EMEA Morning Briefing : Stock Futures Rise After Fed Maintains Outlook; BOE Eyed

MARKET WRAPS

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Flash PMI for eurozone, Germany, France, U.K.; France monthly business survey; Italy balance of payments; U.K. BOE rate decision, public sector finances; trading updates from BMW, Enel, Direct Line Insurance, Next

Opening Call:

European stock futures rose after the Fed signaled it remains on track to cut rates three times this year. Asian stocks tracked Wall Street higher; the dollar fell; Treasury yields edged lower; oil and gold futures rose.

Equities:

Stock futures advanced early Thursday, tracking U.S. and Asian stock benchmarks higher after Federal Reserve officials largely sustained their rate-cut outlook. A narrow majority of Fed officials reaffirmed projections to cut interest rates three times this year despite firmer-than-anticipated inflation in recent months.

"Part of it is relief that there's no disruption," said Brad McMillan, chief investment officer for Commonwealth Financial Network. "There is some validation by the Fed that the economy is strong enough that they don't need to cut."

Focus today is on the Bank of England, which is widely expected to keep its benchmark rate unchanged. The question is how quickly it can start to lower interest rates.

The BOE won't yet say it is home and dry in its task of bringing inflation back down to target, said Victoria Clarke, U.K. chief economist at Santander CIB. While labor-intensive services inflation is largely tracking BOE forecasts, upcoming data for April will be a critical point, with the near-10% rise in the minimum wage and many firms already having announced their living wage-linked pay increases, she says.

The central bank may have enough information by June to cut then, though a first rate cut in August looks more prudent, she added.

Forex:

The dollar weakened after the Fed maintained its outlook for three rate cuts this year, bolstering sentiment toward risky assets.

The fact that the Fed's median dot for 2024 still holds at three rate cuts is what markets have mostly focused on, said Chris Weston, head of Research at Pepperstone. Fed Chair Powell's view that a strong U.S. labor market may not get in the way of rate reductions was a "big tick to the risk bulls," Weston added.

Bonds:

Treasury yields fell in Asia after closing mostly lower overnight. "The Fed bowed to market expectations and left rates unchanged, while continuing to suggest 3 cuts in the updated dot plots," said portfolio manager Jeffrey A. Rosenkranz of Shelton Capital Management.

"We truly are in a meeting-to-meeting, data-dependent holding pattern," Rosenkranz said. "Because we believe economic activity will remain stronger than desirable in the coming months, this will push the Fed to wait longer on rate cuts and move more slowly once they do begin."

Energy:

Oil futures rose in Asia, boosted by positive sentiment following the FOMC decision and Fed Chair Powell's remarks. The markets have assessed the FOMC statement, forecasts and Powell's press conference to be more dovish than expected, Westpac said. Also, this morning's weakness in USD, which typically has an inverse relationship with oil, may be contributing to higher oil prices.

Metals:

Gold touched fresh highs after the Fed maintained its outlook for threerate cuts this year. The precious metal's price is closely linked to rates, with higher rates diminishing its appeal. Gold overtook the $2,200 handle as bond yields slipped, said Charu Chanana, head of FX strategy at Saxo Markets.

Gold has been on a tear amid recent USD weakness and falling 10-year Treasury yields, said Robin Tsui, APAC gold strategist at State Street Global Advisors. Investors are also bullish on the haven asset as volatility rises. "We do anticipate gold to test our bull base scenario (between US$2,200/oz and US$2,400/oz) once the Fed starts to pivot in lowering rates in H2."

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Aluminum prices advanced, as drought in parts of China threatens to undermine production of the metal. China's Yunnan province, a major producer of aluminum that uses hydropower to fuel its smelters, is facing drought conditions that may last until May, ANZ said, citing a local media report. Water inflows into the Yunnan river are 13% lower so far this year, ANZ added.

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Iron ore futures fell in Asian trading. Markets are largely unchanged after rebounding earlier in the week, Westpac said. China's residential property activity remained weak in January and February, while high steel inventories amid high iron ore imports are keeping prices capped, Westpac added.

TODAY'S TOP HEADLINES

Fed Officials Still See Three Interest-Rate Cuts This Year, Buoying Stocks

The stock market rose to new highs Wednesday when a narrow majority of Federal Reserve officials reaffirmed projections to cut interest rates three times this year despite firmer-than-anticipated inflation in recent months.

