European Midday Briefing : French Stocks Lag Again Before Polls; Focus Turns to U.S. PCE Print

MARKET WRAPS

Stocks:

European stocks mostly edged higher, although the CAC 40 index was in the red, with investors on edge ahead of the weekend's French election.

Allianz said a far-right or far-left government emerging from the elections could have negative consequences for French financial markets , but limited contagion to the rest of Europe, as long as the next executive moderates its anti-EU stance.

Friday's big data setpiece is the May readout of the Federal Reserve's preferred inflation gauge, the personal-consumption expenditures price index.

Economists polled by The Wall Street Journal forecast that the PCE rose 2.6% from a year ago, both on a headline and a core basis, which excludes volatile food and energy prices.

Stocks to Watch

Nike expects sales growth to lag behind that of its peers in the near term, offering an opportunity for Adidas and Puma , Citi said.

Executives at the U.S. giant flagged a subdued economic environment, with weakness in China, and declining sales of lifestyle products in its most recent quarter during a conference call. This doesn't bode well for U.K. retailer and Nike partner JD Sports Fashion, but could be a tailwind for its competitors, Citi said.

Heineken is expected to report robust profit growth in the first half and given the board's new conservatism, it might not make a major guidance upgrade until the third quarter, Barclays said.

The brewer is likely to benefit from a more profitable first half given easy comparatives and marketing weighted to the second, Barclays said, forecasting a profitability growth of 23.6% compared with Bloomberg consensus of 11.3%.

U.S. Markets:

Stock futures ticked higher ahead of June's last trading session, with stocks closing out what has proved to be a monster first half of the year.

Bond yields were also higher in cautious premarket trading as investors waited for inflation data crucial to the Federal Reserve's thinking.

Other U.S. economic data due on Friday include the Chicago Business Barometer for June and the final reading of the University of Michigan consumer sentiment survey for June.

Fed officials making comments on Friday include San Francisco President Mary Daly and Fed Gov. Michelle Bowman.

Forex:

The euro edged lower against the dollar ahead of the first round of French elections on Sunday, and Swissquote Bank said it's likely to fall further before the weekly close, potentially dropping below $1.0660.

"Many investors will probably choose to go into the French election weekend without a positive exposure to the euro given that Marine Le Pen's National Rally is seen securing one vote out of three, and that's not the outcome that the market is happy with," Swissquote Bank said.

A poor performance in Thursday's U.S. presidential debate by Joe Biden and a better one by Donald Trump lifted the dollar, although gains were limited due to the risk of weaker U.S. PCE inflation data at 1230 GMT, ING said.

A CNN poll saw 67% award victory to Trump in the debate, ING said.

"We see a potential Trump administration as more positive for the dollar both via looser fiscal policy and also via a more aggressive trade/tariff environment," ING said.

Bonds:

The eurozone bond market remains in a wait-and-see mode ahead of the first round of French legislative elections on Sunday, prioritizing macroeconomic developments for now, Societe Generale Research said.

"Macroeconomic developments and ECB expectations are, for now, only playing a secondary role, and neither the Sintra symposium nor the flash CPI release is likely to change this picture."

The European Central Bank forum on central banking in Sintra, Portugal, is scheduled for July 1-3.

Mizuho International said French-German government bond yield spreads are likely to tighten in relief mode if a left-wing majority scenario is avoided at France's upcoming elections.

"Having said that, we don't think OAT-Bund spreads will manage to sustain the tightening," Mizuho said.

Its economic analysis suggests that French long-term bonds should reprice and trade more like A-rated European government bonds. It sees the 10-year OAT-Bund yield spread around 75-85 basis points in the medium-term, with the tail-risk of a widening to 120bps if the [left-wing electoral alliance] New Popular Front wins a majority and an EU fragmentation risk is on the table again.

SEB Research said Treasury yields will remain data-driven in the months ahead, but 10-year yields are likely to end the year near current levels.

"We reiterate that if [the PCE] data softens in line with our expectations, yields may temporarily undershoot to levels that are likely to be unsustainable if a soft landing is prospectively confirmed."

