EMEA Morning Briefing : All Eyes on Fed Decision

MARKET WRAPS

Watch For:

EU industrial output, long-term interest rates statistics; Germany WPI; UK monthly GDP estimates, trade, index of services, index of production, business finance review, NIESR monthly GDP tracker; trading updates from Siemens, EDF, Shell, IAG

Opening Call:

European shares may open lower ahead of the Fed decision later today. In Asia, stock benchmarks advanced; the dollar weakened slightly; Treasury yields mostly fell; while oil futures were mixed and gold rose.

Equities:

Stock futures point to declines at the open in Europe on Wednesday. Focus is on the Federal Reserve, which many investors expect will pause interest-rate hikes after 10 consecutive increases. The European Central Bank will follow suit with its own rate decision on Thursday.

In markets that strive to anticipate such rate paths by parsing minute changes to policy statements and Fed Chair Jerome Powell's news conferences, many central-bank watchers expect a "hawkish pause" today.

That could signal additional hikes ahead that some investors fear could weigh on companies' bottom lines and share prices, if not raise the risk of a U.S. recession.

"We're not at a point of easing yet," said Eddy Vataru, chief investment officer of Total Return at Osterweis. "We're not going to be for a while."

Investors are betting that there is a better-than-60% chance the central bank raises rates again at its meeting in July, according to CME Group.

As some Fed officials in recent months have suggested they are considering a rate pause, Vataru has added to the duration of his firm's holdings in U.S. Treasurys and bonds backed by agency mortgage loans from government-owned lenders Fannie Mae and Freddie Mac.

"When the Fed is closer to done or they are done, that's a green light to be long duration or long bonds," he said.

If the Fed does pause its interest-rate hike on Wednesday, "it won't be surprising" to see some pullback of stocks, especially if the Fed officials stay hawkish in their statements, according to James Ragan, director of wealth management research at D.A. Davidson.

It is important to watch Wednesday what Fed officials, including Powell, say about recent economic data and the path of the key policy rate by the end of this year, noted Ragan.

Forex:

The dollar edged lower in Asia. The slowing of U.S. inflation in May and China's monetary stimulus on Tuesday are providing a positive backdrop for risk assets ahead of the FOMC decision later, ING said.

Bonds:

Treasury yields were slightly lower early Wednesday after the two- and 10-year yields jumped overnight following U.S. CPI data.

"Both 'headline' and 'core' inflation were 'as advertised' and thus the Fed is clear to skip and assess. Still, some elements of the inflation report suggest some stickiness remains and thus a pivot remains increasingly unlikely," said George Mateyo, chief investment officer of Key Private Bank.

Data released on Tuesday showed consumer prices rose a scant 0.1% in May and that the yearly rate slowed to 4%, marking the lowest level since March 2021.

"This will provide sufficient air cover for the Fed to pause in raising interest rates this month, exactly what the markets are hoping for," Mateyo said.

Energy:

Oil futures were mixed early Wednesday, after front-month contracts of both Brent and WTI rose markedly overnight.

However, the disinflation process appears intact, said Edward Moya, senior market analyst at Oanda, noting the benign U.S. consumer-inflation report.

This could mean USD's days are numbered, which would offer some support for oil prices, Moya added.

Metals:

Gold futures rose slightly in Asia ahead of the FOMC meeting's outcome later today.

Gold has spent the past four weeks consolidating in a tight $50 range centered around $1,960/oz, said Matthew Weller, global head of research at https://urldefense.com/v3/__http://FOREX.com__;!!F0Stn7g!Bn2gdvDqqiNcM2xsofvKx3X-PbnZX4AgQNOiErqM8xz-R2Zj5hPDLktn3SUGTH2HKZ5xb76L5ikHWRu63y8-i7lic5qs9ryoWEbZLRaQTLg$ and City Index.

A more-hawkish-than-expected FOMC meeting would probably be bearish for gold, and a break below support near $1,930/oz could swiftly expose 61.8% Fibonacci retracement near $1,910/oz, Weller said.

