MARKET WRAPS

Stocks:

European stocks made solid gains on Thursday following the debt-ceiling approval in the House of Representatives, and as a private gauge of China's factory activity bounced back to expansion in May.

The positive sentiment was further boosted after data showed inflation in the eurozone declined to a 15-month low in May, opening a window for the European Central Bank to pause its aggressive interest-rate increases. Read more here .

Stocks to Watch

Mediobanca has the potential to outperform peers and the bank is the strong all-weather play for an uncertain environment, Jefferies said, upgrading their rating on the Italian bank to buy from hold.

If the economy slows, the bank's diversified nature will provide resiliency while its plan for a buyback will support shares, Jefferies said, adding that its new business plan meets their call for evolution.

A major positive is a decline in risk-weighted asset activities at its corporate and investment banking unit, which will support capital ratios and enable "a generous shareholder distribution policy," Jefferies said, who raised its target price on the bank's shares to EUR12.40 from EUR10.60.

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Investors should look for cash-rich companies and avoid those exposed to higher cost of debt while interest rates continue to rise, Jefferies said.

Having a strong cash balance seems more important than earnings revisions for share performance this year, it added.

Informa, IAG and Bollore are among the European companies that have both a high proportion of cash relative to total assets and a declining share of net-interest expenses relative to operating profit, Jefferies said.

Meanwhile those with high near-term debt maturities that are likely to witness higher interest expenses and have low cash balances include Vonovia, ALD and Demant, it added.

Read Volkswagen's China Problems Seem Too Structural to Fix With Strategy Update

Read Greek Banks Supported by Election Result, Tourism Activity

U.S. Markets:

Stock futures moved mostly higher after the House passed a bill to avert a debt default and Fed officials signaled they are likely to hold interest rates steady this month.

Few investors viewed the debt-ceiling standoff as a key risk to equity markets, helping account for the muted pre-market moves. Instead, some investors focused on the outlook for interest rates and key data out of China.

Stocks to Watch

https://urldefense.com/v3/__http://C3.ai__;!!F0Stn7g!FYA4YlBtQSMhMojL8AyL_i7NX7sSLrxIBMejB0uLbWy31PGFvb77pJ6_GtJTWBgEHjAi5QNx7mMud6MmLtg20-ZppZkUMj6bn4g-fldu5R4$ stock fell 20% in premarket trading after its earnings outlook failed to live up to the hype.

CrowdStrike stock fell close to 11% as revenue growth slowed and the company's full-year forecast fell short of expectations.

Salesforce shares fell more than 5% after investors were left disappointed that the company didn't raise its full-year guidance following better-than-expected first-quarter earnings.

Crucial to the Fed's deliberations will be the health of the labor market, and so traders will be keen to see the ADP private-sector employment report. Other data due include the S&P U.S. manufacturing PMI for May and April construction spending.

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Forex:

The euro was little moved even after data showed eurozone inflation eased by more than expected in May.

Lower-than-expected Spanish, French and German inflation data earlier in the week had the market speculating about a soft eurozone inflation print so was unlikely to materially impact the euro, ING said.

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The dollar stalled, pulling away from recent highs, after two Fed officials suggested that the central bank could opt to keep interest rates steady in June and raise them in July instead.

As a result, the dollar shrugged off approval of the debt-ceiling deal on Wednesday, and the comments will make upcoming data key in determining whether the Fed does indeed skip a rate rise in June, ING said.

The dollar could edge marginally lower if Thursday's U.S. ADP, jobless claims and ISM manufacturing data are on the weak side, although moves should be limited ahead of Friday's key monthly jobs figures, ING added.

Bonds:

Mizuho said benign European inflation data in May has been a key driving force behind the performance of eurozone government bonds [EGB] in the last days of the month.

With the 10-year German Bund yield getting closer to May's lows around 2.20%, "there is limited room to see another leg lower in EGB yields, and it would need the help of a very benign print in today's eurozone core CPI data," it added.

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The recent increase in core eurozone government bond yields isn't sustainable, Generali Investments said, which forecasts lower yields across the curve.

"We do not consider the rise to be sustainable and expect lower U.S. yields going forward."

Notwithstanding robust U.S. macro data, Generali Investments regards a recession in the second half of the year as inevitable.

Moves in eurozone yields are likely to be smaller than those in Treasury yields, but the trend still points to lower Bund yields, it added.

