MARKET WRAPS

Stocks:

European stocks edged higher on Monday, tracking gains in global markets, following a provisional deal on the U.S. debt ceiling.

"Provisional in the sense the bill is expected to be voted on by a bipartisan and balky congress later this week, and there is always a chance, no matter how slim, the hardline Republicans could undercut McCarthy's efforts," SPI Asset Management said.

Trading was slightly more subdued with markets in the U.K. and U.S. closed due to holidays.

Stocks to Watch

Puma's current share price suggests the market is pricing in a too pessimistic scenario for the German sporting-goods company, Baader Helvea said.

The company's stock is trading at a 50% discount to its historical average price-to-forward earnings valuation, and at a 27% discount to peers, it added.

This implies that the market assumes no growth for Puma in 2024, but recession fears should be behind it by then and the sporting-goods market will likely have a more balanced inventory level, Baader said.

Baader raised Puma to buy from add, but cut its target price to EUR60 from EUR70.

Forex:

The dollar edged lower, with risk appetite boosted, denting safe-haven demand for the U.S. currency.

The [debt ceiling] deal "will likely restore some risk appetite across markets," UniCredit Research said.

Read The Dollar Is Still King in Europe, and It's Swaying Interest Rates

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The Turkish lira fell after Recep Tayyip Erdogan's win in Sunday's runoff presidential election, extending his term in office for another five years.

Erdogan's controversial policy of keeping interest rates low in order to tackle high inflation has put pressure on the lira and will likely continue to do so, UniCredit Research said.

"The TRY is expected to remain weak, likely reaching new record lows against the USD beyond the 20.6588 level hit last week," UniCredit said, noting that Erdogan praised the low-interest rate policy in his victory speech.

Bonds:

Trading in futures linked to U.S. government bonds was thin, a result of the public holiday. But there was a mild decline in the prices of futures linked to two-, five- and 10-year U.S. government bonds during Asian trading hours.

Energy:

Oil prices were higher as U.S. debt default risks and concerns over its economy have eased.

ANZ said Russia's comment on potential cooperation with other major oil producers in a meeting later this week is also likely to support supply-side issues.

Metals:

Gold futures declined slightly. For this week, the "recent debt ceiling issue remains a focus in the bond and gold market," Guotai Junan Securities said.

Gold will likely continue to fall if the Biden-McCarthy debt-ceiling deal is approved by both houses of Congress before the so-called X-date, the brokerage said.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Turkey's Erdogan Defies Odds to Win Presidential Election

ISTANBUL-Turkish President Recep Tayyip Erdogan won Sunday's runoff presidential election, establishing him as one of the great survivors in recent political history and securing his outsize role in global affairs for what could be years to come.

The head of Turkey's election board declared Erdogan the victor. Erdogan won 52.13% of the votes, with his challenger, opposition leader Kemal Kilicdaroglu, claiming 47.87% with more than 99% of ballot boxes opened.

   
 
 

Saudi Arabia, Russia Ties Under Strain Over Oil-Production Cuts

Tensions are rising between Saudi Arabia and Russia as Moscow keeps pumping huge volumes of cheaper crude into the market that is undermining Riyadh's efforts to bolster energy prices, people familiar with the matter say.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, has expressed its anger to Russia for not following through fully on its pledge to throttle production in response to Western sanctions, the people said.

   
 
 

Russia Launches Largest Drone Attack on Kyiv Since Start of War

KYIV, Ukraine-Russia launched a massive wave of suicide drones against targets across Ukraine including the capital Sunday, in what authorities said was its largest attack using the Iranian-supplied drones since the start of the war in February 2022.

The drone strikes were part of a campaign of Russian shelling and artillery attacks against targets in 12 regions across Ukraine on Saturday and early Sunday, authorities said.

   
 
 

Volkswagen Bets an Old SUV Can Help It Win Over Americans

BERLIN-After decades of trying to sell German engineering to Americans only to end up with a tiny slice of the world's most profitable car market, Volkswagen has a new strategy: Pretend it is American.

Inspired by electric-truck startups like Rivian and the buzz around Tesla's planned pickup, the European car giant is about to relaunch the defunct Scout brand as an off-road electric vehicle made to Americans' tastes.

   
 
 

Beverly Hills Voters Stymie LVMH Plans to Expand U.S. Hotel Business

Beverly Hills voters looked set to reject a proposal from LVMH Mo√ęt Hennessy Louis Vuitton to build a hotel in the wealthy Los Angeles-area enclave, setting back the luxury conglomerate's plans to expand its hotel business in the U.S.

