European Equities: Economic Data from China to Set the Tone ahead of the FED

Economic Calendar

Wednesday, 16th June

Eurozone Wages in euro zone (YoY) (Q1)

Thursday, 17th June

Eurozone Core CPI (YoY) (May) Final

Eurozone CPI (MoM) (May) Final

Eurozone CPI (YoY) (May) Final

The Majors

It was another bullish day for the European majors on Tuesday, with the EuroStoxx600 now having avoided the red for 8 sessions.

The CAC40 and the DAX30 rose by 0.35% and by 0.36% respectively, with the EuroStoxx600 gaining 0.11%.

A narrowing of the Eurozone’s trade surplus and disappointing retail sales figures from the U.S failed to weigh on the majors.

Market optimism towards the economic outlook ahead of tonight’s FOMC monetary policy decision and projections delivered support.

With some degree of uncertainty over the Committee’s stance on tapering, however, the upside was limited.

While there is uncertainty ahead of tonight’s decision, the ECB’s assurances have also provided the majors with support.

The Stats

It was a busier morning on the economic calendar, with finalized inflation figures for France, Germany, and Italy in focus. Trade data from the Eurozone was the key stat of the day, however.

Eurozone Trade

In April, the Eurozone’s trade surplus narrowed from €15.8bn to €10.9bn. Economists had forecast a narrowing to €14.4bn.

According to Eurostat,

  • Exports to the rest of the world was up 43.2% to €135.3bn in April when compared with April 2020.
  • Imports from the rest of the world increased 37.4%, year-on-year, to €133.0bn.
  • In April 2020, the trade surplus had stood at €2.3bn.
  • Intra-euro area trade rose to €178.9bn in April 2021, up by 61.9% compared with April 2020.

Inflation

In May, German consumer prices increased by 0.5%, which was in line with forecasts. German consumer prices had risen by 0.7% in April.

From France, consumer prices increased by 0.3% in May, which was also in line with forecasts. In April, consumer prices had risen by 0.1%.

In Italy, consumer prices stalled in May after having risen by 0.4% in April. This was also in line with forecasts.

While the numbers were mixed for the month of May, all three member states reported in a pickup in the annual rate of inflation.

Germany’s annual rate of inflation accelerated from 2.0% to 2.5%, with France’s ticking up from 1.2% to 1.4%.

In spite of consumer prices stalling in May, Italy’s annual rate of inflation picked up from 1.1% to 1.3%.

From the U.S

It was a busy day on the economic calendar, wholesale inflation and retail sales were the key stats of the day.

In May, the core producer price index rose by 0.7%, after a 0.7% increase in April. Economists had forecast a 0.5% rise.

Retail sales fell by 1.30%, however, after having risen by 0.9% in April. Core retail sales fell by 0.7% following a 0.8% decline from April.

Other stats included industrial production figures, manufacturing sector data from NY State, and inventory numbers.

These stats had a muted impact on the majors, however, ahead of tonight’s FOMC.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Tuesday. Volkswagen slid by 2.64%, with Continental and BMW ending the day down by 1.05% and by 0.36% respectively. Daimler bucked the trend, however, rising by a modest 0.39%.

It was also a mixed day for the banks, however. Deutsche Bank rose by 1.35%, while Commerzbank ended the day flat.

From the CAC, it was a mixed day for the banks. BNP Paribas rose by 0.04%, while Soc Gen fell by 0.44%. Credit Agricole ended the day flat.

It was also a mixed day for the French auto sector. Stellantis NV ended the day flat, while Renault fell by 1.67%.

Air France-KLM fell by 0.85%, while Airbus SE rose by 0.69%.

On the VIX Index

It was a 2nd consecutive day in the green for the VIX on Tuesday.

Following a 4.73% gain from Monday, the VIX rose by 3.84% to end the day at 17.02.

The NASDAQ fell by 0.71%, with the Dow and the S&P500 ending the day down by 0.27% and by 0.20% respectively.

VIX 160621 Daily Chart

The Day Ahead

It’s a quieter day ahead on the European economic calendar.

Eurozone wage growth figures for the 1st quarter are due out later this morning.

With all eyes on the FED, however, we don’t expect too much influence from the numbers.

From the U.S, housing sector data and import and export price index figures are due out late in the day. We would also expect the markets to brush these aside.