Read Current Economic Cycle Likely a Boost for Bonds

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France is expected to retain both its 'AA' rating and negative outlook when S&P Global Ratings reviews the country's rating on Friday, Citi said. "On balance, our forecasts don't suggest any change to rating/outlook in the near-term."

This should mean limited market impact from Friday's decision, Citi added.

Energy:

Oil prices edged higher as Chinese data pointed to expanding factory activity.

Expectations for an OPEC+ meeting this weekend were also fluctuating, with most bank analysts taking the view the cartel will hold off from adjusting production levels for now. Investors had been concerned the group could cut production to counter a decline in oil prices.

"We don't expect the group to announce production cuts at the 4 June meeting, but bullish rhetoric is likely to continue," ANZ said.

Metals:

Base-metal prices edged higher, while gold faltered, as expectations that strong U.S. jobs data will likely cement further Fed rate hikes this year counterbalanced more positive economic data from China.

Gold

Gold faces increasing risk of bearish reversal, based on charts, UOB Global Economics & Markets Research said.

Following its recent slide, gold fell further to a low of $1,932/oz on Tuesday, which seems to have slightly broken the 21-week exponential moving average and the rising trendline connecting the lows of October 2022 and March 2023, UOB said.

These price actions, together with weekly moving average convergence divergence indicator turning negative last week suggest an increasing risk of a bearish reversal, UOB said, pegging support at bottom of daily Ichimoku cloud, now at $1,920/oz.

Read Gold Prices Likely to Find Support in Recession Risks, Central Bank Demand

Copper

The copper market looks to be closing in on a fundamental inflection point, UBS said.

UBS, which said it has done a detailed review of its supply and demand estimates for the metal, now forecast only a modest surplus in 2023 and expect a growing deficit from 2025.

"This increases the risk of material price upside over the next 2-3 years [potentially copper's 'lithium moment']," it said.

Prices could dip in the near term if "already weak physical signals deteriorate further," but UBS said it doesn't expect any oversupply to push prices down into the cost curve for an extended period.

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Cooling Eurozone Inflation Opens Path for ECB Rate Pause

FRANKFURT-Inflation in the eurozone declined to a 15-month low in May, opening a window for the European Central Bank to pause its aggressive interest-rate increases.

The data is unlikely to deter the ECB from increasing rates by another quarter percentage point at its June 15 policy meeting, but it could tee up a pause over the summer.

   
 
 

Remy Cointreau Expects Flat Margins in FY 2024 as US Drinkers Take It Slower

Remy Cointreau said Thursday that it expects little growth in margins or sales in the new fiscal year as U.S. consumption drops from recent highs.

The French cognac maker said it anticipates stable profitability and sales in fiscal 2024 as a postpandemic boom in the U.S. fades, balanced by acceleration in the key China market and other regions. The company, which produces the premium Remy Martin range of cognac labels, said the year will be marked by a sharp fall in sales in the first half, against tough bases and worsening U.S. trends, followed by recovery in the second half.

   
 
 

SAS Saw Rising Costs in 2Q But Backs Guidance Amid Healthy Demand

SAS on Thursday reported an unchanged fiscal second quarter net loss as higher revenue was offset by increased jet-fuel prices and other operating costs, but it reiterated its full-year guidance amid healthy underlying demand.

"The summer season is approaching and we noted a continued positive evolution for passenger demand through the second quarter," Chief Executive Anko van der Werff said.

   
 
 

Oil Traders Are Unfazed by Potential OPEC+ Production Cuts

Oil traders are betting prices will continue to drop despite the best efforts of producing countries to boost them.

Prices have slid since the Organization of the Petroleum Exporting Countries and its allies, the coalition known as OPEC+, jolted markets in October by cutting production by 2 million barrels a day. A February vow from Moscow to curtail another half-million barrels and a voluntary April move by eight OPEC+ members to cut 1.2 million barrels more haven't stopped the slide.

   
 
 

Washington's Dilemma in Chad: Defense or Democracy?

ABIDJAN, Ivory Coast-The Biden administration is in a bind over whether to provide military aid to Chad, one of Africa's most reliable bulwarks against the spread of Islamist militants and an opponent of Russia's growing influence in the Sahel region.

Chad's longtime president, Idriss D├ęby, was killed in battle two years ago and quickly replaced by his son, violating the line of succession laid out in the Central African country's constitution. Now, the U.S. government is struggling with the question of whether the ruling junta is too brutal and undemocratic to merit U.S. assistance, or whether the country's value as a military ally trumps those concerns.

