MARKET WRAPS
Stocks:
European stocks were stronger on Wednesday as traders awaited the U.S. inflation data, which will help determine the Federal Reserve's interest-rate path.
The data are expected to show that consumer prices rose 3.1%, which would be their slowest annual pace in more than two years. However, core inflation is expected to have remained far above the Fed's target.
London's FTSE 100 advanced after a report from the Bank of England showed all U.K. banks are capable of withstanding severe financial stress. Shares in the five biggest banks made solid gains after the report was released.
Read what the analysts say about the BOE findings .
Stocks to Watch
Bunzl's outlook is becoming clouded as deflationary forces build, RBC Capital Markets said, cutting the stock to underperform from sector perform. Read more .
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Thanks to Hugo Boss's successful brand refresh and marketing push under the leadership of CEO Daniel Grieder since June 2021, the company is now gaining significant market share as it decouples from trends in the premium-apparel market in Western countries, Stifel said. Read more .
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The semiconductor sector has entered a new upcycle, which is expected to result in material rerating and strong growth in EPS over the next two years, Jefferies said, upgrading Infineon, STMicroelectronics and Melexis to hold from underperform. Read more .
U.S. Markets:
Stock futures were higher with focus on the inflation data, but with investors also awaiting commentary from a batch of Fed officials, and the Fed Beige Book.
Government-bond prices rose. The yield on 10-year Treasury notes slipped to 3.946%, from 3.980% Tuesday.
Stocks to Watch
Activision Blizzard edged higher in premarket trading after soaring Tuesday when a federal giant ruled that Microsoft could close its $75 billion acquisition of the company.
Disney is exploring strategic options for its Star India business, including a joint venture or a sale, WSJ reported.
Nvidia gained 0.4% on a report that said Arm was discussing bringing in Nvidia as an anchor investor while the chip designer moves ahead with plans for an initial public offering later this year.
Follow WSJ markets coverage here
Forex:
The euro rose to a two-month high against the dollar as the U.S. currency lost ground ahead of the inflation data.
DZ Bank said the euro's losses after Tuesday's weak German ZEW business sentiment index proved temporary as broad dollar weakness overrode any concerns about the eurozone economy.
Focus switched to the dollar, however, with both headline and core inflation expected to fall in June.
Unicredit said "waiting for the data has already sparked some volatility among majors, with the dollar already losing ground across the board."
It added that the data could push the DXY dollar index below 101 or lift it back above 102.
The pound also extended gains against the weaker dollar, and could get an additional boost from the CPI data if it shows inflation slowing further, ING said.
Sufficiently weak U.S. inflation could lift sterling convincingly above $1.30, leaving an "outside risk" of a further rise toward $1.33, ING added.
Bonds:
Eurozone sovereign bond spreads should hold near current levels but an early start to the quantitative tightening of the ECB's Pandemic Emergency Purchase Programme is a risk, Natixis said.
"There is a fairly high risk of advanced discussions for a PEPP QT, which could begin in early 2024," it said. "If this happens, this would be favorable to a widening of sovereign spreads."
For now, Natixis expects the 10-year Italian BTP-German Bund yield in the 170-180 basis point range and at 200bps in March 2024.
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10-year U.S. Treasurys and German Bunds are a buy at yields above 4% and above 2.65%, respectively, Jefferies said.
"We would look for 10Y US Treasury yields to drop below the 3.75% level and 10Y Bunds below 2.50% over the coming weeks, with the year-end targets of 3.25% and 2.10% respectively."
Jefferies expects risky assets to perform over the coming months, but in the medium term, it has a more cautious outlook, expecting an economic slowdown in the fourth quarter of 2023 and in the first quarter of 2024.
Read German Schatz Yield Seen Falling in Coming Months
Energy:
Oil prices edged up to their highest level since late April on signs of emerging tightness.
Seaborne crude shipments from Russia are declining, suggesting it is finally making good on its promise to cut output and boosting expectations of a tighter market.
"The market appears to be finally starting to reflect the tighter fundamentals that we see over the second half of 2023," ING said.
Metals:
Metal prices inched higher as markets await the U.S. CPI data, which will be key for price direction in the immediate term, ING said.
Separately, ING said hot weather in China's Sichuan province could also risk output curtailments for aluminum.
"Power consumption in Sichuan, a region already struggling with low hydro levels, reached a record high on Monday," ING said, adding that reports of smelters being forced to cut output have already emerged.
