MARKET WRAPS
Watch For:
Eurozone Foreign Trade; Germany, France, Italy CPI; U.K.
Unemployment figures; Joe Biden attends EU-U.S. summit in Brussels;
updates from Wacker Chemie, Pirelli, Volkswagen, Ashtead, H&M,
Evraz, Equinor
Opening Call:
Shares in Europe are likely to push higher for now, with all
eyes on the Fed's upcoming June meeting. In Asia, major stock
benchmarks were mixed, the dollar was flat, while bond yields and
commodities dipped into the red.
Equities:
European stocks are likely to extend their rally further into
record territory on Tuesday, after the Stoxx Europe 600 closed
yesterday's session with a gain of 0.2%, its seventh consecutive
record high.
This follows fresh moves by U.S. investors to advance their
rotation into technology and other growth stocks on Monday, pushing
the S&P 500 and Nasdaq to new levels.
"Stock markets are by and large around all-time highs. We think
there is still more upside there," said Salman Baig, multiasset
investment manager at Unigestion.
Despite the latest market moves, the debate between growth and
cyclical stocks continues. Some investors say the market's path
forward hinges on the outcome of the Federal Reserve's latest
two-day policy meeting starting on Tuesday.
Although most investors expect the central bank to keep rates
where they are, attention will center on the Fed's view of
inflation and whether it sees any need to accelerate its timetable
of interest-rate increases. Higher rates would likely inject a
fresh round of volatility into markets, especially growth stocks,
which are sensitive to rate increases.
"The Fed's messaging this year will be critical," Glenmede
strategists said in a note. "The Fed needs to convey its intention
to wind down ultra-accommodative policy, but at the same time
convey that it has no intention of abruptly tightening policy, a
fine line that could easily be miscommunicated."
Forex:
The dollar was little changed in Asian trading ahead of U.S.
retail sales data. Expectations point to a slight on-month
contraction, given that previous readings may have been boosted by
the issuance of stimulus checks. However, a positive surprise could
support the dollar, said IG.
With the FOMC meeting in focus, investors will be watching for
any shift in the dot plot, any revision in the PCE inflation
estimate and Jerome Powell's comments to form an idea of the
tapering timeline, said IG.
TD Securities said the Fed's tone is likely to turn slightly
less accommodative at Wednesday's policy meeting, lifting the
dollar.
Mr. Powell will probably admit that the central bank has started
to discuss a plan for tapering its bond-buying program, although he
will emphasize that this depends on making much more progress
towards the Fed's goals, said TD forex strategist Ned Rumpeltin.
"If confirmed, our base case scenario should be USD
supportive."
Sterling could fall if the EU becomes more concrete on its
threat to impose retaliatory measures against the U.K. in a dispute
over Northern Ireland border checks, said Commerzbank.
"Brexit may have been formally completed, but the end of this
vexed issue is not yet in sight for the pound," said Commerzbank
currency analyst Thu Lan Nguyen.
The EU has warned that it could impose tariffs and quotas on the
U.K. after the Boris Johnson's government suggested it could
unilaterally extend a grace period that allows the free movement of
chilled meats moving between Great Britain and Northern
Ireland.
Bonds:
Treasury yields edged lower in Asia after they recovered some of
last week's losses on Monday ahead of this week's monetary policy
meeting, with fixed-income investors closely watching the central
bank's views on inflation.
"A patient Fed could help lower Treasury yields a bit further
but we feel that 10-year Treasurys are a bit rich at yields below
1.5%. We still look for yields to be over 2% by the end of the
year," wrote Steve Barrow, head of G-10 strategy at Standard Bank,
in a Monday note.
The valuations of U.K. inflation-linked government bonds are
looking rich and JPMorgan has advised clients to sell 10-year
linkers.
"We see potential for a selloff in intermediate real yields
given the strong growth backdrop and expected further hawkish tilt
from the Bank of England over the coming months," said strategists
at the bank. Ten-year index-linked gilt real yields--which strip
out the effects of inflation--are close to their richest levels
since February and look rich versus the slope of the Sterling
Overnight Index Average curve on a six-month regression basis, said
JPM.