With the FED policy decision and projections due out after the European close, there will likely be some caution…

Ahead of the European open, economic data from China will set the tone. Recent industrial production and retail sales figures have been on the weaker side…

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 5 points.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Stocks: Japanese Shares Follow NASDAQ Higher; Aussie Shares Jump on Dovish RBA Minutes

The major Asia-Pacific stock indexes finished mixed on Tuesday with shares in Australia and Japan bucking the trend with nearly 1% gains. Trading was relatively light as investors looked to a much-anticipated Federal Reserve policy meeting on Wednesday to see if the central bank would signal any change to the U.S. monetary policy outlook.

In the cash market on Tuesday, Japan’s Nikkei 225 Index settled at 29441.30, up 279.50 or +0.96%. Hong Kong’s Hang Seng Index finished at 28638.53, down 203.60 or -0.71% and South Korea’s KOSPI Index closed at 3258.63, up 6.50 or +0.20%.

Traders will look closely at any hints from the meeting’s final statement about whether and when the Fed plans to taper its bond buying program, amid concerns from some quarters about inflation as the U.S. economy bounces back from the pandemic fallout. The two-day meeting starts on Tuesday.

Japanese Shares Track NASDAQ Higher, Drug Makers Shine

Japanese shares closed higher on Tuesday, buoyed by technology and growth-oriented stocks following a strong finish on the NASDAQ Composite overnight, while drug makers extended their gains.

Growth stocks led the gains after NASDAQ shares outperformed on Wall Street, with the Topix Growth Index rising 1.09%, compared with 0.53% gains in value shares.

“Today’s (Tuesday) strong market finish is simply a reaction to the gains in the NASDAQ overnight,” said Jun Morita, general manager of the research department at Chibagin Asset Management.

Drug makers were the top gainers among the Tokyo Stock Exchange’s 33 sectors with a rise of 1.65%. Eisai jumped 6.59%, making it the biggest gainer on the Nikkei.

Takeda Pharmaceutical, which is handling the supply of Novavax’s COVID-19 vaccine in Japan, rose 1.69% after clinical tests showed the U.S. firm’s vaccine candidate is more than 90% effective against a variety of variants of the virus.

Australia Shares Close at Record High as RBA Signals Continued Dovish Policy

Australian shares closed at a record high on Tuesday, helped by gains among banking and healthcare stocks, and after minutes from the domestic central bank’s June meeting signaled a continuation of its accommodative stance.

The Reserve Bank of Australia (RBA) is ready to extend its bond purchase program beyond September, minutes from its June policy meeting showed, with members calling the program “one of the factors underpinning the accommodative conditions necessary for the economic recovery”.

For a look at all of today’s economic events, check out our economic calendar.

Wall Street Slips as Fed Mulls Policy, Economic Data Disappoints

With the Fed kicking off a two-day policy meeting today, investors are balancing the central bank’s insistence inflation will be transitory with fresh data showing prices growing faster than expected.

In separate reports, U.S. economic data showed an acceleration in producer prices in May as supply chains try to keep up with surging demand with the pandemic easing, while retail sales dropped more than expected as consumers turned their attention back to service industries.

The readings have investors wondering if the Fed may come out of its meeting Wednesday with any indication it is tweaking its go-slow approach.

“Rising prices are expected to subside as the supply side of the economy recovers to meet demand and inventories are restocked, but accomplishing that will not be as easy as flipping a switch,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “It will take some time for that gap to be filled. In the meantime, upward pressure on prices are likely to continue.”

The central bank is not expected to announce any plans to ease back on its bond purchases until August, but investors are looking for any indication the Fed has begun discussing such an exit. Nearly 60% of economists in a Reuters poll expect a taper announcement will come in the next quarter, despite a patchy recovery in the job market.

“To a large extent, high US inflation has to do with the massive US fiscal stimulus. Inflation has been increasing in most of G10, but the US clearly stands out,” wrote Bank of America Securities analysts in a note. “Assuming that some of the recent increase in inflation is indeed sustained, we would argue that the Fed will react to it, supporting the USD later this year.”

After markets reached new highs in Europe, U.S. markets eased following the economic reports. U.S. Treasury yields also dipped, while the dollar ticked up.

The MSCI world equity index, which tracks shares in 45 nations, fell 0.86 points or 0.12%.

The Dow Jones Industrial Average was down 114.95 points, or 0.33% in afternoon trading, while the S&P 500 lost 9 points, or 0.21%, and the Nasdaq Composite dropped 89.10 points, or 0.63%.