DOW JONES NEWSPLUS
EMEA HEADLINES
Thales to Buy Cobham Aerospace Communications for $1.1 Bln
Thales said Wednesday that it has entered into exclusive negotiations to acquire France-based Cobham Aerospace Communications for an enterprise value of $1.1 billion.
The French aerospace and defense company said the acquisition would allow it to strengthen its Avionics portfolio, given that Cobham Aerospace Communications focuses on safety cockpit communication systems.
DNB Bank 2Q Net Profit Beat Forecasts on Higher Net Interest Income
DNB Bank on Wednesday posted a forecast-beating second-quarter net profit as profitable growth in lending and deposits, as well as higher interest rates, pushed net interest income sharply higher.
Norway's largest lender made a profit attributable to shareholders of 9.15 billion Norwegian kroner ($884 million) compared with NOK7.78 billion a year earlier. Net interest income rose 32% to NOK15.23 billion, it said.
London's Canary Wharf Takes Brunt of Real-Estate Pain
LONDON-Three decades ago, London remade a derelict shipping yard at Canary Wharf into a forest of glass-and-concrete skyscrapers in a bid to mimic U.S. financial hubs.
Now the 128-acre banking district east of central London is suffering a problem also plaguing U.S. cities: emptying office buildings.
GLOBAL NEWS
Inflation Is Likely Lowest Since Early 2021-but Still Too Hot for Fed
Inflation likely eased last month to its slowest pace in more than two years but remained elevated above the Federal Reserve's goal.
Economists surveyed by The Wall Street Journal estimated that consumer prices rose 3.1% in June from a year earlier. That would be well below the recent peak of 9.1% in June 2022 and down from 4% in May, but still above the Fed's 2% target. Inflation was last close to 3% in March 2021.
Measure It Differently, and Inflation Is Behind Us
If core inflation came in just below 3%, the Federal Reserve would breathe a huge sigh of relief, stocks would head to the races and consumers could relax about the rising cost of living.
It isn't merely a dream: Measure U.S. price changes the way Europe does, and inflation was already there in May. Measure them as the U.S. does, and on Wednesday new figures are predicted by economists to show core inflation far higher, at 5% for June.
RBA's Lowe Begins Implementing Review Plan; Keeps Door Ajar to Hike Further
SYDNEY-Reserve Bank of Australia Gov. Philip Lowe outlined on Wednesday how the central bank will begin to implement changes suggested in a recent review of its operations.
The changes include reducing the number of policy meetings to eight from 11 a year from next year, and pledging to hold press conferences after each decision on interest rates is made.
U.S. Government Emails Hacked in Suspected Chinese Espionage Campaign
Hackers linked to China breached email accounts at more than two dozen organizations including some U.S. government agencies, officials and Microsoft researchers said, part of a suspected cyber-espionage campaign to access data in sensitive computer networks.
The new penetration has prompted alarm among some officials and security researchers and is being viewed as part of an espionage campaign that potentially compromised valuable information belonging to the U.S. government, according to people familiar with the matter. Senior Western intelligence officials have grown increasingly worried in recent years about the ability of Chinese hackers to orchestrate especially impressive and stealthy attacks that in some cases have been able to evade detection for years.
Ukraine Gets Defense Pledge From West After NATO Disappointment
VILNIUS, Lithuania-Leaders from the world's seven largest economies will announce Wednesday new long-term security commitments to Ukraine, seeking to deter future Russian attacks and advance Kyiv's aspirations to join NATO, the European Union and other Western alliances.
The largely symbolic declaration from the Group of Seven nations comes as leaders of the North Atlantic Treaty Organization wrap up two days of meetings in which they reaffirmed security pledges to Ukraine but disappointed its leaders by not putting a timeline on its eventual membership.
North Korea Launches Suspected Long-Range Missile
SEOUL-North Korea tested what appeared to be a long-range missile on Wednesday, after the Kim Jong Un regime spent days expressing discontent toward the U.S. on a variety of issues.
South Korea called it a suspected long-range missile, while Japan's assessment described it as being of a similar class to an intercontinental ballistic missile. North Korea's prior ICBM launches have demonstrated a potential range long enough to reach the U.S. mainland.
Trump Loses Justice Department Backing in Defamation Case
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07-12-23 0611ET
