European Midday Briefing: Stocks Buoyed by Strong Earnings, FTSE 100 Hits Fresh Record

MARKET WRAPS

European stocks climbed on Tuesday, lifted by strong earnings from Novartis and SAP, while eurozone PMI data showed a rise in services activity and weakness in manufacturing.

A survey to be published later is expected to show that activity in the U.S. increased at a more rapid pace than in the eurozone, prolonging an unusually wide growth gap between the two economies .

Meanwhile, the FTSE 100 opened at an all-time high , soaring to hit 8070 points in early morning trading.

Shares on the Move

Novartis raised its full-year guidance and reported profit and sales that beat analysts' forecasts, sending its shares up 4.5%.

Stocks to Watch

Embracer shares could struggle to find direction after a raft of catalysts have now passed and with the potential for soft earnings next month, Deutsche Bank said, downgrading the stock to hold from buy and lifting its target price to SEK29 from SEK26.

Telenor offers amongst the highest growth in the sector across its domestic and overall Nordic assets, with Ebitda growth in the Nordics seen at 5% this year, Deutsche Bank said, upgrading the stock to buy from hold and raising its target price to NOK147 from NOK115.

U.S. Markets:

Stock futures were up modestly after equities rallied Monday and the S&P 500 snapped a six-day losing streak.

Tesla's results after the closing bell will likely be the highlight. Investors will keep a close listen to the conference call, especially any clues Elon Musk gives on his commitment to the Model 2 affordable car project.

Stocks to Watch

Calix was falling 17% after it guided for lower-than-expected revenue in the second quarter.

Nucor posted first-quarter earnings that fell from a year earlier and the company said it expected second-quarter profit to fall on a sequential basis because of decreased earnings from its steel mills segment. The stock fell 6.6%.

Forex:

The euro could get temporary support against the dollar if markets position for fewer interest-rate cuts by the European Central Bank, KBC said.

Bank of Portugal governor Mario Centeno's comment on Monday in an interview with Econostream that the ECB could cut its policy rate by a cumulative 100 basis points this year "seems very unrealistic," KBC said.

Room for repositioning in the other direction--fewer rate cuts--could temporarily limit the downside in EUR/USD.

Bonds:

The dollar and Treasury yields are consolidating their recent rise as market attention turns to this week's Treasury auctions, MUFG said.

"After the recent adjustment higher in U.S. yields, market participants will be watching closely to see how the Treasury market absorbs a combined $183 billion of two-, five- and seven-year bond sales scheduled for this week," it said.

The 10-year German Bund yield is expected to drift lower as the ECB starts cutting interest rates and headline and core inflation drop closer to its 2% target between now and the start of 4Q, Pantheon Macroeconomics said.

"But we then look for a trough towards the end of the year, followed by a slow increase throughout 2025."

Pantheon Macroeconomics continues to see a mild inversion in the German government bond yield curve for most of next year, given its expectation that inflation risks will stay tilted to the upside relative to the ECB's target.

Energy:

Oil prices were broadly stable after recouping some of the losses posted in the previous session as fears of an all-out war between Israel and Iran faded.

Despite this, geopolitical risks in the region remain high and traders still see the oil market growing tighter in the coming months.

"We continue to see the oil market as undersupplied, and expect inventories to point lower again over the coming weeks," UBS said.

Meanwhile, investors await the release of U.S. GDP figures and PCE data this week for more cues on the timeline of interest-rate cuts.

Metals:

Gold future prices tumbled as tensions between Israel and Iran eased and safe haven demand melted away.

Given positioning and recent price action, the risk of gold prices correcting down remains elevated near-term, but geopolitics remains a bullish wildcard, JPMorgan said.

JPMorgan forecast gold prices ending 2024 averaging $2,500 an ounce in the fourth quarter, with further upside next year.

EMEA HEADLINES

ECB Will Consider Fed's Progress When Deciding on Rate Cuts, De Guindos Says

The European Central Bank will take account of the Federal Reserve's progress in lowering inflation when it decides the pace of cuts to its key interest rate after a first move in June, its vice president said in an interview published Tuesday.

The ECB has signaled that it will lower its key rate in June, but the Federal Reserve recently indicated that it is likely to move later in the year as U.S. inflation remains higher than anticipated. That divergence could weaken the euro and push prices of imported goods and services higher, feeding inflation in the eurozone.