OIL GAINS

Oil prices hit their highest levels since 2019 during trading Tuesday on an expected demand surge that should accompany increased travel as pandemic restrictions ease.

Brent crude was last up $1.09, or up 1.5%, at $73.95 a barrel. U.S. crude was last up $1.16, or 1.64%, at $72.04 per barrel. It previously hit a session high of $72.16 a barrel, the highest level seen since October 2018.

In currency markets, the dollar hit a one-month high against a basket of currencies Tuesday on the back of the fresh economic data. The dollar index, which measures the greenback against a basket of six currencies, was 0.06% higher at 90.544, after rising as high as 90.677, its highest since May 14.

Spot gold prices fell $9.585 or 0.51%, to $1,856.41 an ounce, while U.S. gold futures were down 0.4% at $1,857.60.

Benchmark 10-year yields were 1.4939%, slightly lower than Monday, when they rebounded from Friday’s three-month low.

(Reporting Pete Schroeder in Washington; Editing by Kim Coghill, Alex Richardson, Barbara Lewis and Peter Graff)

 

Analysis: Transitory or Here-to-Stay? Investors Try to Read the Inflation Clues

The combination of supply bottlenecks from the reopening of the global economy and the resumption of economic growth sent consumer prices in May up by the largest annual jump in nearly 13 years. Employers are raising wages as they compete for scarce workers while retailers have limited inventories because of shipping and production delays.

As investors assess the risks of rising prices to financial markets, however, some think the biggest gains in inflation are already in the rear-view mirror. That is in line with the Federal Reserve’s notion that inflation will be “transitory.”

The Fed meets on Tuesday and Wednesday, and investors will parse every word of its post-meeting statement.

The Fed has been buying $80 billion in Treasuries and $40 billion in mortgage-backed securities monthly, putting downward pressure on longer-term borrowing costs to encourage investment and hiring. Discussions about tapering those purchases are likely at this week’s policy meeting.

“As long as the increase in inflation is modest, stocks could continue to move higher,” said Russ Koesterich, portfolio manager of the $27.6 billion BlackRock Global Allocation Fund.

Koesterich thinks inflation will likely run above trend lines well into 2022 given the bottlenecks in global supply chains. Yet disinflationary forces such as an aging global population and gains in efficiency due to technology will keep a lid on “any 1970s-style inflation scare,” he said.

Investors who bet on inflation typically move into groups better-positioned to weather price rises, like materials and energy and companies with pricing power. Value stocks, in contrast, benefit from a broad economic recovery that does not become weighed down by steeply rising prices.

Koesterich said his fund has been decreasing its positions in growth stocks like technology and adding to industrials and European banks.

Jeff Mayberry, portfolio manager of the DoubleLine Strategic Commodity fund, thinks May’s inflation numbers will be the highest for the remainder of the year and remains bullish on oil, which hit a multi-year high on Friday. He sees the commodity benefiting from economic growth.

“The market was looking for a reason for inflation to be transitory and they got it,” Mayberry said of May’s inflation number, noting that some of the larger contributors came from short-term factors such as a spike in the price of rental cars.

Ernesto Ramos, chief investment officer at BMO Global Asset Management, also sees price rises as transitory. He cites a drop in lumber prices from May’s high that suggests supply chain bottlenecks will subside and “give us another reason to believe that inflation will remain under control.” Lumber prices are down more than 40% from record highs hit in early May.

REASONS TO WORRY

While the majority of investors believe inflation is transitory, according to a Bank of America fund manager survey, worries remain.

“Inflation has been the most discussed topic with clients for weeks, bordering on obsession,” wrote analysts at Morgan Stanley led by Michael Wilson. Those analysts think the rate of change on inflation is peaking.

Greg Wilensky, head of U.S. Fixed Income at Janus Henderson, said he has been buying more Treasury-Inflation Protected Securities as the break-even rate – a measure of expected inflation in the bond market – has retreated to near its February levels.

While he is not “changing my base case” that high inflation will prove to be transitory, “the risks around the base case continue to skew toward the upside on inflation,” given the persistent difficulties companies are having hiring lower-paid workers, Wilensky said.

The Fed’s statement could give important clues.

“I’m going to watch the Fed on Wednesday and if they treat these numbers with nonchalance it is a green light to bet heavily on the inflation trade,” Paul Tudor Jones of Tudor Investment Corp told CNBC on Monday. He said he would be “really concerned arguing that inflation is transitory” with inventories at a “record low” while demand is “screaming.”