"We recommend entering shorts in 10-year linkers," such as the
inflation-linked 2031 gilt, the strategists said.
Separately, JPMorgan said that 10-year gilts have gained from
the Treasury rally, despite domestic job surveys indicating a
tighter labor market and with U.S. headline and core inflation
surprising to the upside. But gains could be temporary.
JPM expects the BOE to raise interest rates earlier than it had
previously anticipated. "As the recovery continues, the economic
rebound looks more complete, with less scarring and a modest
inflation overshoot and we have brought forward our call for the
first BOE rate hike to 4Q22 from 1Q23," said JPM.
It has maintained a bearish duration bias on 10-year gilts given
valuations, but has held off from taking outright short duration
positions in conventional gilts because of the technical
backdrop.
Natixis said French government bonds, or OATs, aren't pricing
any political risk premia related to next year's presidential
elections, when measured by the 10-year OAT-Bund spread and the
one-month rolling beta.
However, Natixis expects the 10-year OAT-Bund to start widening
in the autumn, reaching 45 basis points in December and 65 basis
points in March 2022, before easing back to 40 basis points by June
next year.
Expected yield and spread movements in the autumn could be
affected by global tapering talk and some pricing of the end of the
European Central Bank's pandemic emergency bond purchases, said
Natixis, but it doesn't expect French regional elections on June 20
and 27 to prompt much price action in OATs.
Energy:
Oil gave back early gains in Asia and edged into the red, with
the U.K.'s decision to extend its pandemic restrictions by four
weeks because of a surge in the Delta variant of the coronavirus,
likely to temper optimism around a strong summer for transport-fuel
demand globally, said ANZ.
Oil futures started the week on a mixed note, with U.S. crude
prices down a few pennies, but Brent up on optimism over a recovery
in global demand.
"With limited exception, crude and product prices have
consistently marched higher in 2021, as the prospect of a global
demand recovery has overshadowed the potential for new supply to
hit the market," said Robbie Fraser, global research and analytics
manager at Schneider Electric.
Regarding demand, "some recent support is likely tied to talks
around the Iranian nuclear deal, which while ongoing, have failed
to deliver a breakthrough that would allow Iran to resume oil
exports without the threat of U.S. sanctions," said Mr. Fraser.
Metals:
Gold prices were lower on the possibility Fed officials may
discuss tapering at this week's FOMC meeting.
Phillip Futures said Fed taper whispers seem to be gathering
momentum but while the consensus is that the FOMC won't make a
formal announcement until 4Q, the increased talk may spook the
Treasury market and send yields higher, which could pressure gold
further.
Copper and other base metals fell on concerns that China may
curb rising commodity prices. The three-month LME copper contract
was down 2.2% at $9,748.00 a ton, the nickel contract fell 1.7% to
$18,165.00 and the zinc contract was 1.4% lower at $3,000.50.
Copper has come under pressure on reports that China is
preparing to release state reserves, said ANZ, adding that this
follows recent measures to quell the prices of raw materials amid
surging input costs for manufacturers.
TODAY'S TOP HEADLINES
Bitcoin Rises Above $40,000 on Elon Musk Tweet, MicroStrategy
Plans
Bitcoin reached its highest level in more than two weeks Monday,
buoyed by MicroStrategy Inc. completing its $500 million offering
of junk bonds to buy bitcoin and by fresh comments from Tesla Inc.
Chief Executive Elon Musk.
The world's largest cryptocurrency by market value traded as
high as $41,046.77-a nearly 11% rise from its Friday level at 5
p.m. ET.
Fed Officials Could Pencil In Earlier Rate Increase at
Meeting
WASHINGTON-Federal Reserve officials could signal this week that
they anticipate raising interest rates sooner than previously
expected following a spate of high inflation readings.
In March, the last time they released quarterly economic
forecasts, most officials expected to keep the Fed's benchmark
interest rate near zero through 2023 to encourage the economy's
recovery from the pandemic. Officials are set to release updated
projections Wednesday after a two-day policy meeting.
Philips Recalls Millions of CPAP, Ventilator Machines Over
Potential Health Risks
Royal Philips NV has recalled millions of sleep apnea and
ventilator machines over concerns that a type of foam used in the
devices could degrade and release harmful, possibly cancer-causing,
particles.