Slightly more than half of votes counted in Tuesday's referendum were against plans by LVMH's Cheval Blanc brand to build its first hotel in the U.S., a planned 109-room location on Rodeo Drive with a private club, restaurants and commercial space for luxury boutiques. County election authorities say they have around 2% of ballots left to count, plus mail-in ballots that arrive by Tuesday. The results are scheduled to be certified June 2.

   
 
 

WPP, Nvidia Team Up to Build AI-Enabled Content Engine

U.K. advertising-holding company WPP is teaming up with U.S. chip giant Nvidia to develop a content engine that uses generative artificial intelligence for digital advertising, the companies said Monday.

WPP and Nvidia said that, by integrating 3D tools with generative AI, the engine will allow creative teams to produce commercial content such as images or videos faster. The tool is based on Nvidia's Omniverse Cloud platform, the companies said.

   
 
 
   
 
 

GLOBAL NEWS

Biden, McCarthy Agree to Final Details of Debt-Ceiling Deal

President Biden and House Speaker Kevin McCarthy (R., Calif.) have ironed out the final elements of their agreement to raise the nation's borrowing limit, the two leaders said Sunday evening, ahead of congressional votes on the deal that could come as early as Wednesday in the House.

Their announcements came a day after White House and House Republican negotiators reached a tentative deal to raise the debt ceiling for two years and curb two years of government spending. They have been racing to beat a deadline of June 5, when the Treasury Department says the government could run out of money to pay its bills, which could trigger an unprecedented default on U.S. government debt and cascading problems through the global economy.

   
 
 

Tech Stock Rally Leaves Small-Caps in the Dust

Shares of large companies are racing past their smaller counterparts again.

The Russell 1000 index of large companies has gained 9.2% this year, beating the 0.7% advance of the small cap concentrated Russell 2000. That is the widest outperformance since 1997, when looking at years in which the Russell 1000 has been in positive territory through May 26, Dow Jones Market Data show.

   
 
 

The Dollar Is Still King in Europe, and It's Swaying Interest Rates

FRANKFURT-It's not just Americans watching anxiously to see if the Federal Reserve raises rates or the U.S. slides into recession; so are Europeans, and indeed many other countries. That's because for all the talk of deglobalization and de-dollarization, the dollar still reigns supreme, and financial and trade ties between the U.S. and key partners are as strong as ever. In Europe's case, they're even stronger.

The European Central Bank tried to chart a different path from the Fed early last year, signaling it would hold rates low as the Fed raised them aggressively. But after the euro slid against the dollar, ECB officials quickly reversed course over fears of imported inflation from goods like energy that are invoiced in dollars.

   
 
 

Why Are Markets So Calm? It's Revenge of the Quant Funds

The U.S. stock market is surprisingly calm right now, especially in the face of the debt-ceiling fight. A key reason: a growing divide between mainstream investors, who have largely been sitting out the 2023 stock rally, and the machines whose buying has been driving it.

Only days remain until the U.S. blows past its debt-ceiling deadline. On Saturday, President Biden and Republican House Speaker Kevin McCarthy reached a tentative agreement to prevent a destabilizing default. But passage of the plan, which is expected to face opposition from some House conservatives this week, isn't yet assured.

   
 
 

The AI Boom Runs on Chips, but It Can't Get Enough

The artificial-intelligence revolution is being likened by Google's chief executive to humanity's harnessing of fire. Now if only the industry could secure the digital kindling to fuel it.

A shortage of the kind of advanced chips that are the lifeblood of new generative AI systems has set off a race to lock down computing power and find workarounds. The graphics chips, or GPUs, used for AI are almost all made by Nvidia. But the boom in demand for them has far outpaced supply with the viral success of ChatGPT, a chatbot that is able to respond to questions in humanlike ways.

   
 
 

Wall Street Mobilizes for a Presidential Election, Reluctantly

On a farm in upstate New York last weekend, Wall Street types groused about the coming presidential election in between bites of roast pig.

Billionaire money manager Mario Gabelli and banker Ralph Schlosstein were among the guests at former Honeywell Chief Executive David Cote's Carnivore's Ball-a celebration of all things meat-that featured lively discussions of potential business-friendly candidates who could shake up the 2024 race. A few meat-lovers spent the evening urging Ray McGuire, the Lazard president and former New York City mayoral candidate, to run.

   
 
 

Write to ina.kreutz@wsj.com

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

May 29, 2023 05:54 ET (09:54 GMT)

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