SEB's base case is for the 10-year Treasury yield to be trading near its current level at the end of 2024.

Energy:

Oil prices were rising on hopes the Federal Reserve will soon start cutting interest rates, while tensions at the Israel-Lebanon border continued to keep markets on edge, raising risks of supply disruptions in the region.

Metals:

Gold prices ticked higher supported by the latest U.S. jobless claims figures suggesting a softening labor market, and continued political unease.

"Safe haven demand has emerged in recent weeks amid the challenging political backdrop. Upcoming elections in France, the U.K. and the U.S. are raising concerns of policy shifts," ANZ Research said.

EMEA HEADLINES

U.K. Economy Books Faster Growth Than First Thought as Elections Loom

The U.K. economy grew a little more than expected in the year's first quarter, offering a minor boon to the ruling Conservatives' struggling campaign ahead of parliamentary elections next week.

Gross domestic product expanded 0.7% between January and March compared with the previous quarter, according to updated figures released Friday by the Office for National Statistics. Previous estimates had recorded a 0.6% increase on the quarter. On an annualized basis, GDP grew 2.9%, similarly outstripping previous estimates.

Nokia to Buy Infinera for $2.3 Billion to Boost Optical-Networks Arm

Nokia agreed to acquire Infinera in a deal valued at $2.3 billion as it pins more resources to its optical-networks business.

The Finnish maker of 5G cellular antennas and other telecom infrastructure said the combination with networking-solutions provider Infinera is expected to accelerate its path to double-digit operating margins in its optical-networks business. The transaction and the recent sale of submarine networks will reshape Nokia's Network Infrastructure business to be built around fixed networks, internet-protocol networks and optical networks, the company said.

Macron Runs France Like a CEO. His Customers Aren't Happy.

VERSAILLES, France-President Emmanuel Macron was in his element last month, holding court with foreign investors at a Davos-inspired conference inside the Palace of Versailles.

European elections were just around the corner, but Macron was already thinking beyond the ballot box. He wanted to discuss the rise of artificial intelligence, and he instructed the array of executives from tech companies and sovereign-wealth funds to "please be super direct."

GLOBAL NEWS

AI Frenzy Propels Stocks to Monster First Half

The AI fervor powering the stock market shows no sign of cooling down.

Much as in 2023, investors piled into bets in the first half of this year that the artificial intelligence boom is just getting started. They sent Nvidia shares soaring 150%, propelling the graphics-chip maker's market value above $3 trillion and briefly making it the most valuable company in the world.

Biden's Debate Performance Against Trump Rekindles Questions About Fitness for Office

President Biden and former President Donald Trump clashed over the economy, abortion and immigration in their first presidential debate of the 2024 election, as the Democratic incumbent delivered an unsteady performance that rekindled questions about his age.

Trump, for his part, largely followed the advice of aides who wanted him to take a less aggressive and freewheeling approach than prior debates-which turned off some voters-and stick to issues. The presumptive Republican nominee continued his penchant for spreading falsehoods and exaggerations, including the claim that Biden has overseen the largest deficit in history-when it has shrunk.

Japan Will Take Appropriate Action Against Excessive Yen Moves, Finance Minister Says

TOKYO-Japan's Finance Minister Shunichi Suzuki said the government would take appropriate action against excessive yen moves, although he declined to comment on whether he thinks the recent weakening of the yen is excessive.

"I am deeply concerned about the effects of rapid and one-sided moves in the foreign exchange market on the economy," Suzuki said at a news conference Friday. He added the yen's credibility has remained unhurt.

Iran Election Pits Engagement With West Against More Confrontation

Iran's presidential election on Friday will decide not only who leads a country increasingly antagonistic to the West but also help shape succession plans for the next supreme leader and indicate whether Iranians are giving up on their system of Islamic governance.

The election pits a reformist candidate leading in the polls, Masoud Pezeshkian, who favors re-engaging with the West, against several hard-liners who want to deepen Iran's relationships with Russia and China, fortify its alliance of anti-Israel militias and forge ahead with its nuclear program. There is no clear favorite, and there would be a runoff between the two top vote-getters if no one wins a majority.

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06-28-24 0524ET