certainly not USD negative, but nor was it a game changer that would justify a complete revaluation of the [dollar]."
Read Dollar's Gains May Be Limited as End of Fed Rate Rises Looms, Says MUFG Bank
Bonds:
Eurozone government bond yields opened higher after the Fed signaled more rate rises to come, with many market participants interpreting it as a "hawkish hold" which could put some upward pressure on yields.
"The Fed delivers a hawkish pause with dots again detached from forwards...[it] did not live up to hopes of a more dovish tone, which came up with softer PPI ahead of the decision," Commerzbank said.
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Mizuho said the ECB's rate-rising cycle is mostly done and it sees value in fading any selloff that might materialise in front-end EUR rates after Thursday's policy meeting and in the coming weeks.
"We would look to buy two-year German bonds on any retracement above 3%, " Mizuho said, which expects a 25bp rate rise later on Thursday, in line with the market consensus.
Read Breaching 2.50% in 10Y Bund Yields Seen a Buying Opportunity, Says Jefferies
Energy:
Crude oil prices inched higher, clawing back some of the post-Fed losses.
Peak Trading Research called the Fed move a "hawkish pause", saying oil remained under pressure.
"This puts a floor under the dollar, a headwind for our commodity markets."
Read Thermal Coal, LNG Prices May Be Near Bottom
Metals:
Base metals and gold fell more than 1% in reaction to the Fed indicating more rate hikes were possible this year.
"Industrial metals demand is expected to remain under pressure amid rising economic headwinds," ANZ Research said, also citing rising Treasury yields and the stronger dollar as headwinds.
DOW JONES NEWSPLUS
EMEA HEADLINES
Siemens to Boost Manufacturing Capacity With $2.17 Bln Investments
Siemens set out plans to invest 2 billion euros ($2.17 billion) to boost manufacturing capacity this year, pledging to develop a high-tech plant in Singapore and expand its digital factory in Chengdu, China, to tap growth opportunities in digitalization and automation.
The German industrial conglomerate said Thursday that it would pour around EUR200 million into its new Singapore facility, creating more than 400 jobs. The company will also invest EUR140 million to expand its digital factory in Chengdu, adding another 400 jobs.
Hugo Boss Targets China Growth as It Sets Higher Midterm Targets - Update
Hugo Boss is aiming to grow fastest in Asia-Pacific and especially China over the next few years, the German fashion company said Thursday, setting out higher revenue and earnings targets between now and 2025.
Asia-Pacific sales should rise in the teens of percent annually, compared with single-digit growth in the EMEA region, Hugo Boss's largest market, and the Americas, the company said. As a share of revenue, Asia-Pacific sales should reach around 20% from 13% currently, climbing to some 1 billion euros ($1.08 billion) by 2025, Hugo Boss said.
H&M 2Q Sales Increased 6% on Year, Shy of Forecasts
Sweden's H&M Hennes & Mauritz on Thursday reported fiscal second-quarter sales that were slightly below expectations.
The fashion retailer said sales for the quarter ended May 31 increased by 6% on year to 57.62 billion Swedish kronor ($5.38 billion), while net sales in local currencies were "flattish".
Legal & General Names Antonio Simoes as New CEO
Legal & General on Thursday named Antonio Simoes as its incoming chief executive officer, and said it expects him to formally take over the role on the first day of 2024.
The FTSE 100-listed insurance company said Simoes will join from Banco Santander, where he has been regional head of Europe since September 2020, leading the bank's businesses in the U.K., Spain, Portugal and Poland. Prior to Santander, Simoes spent 13 years at HSBC, including as CEO of U.K. and Europe, and latterly CEO of Global Private Banking.
Saudi Arabia Sought to Push Oil Prices Higher. Markets Had Other Ideas.
Saudi Arabia's move to reduce crude output was designed to prop up global oil markets. The past week has shown how difficult that will be.
Prices have fallen in four of the past five sessions and are now hovering near 2023 lows, with traders parsing better-than-expected production by sanctioned countries including Russia and Iran and fears of an international industrial slowdown that could slow growth in fuel demand.
Russia's Big Economic Problem: Not Enough Workers
The war in Ukraine has fueled Russia's worst labor crunch in decades after hundreds of thousands of workers fled the country or were sent to the front lines, weakening the foundations of an economy weighed down by sanctions and international isolation.
Two waves of emigration last year, the largest since the collapse of the Soviet Union, and the mobilization of around 300,000 men have exacerbated an already tight labor market, plagued by long-term demographic decline. That has left Russian businesses short of everyone from programmers and engineers to welders and oil drillers, professions needed to boost the economy and support the war effort in Ukraine.
The Shoulder-Fired Missile Making a Comeback
A shoulder-fired missile that can travel over three times the speed of sound is being brought back into production after its deployment in Ukraine revived interest in the weapon.
Thales, the French defense and technology giant, is restarting production of the Starstreak for the first time in more than a decade as Ukraine uses the superfast air-defense system to help repel Russian attacks.
GLOBAL NEWS
Fed Holds Rates Steady but Expects More Increases
(MORE TO FOLLOW) Dow Jones Newswires
06-15-23 0536ET
