EUROPEAN MIDDAY BRIEFING: Stocks Eye Fresh Records as Inflation Fears Recede

MARKET WRAPS

Stocks:

European stocks rose on Monday to a fresh record high, with inflation fears receding from the market.

Up for four consecutive weeks, the Stoxx Europe 600 rose 0.7%, putting the index on track for another record finish.

"The overriding impression from the last few days' events appears to be that bond markets and investors in general appear to be buying the central bank narrative that the current high levels of inflation are transitory and will soon pass," said Michael Hewson, chief market analyst a CMC Markets U.K.

Reports that the U.K. will delay its final relaxation of COVID-19 lockdown rules put slight pressure on airline stocks, with British Airways owner International Airlines Group slipping 2%.

Koninklijke Philips dropped 4% in Amsterdam, after starting a recall in the U.S. for its first-generation DreamStation sleep and respiratory-care product family, which has led to a EUR250 million charge. Philips had already recorded a EUR250 million provision on the product. It said it was keeping its adjusted operating profit guidance for the year because of the strength of other businesses.

U.S. Markets:

Stock futures edged up, pointing to a fresh record for the S&P 500 after it ended last week at an all-time high.

Futures tied to the S&P 500 ticked up less than 0.1%. The broad market gauge has climbed for three consecutive weeks. Nasdaq-100 futures added 0.2%, pointing to a moderate rise in technology stocks at the opening bell.

Stocks have ground higher amid an improving growth outlook in many developed countries and continued central bank support. All eyes will be on Federal Reserve policy makers' comments this week following a two-day meeting. Investors remain concerned that the Fed's evolving views on inflation and the labor market could prompt the central bank to scale back easy-money policies sooner than previously expected.

"Stock markets are by and large around all-time highs. We think there is still more upside there," Salman Baig, multiasset investment manager at Unigestion. "We're seeing clear signs that the recovery is sustainable."

Forex:

All eyes this week are on Wednesday's U.S. Federal Reserve decision but ahead of that various U.S. economic data will be released, including retail sales and industrial production, which could weigh on the dollar if weaker than expected, said Commerzbank.

"Following the strong previous rise these [data] are likely to have lost significant momentum," said currency strategist Thu Lan Nguyen. "Fiscal policy stimulus is fading and bottlenecks are making business more difficult," she said.

If this is the case, "US dollar euphoria might quickly ease again just ahead of the FOMC meeting."

RBC Capital Markets advises buying the dollar against the Swiss franc as its trade of the week before the Federal Reserve and Swiss National Bank policy meetings on Wednesday and Thursday respectively.

It targets 0.9170 in USD/CHF with a stop loss of 0.8900, compared to 0.8989 currently. With short-seller bets against the dollar having rebuilt in recent weeks and markets fully priced for the first U.S. interest rate rise by mid-2023, the "balance of risk favors being long dollar" into the Fed's meeting, RBC's Adam Cole said.

The Fed's new economic projections could bring forward rate rise expectations, he said. Meanwhile, the SNB will likely reiterate that the franc is highly valued and it's prepared to intervene, he said.

Bitcoin jumped 6.6% from its level at 5 p.m. ET Friday to trade around $39,300, according to CoinDesk. Elon Musk tweeted Sunday that Tesla will resume accepting the cryptocurrency as a form of payment when miners use more clean energy.

Sterling weakened following reports the U.K. government is set to announce that its plan to fully ease England's lockdown on June 21 will be delayed by four weeks.

Prime Minister Boris Johnson is expected to confirm the delay at a news conference around 1700 GMT.

"It is unlikely that the formal announcement of the delay will trigger any sharp currency movements, as it won't come as a shock," ActivTrades analyst Ricardo Evangelista said. "However, should Johnson surprise the markets by confirming the end of restriction on June 21, the pound would be likely to reverse this morning's losses."

Bonds:

In bond markets, the yield on the benchmark 10-year Treasury note edged up to 1.464% from 1.462% on Friday. The yield, which moves inversely to price, has dropped for four consecutive weeks, in part because foreign investors and pension funds are boosting their holdings of U.S. government bonds.

"Fundamentally, bond yields should be much higher," Mr. Baig said. "You're seeing higher inflation being priced into cyclical commodities, growth being priced higher in equities, but bond yields are still pricing fairly muted growth and inflation."

Another reason for the low yields is that money managers believe Fed officials will hold off on tapering until the economy is much stronger, said Lale Akoner, market strategist BNY Mellon Investment Management.

"What the Fed is saying around transitory price pressures are resonating in the bond market," said Ms. Akoner.

Commodities:

Oil prices were higher, with DNB Markets' Helge Andre Martinsen citing positive equity markets and a relative lack of oil-specific news. Both benchmarks are on course to break multiyear highs, with Brent settling Friday at its highest since April 2019 and WTI closing at its highest since October 2018 as demand continues to improve despite high coronavirus rates in the developing world.