   
 
 
   
 
 

GLOBAL NEWS

China Caixin Manufacturing PMI Returns to Expansion in May

A private gauge of China's factory activity bounced back to expansion in May, the first improvement in the manufacturing sector's health since February.

The China Caixin manufacturing purchasing managers index rose to 50.9 in May from 49.5 in April, according to data released Thursday by Caixin Media and S&P Global. The 50 mark separates expansion from contraction.

   
 
 

Debt Ceiling: House Approves Deal Struck by Biden and McCarthy

WASHINGTON-The House passed a sweeping bill that suspends the federal government's $31.4 trillion debt ceiling in exchange for spending cuts, as Republican Speaker Kevin McCarthy muscled through a deal struck with President Biden to avert a looming government default.

The 314-117 vote relied on support from both Republicans and Democrats. Passage of the deal sends the measure to the Senate, where leaders have promised quick action, and Biden has said he is eager to sign the measure into law. Treasury Secretary Janet Yellen has said the government could run out of the cash it needs on June 5 to pay its bills on time and warned of severe economic damage and market disruptions unless Congress acts.

   
 
 

Fed Prepares to Skip June Rate Rise but Hike Later

Federal Reserve officials signaled they are increasingly likely to hold interest rates steady at their June meeting before preparing to raise them again later this summer.

Investors in recent days had expected the Fed would lift rates at its meeting June 13-14, prompting two policy makers Wednesday to publicly underscore their preference to forgo a hike, barring a sizzling jobs report on Friday.

   
 
 

Profit Numbers Get Spruced Up as Business Slows

Business slowed last year for Google's parent, Alphabet. The tech giant still beat earnings expectations in this year's first quarter, in part because it said that its computer servers would last longer than expected.

The shift reduced its depreciation expense by nearly $1 billion and helped push per-share earnings ahead of analysts' estimates.

   
 
 

Republicans Probing Bidens Step Up Threats Against FBI Chief Christopher Wray

WASHINGTON-Top Republican lawmakers on Wednesday escalated threats to hold FBI Director Christopher Wray in contempt over what they view as his stonewalling of a congressional investigation into the business dealings of President Biden and his family.

Following a phone call with Wray, Rep. James Comer of Kentucky and Sen. Chuck Grassley of Iowa assailed the Federal Bureau of Investigation director for not turning over a document that the House Oversight Committee subpoenaed as part of its investigation into the Biden family's business dealings. Comer, chairman of the House Oversight Committee, and other Republicans have said the FBI record contains allegations that President Biden engaged in a bribery scheme with a foreign national during his vice presidency.

   
 
 

Chris Christie Plans to Enter 2024 Republican Presidential Race as Field Keeps Growing

Former New Jersey Gov. Chris Christie is among at least three new entrants expected to join the 2024 Republican presidential field next week, as campaigning for the party's nomination has intensified and become more combative.

Aides to Christie, former Vice President Mike Pence and North Dakota Gov. Doug Burgum all indicated to The Wall Street Journal that they are planning announcements.

   
 
 

A New Approach to Hostage Diplomacy? Group Looks for Ways to Deter Wrongful Detentions

WASHINGTON-A new private panel, launched partly in response to Russia's detention of Wall Street Journal reporter Evan Gershkovich, aims to help tackle the challenges the U.S. faces over the rising number of Americans unjustly detained abroad.

The panel, led by the Center for Strategic and International Studies, will explore ways to strengthen current U.S. hostage policy and propose new government strategies to deter further hostage taking and wrongful detentions. CSIS was set to formally announce the panel's formation on Thursday.

   
 
 

Drones Hit Russian Oil Refineries as Moscow Shores Up Front Line

KYIV, Ukraine-Drones struck two oil refineries in southern Russia on Wednesday as Western officials said Moscow was moving to shore up defenses in border areas and along the 900-mile front with Ukraine ahead of a planned counteroffensive by Kyiv.

Authorities in Russia's Krasnodar region said the Ilyinsky oil refinery was largely unaffected by a suspected drone attack, but a blaze at the Afipsky refinery engulfed over 1,000 square feet of territory likely as a result of a drone, according to regional governor Veniamin Kondratyev, who said no one had been injured.

   
 
 

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

 

(END) Dow Jones Newswires

June 01, 2023 06:10 ET (10:10 GMT)

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