While the latest data hadn't given officials the confidence they would need to begin rate cuts, Chair Jerome Powell said his outlook for inflation to continue declining hadn't changed substantially in recent weeks. The projections released Wednesday were little changed from December and showed most of his colleagues expect two or three cuts this year.

Bank of England Likely to Follow Fed Pausing Interest Rates. The Question Is When to Cut.

The Bank of England is widely expected to keep its benchmark interest rate unchanged on Thursday. After that, the question is how quickly it can start to lower interest rates.

Like the Federal Reserve, the U.K. central bank has seen inflation slow rapidly over the past year. But unlike in the U.S., the U.K. economy has been weak, falling into recession in the second half of 2023.

The U.S. Market Is Too Hot. Money Is Flowing Into European Stocks.

With the S&P 500 already up 26% from a low point in late October, money is starting to pour into European stocks. Investors should expect that to continue.

Amazon's New Focus: Fending Off Rivals Temu and Shein

Amazon.com is training its attention on emerging e-commerce players Temu and Shein, viewing the newer platforms as significant threats to its online shopping dominance.

Temu and Shein have, for now, supplanted Walmart and Target as focal points in internal Amazon meetings related to retail, people familiar with the matter said. The companies with Chinese roots are expanding in the U.S. and targeting Amazon customers. Temu has gone on an advertising blitz, spending billions of dollars and becoming the top advertiser by revenue on Meta Platforms in 2023, The Wall Street Journal reported this month.

DOJ reportedly will file antitrust lawsuit vs. Apple as soon as Thursday

The Justice Department could file its long-rumored antitrust lawsuit against Apple Inc. as soon as Thursday, according to a report late Wednesday.

The suit, expected to be filed in federal court, would accuse the tech giant of blocking rivals from accessing hardware and software features of its iPhone, Bloomberg News reported.

Elon Musk's Neuralink Shows First Patient Using Its Brain Implant

Elon Musk's Neuralink introduced the first patient to receive its brain-computer implant, a 29-year-old diving-accident victim who showed during a livestream that he can now move a computer cursor using the device.

In a nine-minute presentation streamed on Musk's X platform Wednesday, Neuralink showed Noland Arbaugh directing the cursor around a screen to play a game of chess. Arbaugh said it feels like "using the force on a cursor," referring to a concept from movies such as "Star Wars." He said his surgery went well and he left the hospital after one day.

Apple Faces Legal Protest From Meta, Microsoft, X, Spotify and Match

Meta Platforms, Microsoft, X, Spotify and Match Group filed legal petitions protesting Apple's app store policies, objecting to how the tech giant has complied with a federal court ruling that ordered Apple to allow alternative payment methods.

The five companies, which have some of the most popular apps on the app store, join "Fortnite"-maker Epic Games in protesting Apple's plan to charge a commission for payments made outside the app store.

Why Ben & Jerry's Will Keep Its Progressive Politics After Unilever Divorce

When Unilever won a bidding war for Ben & Jerry's in 2000, its ownership of the progressive purveyor of whimsically named ice creams was seen as a coup. Now it plans to unload the brand, putting an end to one of the corporate world's more unusual and torturous partnerships.

The consumer-goods giant said Tuesday it would hive off and likely publicly list its ice-cream business, the world's largest with annual sales of $8.6 billion and other leading brands including Magnum, Breyer's and Klondike. Unilever is open to a sale if it gets an offer it deems acceptable.

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Expected Major Events for Thursday

05:30/NED: Feb Unemployment

07:00/EU: Feb New Passenger Car Registrations in Europe statistics (EU27 + EFTA3)

07:00/UK: Feb Public sector finances

07:00/NOR: Feb Labour force survey SA, incl unemployment

07:00/DEN: Mar Business tendency survey

07:45/FRA: Mar Monthly business survey (goods-producing industries)

08:15/FRA: Mar France Flash PMI

08:30/SWI: Swiss National Bank monetary policy assessment

08:30/GER: Mar Germany Flash PMI

09:00/POL: Feb Retail Sales

09:00/EU: Jan Euro area balance of payments

09:00/NOR: Norges Bank monetary policy decision and presentation of Monetary Policy Report

09:00/EU: Mar Eurozone Flash PMI

09:30/UK: Mar Flash UK PMI

10:00/MLT: Feb RPI

10:00/ITA: Jan Balance of Payments

11:00/TUR: Turkish interest rate decision

12:00/UK: Agents' Summary of Business Conditions

12:00/UK: UK interest rate decision

17:59/POR: Jan Balance of Payments

23:00/NED: Feb House Price Index

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03-21-24 0118ET