Slow vaccination rates in emerging economies means oil demand in 3Q and 4Q will be lower than expected, the IEA said on Friday. Demand will hit its pre-pandemic high in 4Q next year, the watchdog added.

EMEA HEADLINES

European Privacy Ruling Could Mean More Scrutiny of Companies

The European Union's top court is set to weigh in Tuesday on whether a privacy regulator in one country can sanction a company if its headquarters is in another country. A go-ahead would potentially open firms up to more penalties.

Eurozone Industrial Production Growth Beat Expectations Despite Supply Chain Woes

Eurozone industrial production growth in April was higher than expected despite supply bottlenecks hindering activity in many sectors, Eurostat data showed.

Output from factories, mines and utilities across the single-currency area rose by 0.8% over the previous month in April, the EU statistics agency said Monday. This was above forecasts from economists polled by The Wall Street Journal, who had expected a 0.3% increase.

G-7 Leaders Rally to Biden's Call to Challenge China

CARBIS BAY, England-Leaders of the Group of Seven wealthy democracies called on China to respect human rights but stopped short of an outright condemnation of Beijing, as President Biden sought to build momentum for an international coalition to counter Chinese influence in the world.

A 25-page joint statement released by leaders of the G-7 nations on Sunday-covering issues ranging from pandemic recovery to the global economy, tax, trade and girls' education-asked China "to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong." The same section of the statement said the G-7 would continue to consult on how to challenge China's behavior in the global economy.

At G-7 Summit, Boris Johnson Can't Shake Off Brexit

FALMOUTH, England-For British Prime Minister Boris Johnson, the Group of Seven summit that he hosted over the weekend was a major opportunity to showcase the U.K.'s ambitions on the global stage, putting its years inside the European Union decisively behind it.

But he couldn't entirely make that happen. Wrangling over Brexit bled into the meeting, coloring what appeared to be a broadly successful summit.

Debt Burden Swells as Europe Extends Life Support for Companies

Rousselle Industrie SA, a maker of machinery for paint manufacturers in northern France, almost collapsed in 2020 after the pandemic disrupted supply and its clients' businesses.

The 10-person company was saved by the equivalent of $360,000 in loans under a government program that guaranteed debt and deferred interest payments for 12 months.

Carlos Ghosn Fallout: American Father, Son Plead Guilty to Role in Escape

TOKYO-Americans Michael Taylor and Peter Taylor pleaded guilty in Tokyo on Monday to the charge of helping former Nissan Motor Co. chief Carlos Ghosn escape Japan in a box aboard a private jet in late 2019.

Michael Taylor, a 60-year-old former Green Beret, and his son Peter Taylor, 28, were brought into a Tokyo courtroom in handcuffs surrounded by guards for the first day of their trial. After prosecutors read out a summary of the charge, the Taylors told the judge the prosecutors' statements were correct. The defendants didn't speak further on Monday, but a second trial session was scheduled for late June.

Shell mulling sale of holdings in largest U.S. oil field: reports

Royal Dutch Shell Plc is reportedly reviewing its holdings in the largest oil field in the U.S., according to reports Sunday.

The potential sale could include all of Shell's 260,000 acres in the Permian Basin, mostly in Texas, as the companyRDS.A RDS.B refocuses on existing production elsewhere and transitions to lower-carbon ventures, Reuters reported, citing unnamed people familiar with the matter.

Clariant to Sell Pigments Division

Clariant has agreed to sell its pigments business to a consortium, and will reinvest in it to keep a 20% stake, the Swiss chemicals company said Monday.

The divestment to a consortium of pigment maker Heubach and investment firm SK Capital Partners gives the division an enterprise value of between 805 million and 855 million Swiss francs ($897 million-$951 million), depending on an earn- out payment of CHF50 million relating to the business's financial performance this year, Clariant said.

Clariant will reinvest in the business for a 20% stake, allowing it "to further benefit from the improving profitability of the pigments business resulting from the initiated efficiency program," the company said. The deal concludes a divestment program begun in 2018, Chief Executive Conrad Keijzer said.

Italy's Illycaffè Sets Its Sights on the U.S. Coffee Market

Andrea Illy, chairman of Illycaffè SpA, and grandson of the founder, wants more Americans to appreciate his family's coffee. In a bid to build U.S. brand awareness, the Italian-based company plans to add about a dozen Illy Caffès and shops this year to its 20 already in service in the U.S.

There are just a few problems-including American taste in coffee. Most consumers in the U.S. favor giant, sweetened coffee drinks, rather than Illy's signature small cups of espresso.

Israel Gets New Government to End Netanyahu's 12-Year Rule

TEL AVIV-A new Israeli coalition government led by commando-turned-tech entrepreneur Naftali Bennett ended Benjamin Netanyahu's 12-year run in power, but now faces the difficult tasks of reviving an economy battered by the Covid-19 pandemic and preserving a fragile cease-fire with Palestinian militant group Hamas.