Morgan Stanley Chief Executive James Gorman told CNBC on Monday that “my gut tells me that this economy is recovering faster, inflation is moving quicker and inflation may not be as transitory as we all expect.” He cited the global economic recovery and record levels of fiscal and monetary support.

“Even if investors disagree with the Fed’s often-stated mantra that inflation is just transitory, they have learned to respect the massive influence the world’s most powerful central bank has when possessing such conviction that is not even ‘thinking about thinking’ about easing its foot off the stimulus accelerator,” said Mohamed El-Erian, chief economic adviser at Allianz. “The resulting comfort with continued ultra-loose financial conditions is supportive in the short run of elevated stock prices and low yields.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by David Randall; Editing by Megan Davies and Dan Grebler)

Mexican President Says Has No Plans to Hike Taxes

“It’s important to clarify that there will not be reforms promoted by the executive to increase taxes,” Lopez Obrador told a regular government news conference.

The finance ministry has flagged a fiscal overhaul with the lowest tax take in the Organisation for Economic Co-operation and Development (OECD) group of industrial nations.

But in an effort to protect a nascent economic recovery and avoid the type of unrest over taxes seen in Colombia, the government has softened the planned reform.

Lopez Obrador had promised to impose no new taxes or hikes for the first three years of his six-year term, but that halfway point will be reached in December.

Deputy Finance Minister Gabriel Yorio told Reuters the government does not plan tax increases in the fiscal reform, but will consider closing loopholes, making taxation more efficient and expanding the tax base.

Ratings agency Moody’s said it expects any tax reform “to be incremental, and not transformative,” meaning it will focus more on administrative issues rather than changing the structure of the tax system, which will limit the boost to revenues.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Dave Graham and Anthony Esposito; Editing by Franklin Paul and Grant McCool)

USD/INR: Rupee Extends Losses for Sixth Straight Session, Hits One-Month Low

The Indian rupee fell to a one-month low against the U.S. dollar on Tuesday, depreciating for the sixth straight day as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR to an intraday high of 73.3730 – hit its weakest since May 14 – against the U.S. currency from the Monday’s close of 73.18. The rupee has lost 86 paise so far this month and weakened 51 paise in the six trading sessions.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, rose 0.07% to 90.587. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index ended up 221.52 points, or 0.42% higher at 52,773.05, while the broader NSE Nifty advanced 57.40 points or 0.36% to close at 15,869.25.

On the other hand, global oil benchmark Brent futures rose 0.43% to $73.17 per barrel. However, foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth Rs 503.51 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two week. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

Indian Rupee is expected to trade with negative bias amid strong dollar, surge in crude oil prices and disappointing macroeconomic data. India CPI data showed inflation accelerated by 6.3% in May 2021 compared to 4.23% in April 2021. Inflation breached the Reserve Bank of India’s target range of 2-6% for first time in 5 months. Further, market participants fear that the second wave of covid-19 infection in India has dampened the expectation of quick economic recovery,” noted analysts at Sharekhan BNP Paribas.

“Furthermore, traders will remain cautious ahead of US FOMC meeting outcome and economic projections. However, sharp fall may be prevented as number of COVID-19 cases in India continued to decline. India reported daily new covid-19 cases below 1 lakh for 7th consecutive day. USDINR spot expected to trade in a range between 72.90 on lower side to 73.40 on higher side with an upward trend.”

Consumer Staples, Energy Stocks Boost FTSE 100; Delayed Reopening Cap Gains

The blue-chip index rose 0.4% to its highest close since February 2020 highs. Dollar-earning consumer staples stocks, including Unilever, Reckitt Benckiser Group, British American Tobacco and Diageo Plc gained between 0.58% and 1.77%, on the weaker pound.

Energy stocks gained 0.32% as oil majors including BP and Royal Dutch Shell gained 0.7% and 1.8% respectively, tracking crude prices.

The domestically focused mid-cap FTSE 250 index fell 0.5%. Prime Minister Boris Johnson pushed back plans to lift most remaining COVID-19 restrictions to July 19, citing the rapid spread of the more infectious Delta variant.

Travel and leisure stocks fell 0.8%, with Flutter Entertainment Plc and Entain Plc among the top decliners.