However, a more dovish outlook that suggests the rate-increase cycle may be finished could lift gold to the top of its recent range near $1,980/oz or even toward $2,000/oz into next week, Weller added.

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Aluminum prices edged higher amid supply issues for the base metal.

Smelters in China are suffering from a power shortage in Yunnan amid a lack of rainfall, as most of the region's electricity supply is powered by hydropower, said ANZ.

In the meantime, aluminum inventories have also fallen around 60% since March, ANZ added.

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Chinese iron-ore futures rose, extending Tuesday's gains after the PBOC unexpectedly cut key policy rates Tuesday.

Investors are now expecting Beijing to issue more supportive policies to boost the economy.

The main theme boosting markets has been the current easing, with further supportive policies expected ahead, Everbright Securities said.

TODAY'S TOP HEADLINES

Stock-Market Bulls See Room to Run

Stock-market bulls are in the driver's seat in the midst of a busy stretch that features key economic data and the Federal Reserve's next interest-rate decision.

The S&P 500 entered a new bull market last week after rising more than 20% from its October low. The bear market, which lasted 248 trading days, was the index's longest since 1948, according to Dow Jones Market Data. It is up 14% in 2023.

U.S. Warned Ukraine Not to Attack Nord Stream

The U.S. Central Intelligence Agency warned the Ukrainian government not to attack the Nord Stream gas pipelines last summer after it obtained detailed information about a Ukrainian plot to destroy a main energy connection between Russia and Europe, officials familiar with the exchange said.

The message, delivered by CIA officials in June, followed a tip the CIA received from the military intelligence service of the Netherlands, these officials said.

France Accuses Russia of Spoofing Foreign Ministry Website in 'Typosquatting' Campaign

PARIS-France says its Foreign Ministry website was spoofed by Russia as part of a sprawling online campaign to spread false anti-Western propaganda aimed at weakening support for Ukraine.

The French Foreign Ministry on Tuesday said that Russian individuals and companies were tied to the creation in late May of a fake version of the ministry website to publish a false announcement of a "security tax" to support the war in Ukraine. The ministry said it quickly was able to get the site and others removed by appealing to the companies that were responsible for selling the domain names they used.

Amazon Web Services Outage Disrupts Some Customers

Amazon Web Services experienced a partial outage for nearly four hours on Tuesday, creating "increased error rates and latencies," according to the company's health dashboard.

The issue was resolved by Tuesday evening.

Nvidia Joins $1 Trillion Club, Fueled by AI's Rise

Nvidia ended trading Tuesday with a valuation of more than $1 trillion, becoming the seventh U.S. company to reach that status.

Shares of the chip maker have risen 181% this year, fueled by the boom in artificial intelligence that Chief Executive Officer Jensen Huang recently said was ushering in "a new computing era."

Salesforce Aims to Plug 'AI Trust Gap' With New Tech Tools

Salesforce says its new technology will help client companies use generative AI tools such as ChatGPT safely by protecting proprietary data, among other things.

For Salesforce, convincing information-technology leaders that generative artificial intelligence is safe to use within their digital corporate walls is crucial as it seeks to sustain a turnaround plan that began this year. Its most recent earnings and revenue topped Wall Street expectations, with Chief Executive Marc Benioff highlighting the company's cost-cutting efforts as it copes with a recent sales slowdown and pressure from activist investors.

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Expected Major Events for Wednesday

04:30/NED: Apr International trade

05:00/FIN: May CPI

05:00/FIN: Apr Retail sales

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

06:00/SWE: May CPI

06:00/GER: May WPI

06:00/ROM: Apr Industrial production

06:30/HUN: Apr Construction

07:00/SVK: May Core & net inflation development

07:00/SVK: May CPI

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

08:00/FRA: Jun IEA Oil Market Report

08:00/BUL: May CPI

08:30/UK: 1Q Business Finance Review

09:00/EU: Apr Industrial Production

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

10:00/POR: May CPI

11:30/UK: May NIESR Monthly GDP Tracker

15:59/UKR: Apr Trade

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

06-14-23 0016ET