The recall affects three million to four million machines, more
than half of which are in the U.S., a company spokesman said
Monday. About 80% are machines for aiding people with sleep apnea,
a condition that causes a person to stop breathing for short
periods during sleep. The rest are life-supporting mechanical
ventilators.
Chinese Nuclear Plant Flags Performance Issue, French Part Owner
Says
French power giant Électricité de France SA said it had
requested an extraordinary board meeting with Chinese managers of a
nuclear plant it co-owns in Southeast China to get more information
on the buildup of gases inside one of the plant's reactors.
EDF said it made the request Saturday after receiving data from
the managers of the Taishan nuclear power plant-located in the
province of Guangdong 80 miles west of Hong Kong-showing an
increase in the concentration of noble gases in one of its
reactors' primary circuits, which is part of the reactor's cooling
system.
Rapid Spread of Delta Coronavirus Variant Delays U.K.'s Full
Reopening
LONDON-U.K. Prime Minister Boris Johnson delayed a long-awaited
end to Covid-19 restrictions in England following an upswing in
cases of a more contagious variant of coronavirus, highlighting how
the virus can spread even within highly vaccinated populations.
The four-week delay offers a cautionary lesson to the U.S. and
other countries about the risk of further outbreaks caused by new
forms of the virus that are spreading around the world. The variant
is primarily spreading among younger, unvaccinated groups in
Britain but cases have been detected among older people who have
had one and sometimes two doses of vaccine.
Biden, NATO Stress Threats From China and Russia
BRUSSELS-President Biden and NATO allies warned about China's
global influence and called Russia a threat to European and
Atlantic security, as the U.S. leader sought to marshal democratic
nations against autocracies and bolster an alliance jolted by
broadsides from his predecessor.
Despite an atmosphere of renewed comity among allies, disputes
simmer over how to balance new threats from China against more
traditional ones from Russia and how to address threats in new
domains including cyber and space. Turkey's increasingly discordant
role in the alliance also hung over the gathering.
Biden, Erdogan Meet in Attempt to Reset U.S.-Turkey Ties
ISTANBUL-President Biden met with Turkey's President Recep
Tayyip Erdogan for the first time since taking office, as the two
NATO allies attempt to repair a frayed relationship by seeking
common cause over their security interests across the world, from
Libya to Syria and Afghanistan.
"There is no problem with the U.S. that we cannot solve," Mr.
Erdogan said following the meeting in Brussels on Monday.
Biden and Putin to Meet, With U.S.-Russia Relations at Post-Cold
War Low
GENEVA-With U.S.-Russian relations at a post-Cold War low,
Wednesday's summit between President Biden and Russian President
Vladimir Putin is gearing up to be a showdown between two leaders
who have long been at odds.
Both sides have indicated they plan to use the summit in Geneva
to project strength on the global stage and have lowered
expectations that it will lead to a thaw in relations between
Washington and Moscow.
Bitcoin on the Balance Sheet Is an Accounting Headache for
Tesla, Others
Elon Musk reignited his curious Twitter relationship with
bitcoin on Sunday, giving the cryptocurrency a small boost.
More pertinent to Tesla Inc. shareholders, however, is the hit
to the company's bottom line this quarter from Mr. Musk's sometimes
hot, sometimes cool attitude toward bitcoin.
Write to paul.larkins@dowjones.com
Expected Major Events for Tuesday
04:30/NED: Apr International trade
05:00/FIN: Apr Retail sales
06:00/NOR: May External trade in goods
06:00/GER: May CPI
06:00/UK: May UK monthly unemployment figures
06:45/FRA: May CPI
07:00/SVK: May Core & net inflation development
07:00/SVK: May CPI
07:00/HUN: Apr Construction
08:00/BUL: May CPI
08:00/POL: May CPI
08:00/ITA: May CPI
08:00/POL: Apr Merchandise trade
09:00/EU: Apr Foreign trade
10:00/IRL: Apr Goods Exports and Imports
23:01/UK: May Scottish Retail Sales Monitor
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(END) Dow Jones Newswires
June 15, 2021 00:16 ET (04:16 GMT)
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