EMEA Morning Briefing : Markets Brace for Double Header of U.S. CPI, Fed Decision

MARKET WRAPS

Watch For:

Germany CPI; UK monthly GDP estimates, trade, industrial production; no major corporate events expected

Opening Call:

European stock futures rose as U.S. CPI and the Fed decision due later today keep traders on edge. Asian stock benchmarks fell; the dollar edged higher; Treasurys steadied; while oil and gold futures advanced.

Equities:

Stock futures rose early Wednesday as markets gear up for a big day with a double bill of key U.S. inflation data and the Federal Reserve's interest-rate decision.

Investors see almost no chance that the Fed will cut rates this week but are eagerly anticipating the release of the so-called dot plot, which shows the anonymous rate forecasts of individual Fed officials.

The last dot plot, released in March, showed a median forecast of three rate cuts this year.

"My sense is that it'll come down to two," said Rick Rieder, BlackRock's chief investment officer of global fixed income and head of the firm's global allocation investment team. But "it's a very close call," he noted, with Fed officials "mixed in terms of their disposition" - meaning projections could point toward just one rate cut.

Forex:

USD edged higher ahead of the FOMC decision, at which the U.S. central bank is widely expected to keep rates unchanged. However, the FOMC's dot plot is likely to remove one, possibly two, projected rate cuts slated for 2024, said CBA.

If the FOMC removes two rate cuts from the dot plot, it could have a large positive impact on markets in terms of supporting USD and Treasury yields, CBA added.

Bonds:

There are opportunities for investors in longer-dated bonds in the U.S. despite higher prices, said Chris Siniakov, Franklin Templeton's managing director of fixed income Australia. He said that although the U.S. presidential election is in its early stages, the key issue is the increasing focus on fiscal considerations in global financial markets.

Franklin Templeton sees that overall duration can provide a hedge against market volatility.

Energy:

Oil futures rose in Asia. The latest report from the U.S. Energy Information Administration projects global oil consumption to rise by 1.1 million barrels per day in 2024, with demand revised higher for Asian countries excluding Japan, a bullish indication for demand in the region, StoneX Market Intelligence said.

WTI crude oil prices are expected to hit their highest level in 1Q 2025 and to hover between $78-$80/bbl in 2024, StoneX estimated.

Metals:

Gold pushed higher early Wednesday, holding firmly above the $2,300/oz level ahead of U.S. CPI data and the Fed decision later in the day.

Strong demand for U.S government bond issuance saw U.S. yields fall across the board, ANZ said. This triggered hopes that the U.S. CPI reading will support the case for Fed rate cuts this year, ANZ added.

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It isn't too surprising to see iron-ore prices fall back into the $100--$110/metric ton range, said Commonwealth Bank of Australia analyst Vivek Dhar, who reckons such prices align with trends in Chinese steel demand and output, which have been fairly flat.

"The risk that iron-ore prices track sustainably above $110/ton is likely tied to actual and anticipated announcements to stimulate China's commodity--intensive economy," he said. Infrastructure spending announcements could happen toward year-end if China appears to be falling short of growth targets, he said.

"Conversely, we think iron ore prices will struggle to sustainably remain below $100/ton given seaborne supply will likely exit the market below these levels," Dhar said.

TODAY'S TOP HEADLINES

Interest Rates Are Starting to Come Down. Why the Fed Won't Join the Party.

For the first time in memory, the Federal Reserve appears at odds with many of its peers across the world.

It is preparing to disappoint investors once again Wednesday by pushing the first interest-rate reductions since the Covid-19 pandemic further out on the horizon.

How the stock market performs when a CPI report and a Fed decision happen the same day

Wall Street is gearing up for a rare double feature of market-moving economic events on Wednesday, with the May consumer-price index due in the morning and the Federal Reserve's policy announcement in the afternoon.

CPI days and Fed decision days both have a reputation for market volatility, but they rarely coincide. The CPI report and the Fed's policy meeting have fallen on the same day only 13 times since 2008, according to Dow Jones Market Data.

French Startup Mistral AI Raises $650 Million in Bid to Scale Up

Mistral AI raised EUR600 million ($646 million) from Nvidia, Salesforce and other investors as the French startup looks to gain scale in a market dominated by ChatGPT maker OpenAI and Silicon Valley giants.

The announcement comes a month after The Wall Street Journal reported that Mistral AI was nearing a deal to raise funds at a roughly $6 billion valuation, handing the French startup added fuel to challenge big tech firms in the artificial-intelligence race.

