EMEA Morning Briefing : Shares Poised to Pull Back

MARKET WRAPS

Watch For:

EU unemployment, CPI; trading updates from Sodexo, Sainsbury

Opening Call:

European stock futures fell early Tuesday, after stock markets rallied Monday on expectations of an anti-far-right alliance in France. Asian stock benchmarks were mixed; the dollar steadied; while oil futures edged higher and gold was little changed.

Equities:

Stock futures point to a pullback on Tuesday after French assets and the euro rallied amid expectations of a French cross-party alliance to deny the far right an overall majority in the second round of the French election.

"Given that the best-case scenario is one in which the government is very weak and only able to muddle through, we suspect that political uncertainty will remain high and that doubts about fiscal sustainability will persist," Capital Economics said.

"In turn, this suggests to us that the discount on French assets is here to stay," Capital Economics added.

Later today, Federal Reserve Chair Jerome Powell is scheduled to speak on a panel at an event hosted by the European Central Bank, alongside ECB President Christine Lagarde.

Forex:

Traders are awaiting cues on monetary policy from Fed Chair Powell along with some other central bank governors who are scheduled to attend the ECB's forum later today.

Also, the U.S. ISM services PMI and employment data will probably be critical for USD this week, Westpac said, noting a mixed profile of recent U.S. data and Fed speakers that have referenced both persistence of inflation risks and potential for lower inflation into year-end.

Bonds:

"Duration continued to sell off across the developed market space [Monday] as market participants further digest political developments in the US and Europe," DBS said.

Part of the selloff was probably driven by belief that the far right is unlikely to gain a majority at the second round of French elections.

DBS noted that there has been some relief with the 10Y Oat-Bund spread narrowing by some 5 bps. "To be sure there are still considerable stresses embedded in the spread but this is unlikely to dissipate meaningfully until the election outcome confirms a gridlocked parliament in France," DBS added.

Energy:

Oil futures rose slightly in Asia on prospects for strength in summer demand.

Global oil demand rises seasonally over the summer months and key exporters--notably in the Middle East and North Africa--are compelled to curb their exports to meet higher domestic consumption, said BMI, a unit of Fitch Solutions. These export declines will probably be particularly pronounced in 2024, with OPEC+ production curbs staying firmly in place, BMI added.

Metals:

Gold was little changed early Tuesday as investors await more U.S. economic data due this week. Given that the precious metal has stayed resilient despite a strong USD, it's reasonable to expect a potential rally to a fresh record high if USD begins to weaken going forward, said Fawad Razaqzada, market analyst at City Index and FOREX.com.

Any further indications from upcoming U.S. data of a weakening economy could boost expectations for more than one Fed rate cut in 2024, he added.

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Copper prices are likely to remain volatile in the short term, Tongguan Jinyuan Futures said. Production remains high in China, but demand remains weak, Tongguan Jinyuan said. China's official manufacturing PMI for June suggested a contraction in activity, which could weigh on demand.

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Iron ore prices gained, supported by slightly better sales in China's property sector last month, ANZ said.

Chinese home sales by the top 100 developers declined 17% on year in June compared with the 33.4% drop in May, official data showed. A slew of property stimulus measures may have supported the recovery in new-home sales, though there still aren't clear signs of sector improvement, Nomura said.

TODAY'S TOP HEADLINES

Why a Potential Trump Victory Is Spooking the Bond Market

Today may be the first day of July, but November is on many investors' minds following last week's presidential debate. Bond yields tell the story.

The rematch that few people wanted between President Joe Biden and former President Donald Trump looks likely to play out in November, and that means markets are scrambling to get ahead of the eventual outcome.

Silver beat gold, copper - and even the S&P 500 - in the second quarter. What's next?

A global supply deficit and bets on rising demand helped silver outpace the gains of gold, copper and other financial assets in the second quarter - and further price appreciation for the white metal looks likely, analysts said on Monday.

Silver lagged gold's performance "pretty aggressively" over the past two years, and now the market is "beginning to embrace not only silver's 'precious' qualities, but its industrial uses as well," John Caruso, senior market strategist at RJO Futures, told MarketWatch.

Shein, Temu Are Swamping Airfreight Capacity, Sending Rates Soaring

Bargain shopping apps Temu and Shein are reshaping the air cargo market out of China, eating up aircraft space at a pace that is driving up freight rates and sparking fears of a capacity squeeze during the busy peak shipping season later this year.

Shipping volumes from China's manufacturing hubs in the south in particular are surging, triggering growing competition for aircraft space. Prices out of the airfreight-heavy region in June were up about 40% from a year ago during what is normally a slack season before business accelerates for the end-of-year holiday shopping period.

The Other Age Issue: Old Voters Are Gaining Power Around World

Last week's presidential debate put the age issue front and center in the U.S. campaign. But there is a different age issue playing out across many Western democracies: a growing bloc of older voters demanding that their needs be met.

Older voters loom large in elections this year in the U.S., U.K. and France. Not only do they turn out to vote more reliably than the young, but they also account for a growing share of the electorate.

NATO to Establish Kyiv Post, and Seeks to 'Trump-Proof' Ukraine Aid

NATO will station a senior civilian official in Kyiv, among a raft of new measures designed to shore up long-term support for Ukraine that are expected to be announced at a summit in Washington next week, U.S. and alliance officials say.

The steps seek to buttress Ukraine's prospects to eventually join the alliance without offering it membership. They come amid a right-wing political surge across Europe and the growing possibility that former President Donald Trump could return to the White House and reduce American support for Ukraine.

Raids Find Luxury Handbags Being Made by Exploited Workers in Italy

A series of raids in Italy has exposed the contrast between the glamorous world of Milan's catwalks and some of the realities of luxury-goods production.

An investigation by Milan prosecutors into working conditions at local factories found workshops making handbags and other leather goods for Dior and Armani used exploited foreign labor to produce the high-end products at a fraction of their retail price.

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Expected Major Events for Tuesday

04:30/NED: Jun Flash Estimate CPI

06:00/ROM: May PPI

07:00/SPN: Jun Unemployment

08:00/ITA: May Unemployment

09:00/EU: May Unemployment

09:00/EU: Jun Flash Estimate euro area inflation

09:00/ITA: 1Q General Govt Quarterly Accounts

10:00/POR: May Industrial production index

15:00/DEN: Jun Foreign Exchange & Liquidity

15:59/UKR: May Industrial Production

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

07-02-24 0016ET