U.K. Flagship FTSE 100 Index Hits Fresh Record High

The U.K.'s flagship stock index opened at an all-time high on Tuesday, soaring to hit 8070 points in early morning trading.

Building on the previous session's gains, weakness in the pound and easing geopolitics boosted the performance of London's blue-chip index.

SAP Stock Rises on Earnings Report

The German enterprise software giant SAP reported quarterly results that were a smidgen ahead of Wall Street's expectations. The stock is up in late Monday trading.

For the March quarter, SAP reported total revenue of EUR8.04 billion, up 8% from a year ago or 9% adjusted for currency and a hair above the consensus estimate of EUR8.02 billion, as tracked by FactSet.

AB Foods Eyes Further Profit Growth as Primark Margins Rise

Primark owner Associated British Foods raised its dividend and said it expects a significant rise in full-year profit after its budget retailer delivered robust margins and higher earnings.

The British conglomerate said on Tuesday that is on track to deliver significant growth in both profitability and cash generation ahead of expectations at the start of this financial year.

JD Sports Steps Up U.S. Push With $1.1 Billion Deal for Retailer Hibbett

JD Sports Fashion is buying Hibbett in a deal that values the American retailer at $1.08 billion, doubling down on its push into the U.S. at a challenging time for the sports-retail market.

The U.K. company said its acquisition of Birmingham, Ala.-based Hibbett accelerates its growth plans in the U.S., where it has been seeking to expand as rivals retreat.

Renault's Group Revenue Rises But Car Business Edges Down on Currency Rates

Renault's group revenue rose in the first quarter on higher sales, but revenue from its cars division fell slightly on unfavorable exchange rates.

Overall revenue beat analysts' expectations by a modest margin. The French carmaker said Tuesday that its performance stems from its focus on favorable pricing over higher sales volume.

GLOBAL NEWS

Blackstone's Beleaguered Real-Estate Fund Stems Exodus

For signs that the turbulent commercial real-estate market is beginning to stabilize, look at Blackstone's largest real-estate fund, known as Breit.

The firm was able to fulfill all investor redemption requests in February and March for the first time since late 2022, when a flurry of withdrawals compelled it to limit how much it could pay out.

Cathie Wood's Popular ARK Funds Are Sinking Fast

Cathie Wood's investors are jumping ship.

They rushed into her funds and won big during the pandemic, when the star fund manager became a social-media sensation by making bold bets on disruptive technology stocks such as Tesla, Zoom Video Communications and Roku. They largely stuck with her when the funds' fortunes reversed after the Federal Reserve raised interest rates. Now, after years of bruising losses, many of them have had enough.

U.S. Takes Aim at Chinese Banks Aiding Russia War Effort

The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, arming Washington's top envoy with diplomatic leverage that officials hope will stop Beijing's commercial support of Russia's military production, according to people familiar with the matter.

But as Secretary of State Antony Blinken heads to Beijing on Tuesday, the question is whether even the threat of the U.S. using one of its most potent tools of financial coercion can put a dent in complex and burgeoning trade between Beijing and Moscow that has allowed the Kremlin to rebuild a military badly mauled by more than two years of fighting in Ukraine.

Supreme Court Turns to Emergency Abortions as Dobbs Fallout Continues

Dr. Alison Edelman, an obstetrician in Portland, Ore., said her hospital receives pregnant patients sent from Idaho with dangerously high blood pressure and other serious conditions that can deteriorate in a matter of minutes.

Idaho doctors, she said, seek to make such transfers because they are unable to provide the patients an abortion if they need one, in light of a state ban on the procedure-punishable by two to five years in prison-with narrow exceptions, including if a woman's life is in danger. Many doctors say that exception isn't easy to apply.

Israel Moves Closer to Rafah Invasion as Iran Crisis Wanes

TEL AVIV-As tensions with Iran ease, Israel's military is gearing up to complete what it says is unfinished business: Uprooting Hamas from its last stronghold in the Gazan city of Rafah, where more than a million Palestinians are taking shelter.

Israeli leaders say they intend to go ahead despite vocal opposition from the country's most important ally, the U.S., which has warned that a full-scale move on the enclave could cause widespread civilian casualties and disrupt humanitarian-aid efforts aimed at preventing famine.

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