Mr. Bennett of the right-wing Yamina party took over as prime minister Sunday after his new, wide-ranging coalition was backed by 60 lawmakers in the 120-member Knesset, ending months of stalemate. Fifty-nine lawmakers voted against his coalition and one abstained.

Ousted From Power, Israel's Netanyahu Plots Comeback

TEL AVIV-Outmaneuvered by rival politicians after 12 years in power, Israeli Prime Minister Benjamin Netanyahu is already plotting a comeback, intending to challenge the new government on matters that could deeply divide the cross- party coalition.

Mr. Netanyahu, who now is expected to lead the opposition, plans to press the new governing coalition, which includes eight parties ranging from an Arab group to conservative forces, on sensitive policy issues such as settlement construction and empowering the country's Arabs.

Biden and Macron Share Affection and Worldview at G-7 Summit

President Biden and French President Emmanuel Macron threw their arms around each other as they walked on the beach. Later the two men shared a tête-à-tête as aides looked on. At one point Mr. Biden asked Mr. Macron to answer a reporter's question for him.

At the summit of the Group of Seven leaders in Cornwall this weekend, the two presidents embraced each other, sometimes literally, as allies on a host of issues-from multilateralism to fighting climate change-after years of volatility between Mr. Macron and former President Donald Trump.

GLOBAL NEWS

Investors Bet Green-Energy Focus Will Push Up Oil Prices

Some investors are wagering that Wall Street's preference for green energy will depress spending on oil extraction, setting the stage for supply shortages and higher fuel prices.

The bets come as money managers line up trillions of dollars for wind, solar and other renewable programs and expenditures on oil projects tumble. The drop in fossil-fuel spending is becoming so severe that energy companies could struggle to quench the world's thirst for oil, some analysts say.

Fed Officials Could Pencil In Earlier Rate Increase at Meeting

WASHINGTON-Federal Reserve officials could signal this week that they anticipate raising interest rates sooner than previously expected following a spate of high inflation readings.

In March, the last time they released quarterly economic forecasts, most officials expected to keep the Fed's benchmark interest rate near zero through 2023 to encourage the economy's recovery from the pandemic. Officials are set to release updated projections Wednesday after a two-day policy meeting.

G-7 Leaders Rally to Biden's Call to Challenge China

CARBIS BAY, England-Leaders of the Group of Seven wealthy democracies called on China to respect human rights but stopped short of an outright condemnation of Beijing, as President Biden sought to build momentum for an international coalition to counter Chinese influence in the world.

A 25-page joint statement released by leaders of the G-7 nations on Sunday-covering issues ranging from pandemic recovery to the global economy, tax, trade and girls' education-asked China "to respect human rights and fundamental freedoms, especially in relation to Xinjiang and those rights, freedoms and high degree of autonomy for Hong Kong." The same section of the statement said the G-7 would continue to consult on how to challenge China's behavior in the global economy.

Economy Week Ahead: The Fed, Factories and Consumers

The Federal Reserve's policy meeting highlights this week's slate of economic news.

Markets Are Leaving Little Room for the Fed to Be Wrong on Inflation

Investors have faith in the Fed. Over the past three months consumer prices, excluding volatile food and energy, have risen 2%, equivalent to a shockingly high annual rate of 8.2%. Rather than panic and dump bonds, investors have piled into Treasurys and pushed 10-year yields back down to where they stood in late February. Confidence in the central bank is absolute.

To be fair, the Fed is probably right: This burst of inflation is probably transitory. The reopening of the economy released a surge of pent-up demand, while supply bottlenecks are restricting production and distribution. As things get back to normal inflation should calm down.

Regulators Tell Banks It Is Time to Stop Using Libor

Regulators are ramping up efforts to end Libor trades by year-end.

The Commodity Futures Trading Commission last week told brokers that facilitate derivatives trading among large banks that they should stop using Libor, or the London interbank offered rate, as a reference rate by July 26. The Tuesday announcement could accelerate the push to phase out the troubled interest-rate benchmark, which underpins trillions of dollars worth of financial contracts. Authorities decided several years ago, after a widespread Libor-rigging scandal, that it should disappear by the end of 2021.

U.S. Fight Against Chinese 5G Efforts Shifts From Threats to Incentives

The U.S. government is ratcheting up pressure on Beijing's 5G ambitions overseas, offering financial incentives and other enticements to countries willing to shun Chinese-made telecom gear.

U.S. foreign-affairs agencies are developing workshops and a handbook that would help policy makers in places like Central and Eastern Europe, and in developing countries elsewhere, to build next-generation 5G cellular networks that don't use equipment from Huawei Technologies Co. and China's ZTE Corp.

Write to sarka.halas@wsj.com

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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


  (END) Dow Jones Newswires
  06-14-21 0613ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

News, commentary and research reports are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.