Container Lines' Shares Tumble on Possible Easing of Red Sea Hostilities

Shares in shipping and logistics providers came under heavy selling pressure Tuesday as investors digested news of a possible cease-fire between Israel and Hamas, which could see containerships return to the Red Sea and send freight rates lower.

Houthi rebels in Yemen began attacking commercial vessels in the Red Sea in December last year in response to the war between Israeli forces and Hamas in the Gaza Strip, forcing containership operators to take longer, more expensive routes around southern Africa's Cape of Good Hope to avoid the region.

How Ambitious Plans for a Floating Aid Pier off Gaza Fell Apart

LARNACA, Cyprus-In a large multistory warehouse, food intended to help stave off famine in Gaza sits alongside cases of Corona, Stella and Brooklyn Lager.

The aid pallets with food, each with a label of the organization that provided them, are wrapped in either black or clear cellophane for the approximately 36 hours of sea travel to the U.S.-built temporary pier off Gaza. Many of the roughly 4,000 pallets have been sitting here in commercial warehouses for weeks, some covered in a layer of dust, waiting to be delivered.

Amazon to Invest Billions in Taiwan Cloud Infrastructure

Amazon.com will invest billions of dollars in Taiwan over the next 15 years to build data centers, the latest global technology company to boost its footprint in Asia to meet the region's growing cloud-service demand.

Amazon Web Services, the Seattle-based tech giant's cloud-computing arm, said late Tuesday that it will launch an AWS infrastructure region in Taiwan by early 2025.

Elon Musk's Boundary-Blurring Relationships With Women at SpaceX

When Elon Musk personally contacted a former SpaceX engineering intern to discuss a role on his executive staff in 2017, the woman spoke with excitement to her friends about a high-profile problem-solving role at the rocket company, a dream for someone a few years out of college.

She and Musk had met years earlier during her internship, when she was still in college. She'd approached him with ideas for improving SpaceX. Her outreach had led to a date, which led to a kiss, and eventually sex, she told friends. The year after her internship, the billionaire had the fresh college graduate flown out to a resort in Sicily, before they ended things, according to documents reviewed by The Wall Street Journal.

Elon Musk Withdraws Suit Against OpenAI, Sam Altman

Elon Musk filed to withdraw his lawsuit against OpenAI and its chief executive, Sam Altman, the latest twist in the billionaire's feud with his former co-founder as they vie for dominance in the artificial intelligence arms race.

Musk alleged in the lawsuit that OpenAI had broken its founding agreement by prioritizing profit over the technology's potential benefit to humanity. On Tuesday, a lawyer representing Musk filed a request for dismissal of the lawsuit without prejudice in a California court.

Oracle's stock soars as upbeat guidance, Google deal outweigh earnings miss

Oracle Corp. shares were shooting more than 9% higher in Tuesday's extended session after the company delivered upbeat guidance that seemed to overshadow an earnings miss for the latest quarter.

The software company reported fiscal fourth-quarter net income of $3.14 billion, or $1.11 a share, compared with $3.32 billion, or $1.19 a share, in the year-earlier period. On an adjusted basis, Oracle ORCL earned $1.63 a share, whereas analysts tracked by FactSet were expecting $1.65 a share.

What the Apple-OpenAI Deal Means for Four Tech Titans

OpenAI's deal with Apple is shaking up the competitive balance in the artificial intelligence race.

The new agreement, announced Monday, gives the startup an important role in Apple's push to bring AI to its vast population of users. At the same time, Apple rival Microsoft-OpenAI's most important big tech partner-is also trying to make headway in consumer AI. The OpenAI-Apple collaboration deals a setback to Google, which has long paid Apple billions of dollars a year to be its default tool for internet searches.

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Expected Major Events for Wednesday

05:00/FIN: Apr Balance of Payments

06:00/ROM: May CPI

06:00/GER: May CPI

06:00/UK: Apr Index of Production

06:00/UK: Apr UK trade

06:00/UK: Apr Index of services

06:00/UK: Apr Monthly GDP estimates

07:00/SVK: Apr Construction production

08:00/EU: May Long term interest rates statistics

08:00/FRA: Jun IEA Oil Market Report

10:00/FRA: 1Q OECD Quarterly National Accounts G20 GDP growth

11:30/UK: May NIESR Monthly GDP Tracker

16:59/GER: Apr Balance of Payments

23:01/UK: May RICS Residential Market Survey

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06-12-24 0017ET