There was good news however on the jobs front, as the number of employees on British company payrolls surged by a record 197,000 in May as COVID-19 restrictions eased, tax data showed.

Meanwhile global markets including London are focused on the U.S. Federal Reserve meeting for clues to a sooner-than-expected tapering of its monetary policy, prompted by rising inflation.

“The latest test of the market’s more relaxed attitude over rising prices is likely to come with the next meeting of the Federal Reserve tomorrow when its position on rates and stimulus will be announced,” said Russ Mould investment director at AJ Bell.

The FTSE 100 and the FTSE 250 have gained more than 11% this year, but they have oscillated in a narrow range since mid-April on worries that a COVID-19 resurgence might crimp the recovery, and rapid economic growth could lead to higher inflation.

Among stocks, Boohoo Group Plc gained 1.07% after the British online fashion retailer reported a 32% rise in sales in its latest quarter benefiting from rising demand as lockdown restrictions eased.

However, Non-Standard Finance slipped 17.2% as the subprime lender plans to raise around 80 million pounds ($112.98 million) in the third quarter potentially through a share sale.

(Reporting by Devik Jain and Amal S in Bengaluru)

 

Stocks Mixed After Weaker-Than-Expected Retail Sales Report

Market Shows Little Reaction To Retail Sales Report As Traders Stay Focused On Fed

U.S. has just provided Retail Sales report for May. Retail Sales decreased by 1.3% month-over-month in May compared to analyst consensus which called for a decline of 0.8%.

On a year-over-year basis, Retail Sales grew by 28.1% as they were under significant pressure in May 2020. Excluding Autos, Retail Sales decreased by 0.7%.

S&P 500 futures are mostly flat after the release of the Retail Sales report. The report missed analyst estimates, but the market remains focused on the Fed Interest Rate Decision which will be released on Wednesday, and it looks that it is not ready for big moves.

Producer Prices Grew By 0.8% In May

U.S. has also released Producer Prices reports for May. On a month-over-month basis, Producer Prices increased by 0.8% compared to analyst consensus of 0.6%. Year-over-year, Producer Prices grew by 6.6% compared to analyst consensus which called for growth of 6.3%.

Inflation is clearly rising faster than expected, but the key question is whether Fed will do anything about it, or it will remain committed to its dovish stance. If Fed is more hawkish than expected on Wednesday, stocks may find themselves under pressure.

Today, traders will also have a chance to take a look at Industrial Production  and Manufacturing Production reports. Analysts expect that Industrial Production increased by 0.6% month-over-month in May while Manufacturing Production also grew by 0.6%.

WTI Oil Moves To New Highs

WTI oil is currently trying to settle above the $72 level as rally continues. From the technical point of view, RSI has recently moved to the overbought territory so the risks of a pullback are increasing, but traders stay focused on the rebound of demand for oil.

In addition, it looks that there is little progress in negotiations with Iran. At this point, the oil market is not worried about the potential return of Iranian oil, and WTI oil looks ready to get to the test of the psychologically important $75 level.

For a look at all of today’s economic events, check out our economic calendar.

Inflation Figures and Trade Data from the Eurozone Deliver Mixed Results for the EUR

It was a busier morning on the economic calendar, with finalized inflation figures for France, Germany, and Italy in focus. Trade data from the Eurozone was the key stat of the day, however.

Eurozone Trade

In April, the Eurozone’s trade surplus narrowed from €15.8bn to €10.9bn. Economists had forecast a narrowing to €14.4bn.

According to Eurostat,

  • Exports to the rest of the world was up 43.2% to €135.3bn in April when compared with April 2020.
  • Imports from the rest of the world increased 37.4%, year-on-year, to €133.0bn.
  • In April 2020, the trade surplus had stood at €2.3bn.
  • Intra-euro area trade rose to €178.9bn in April 2021, up by 61.9% compared with April 2020.

Inflation

In May, German consumer prices increased by 0.5%, which was in line with forecasts. German consumer prices had risen by 0.7% in April.

From France, consumer prices increased by 0.3% in May, which was also in line with forecasts. In April, consumer prices had risen by 0.1%.

In Italy, consumer prices stalled in May after having risen by 0.4% in April. This was also in line with forecasts.

While the numbers were mixed for the month of May, all three member states reported in a pickup in the annual rate of inflation.

Germany’s annual rate of inflation accelerated from 2.0% to 2.5%, with France’s ticking up from 1.2% to 1.4%.

In spite of consumer prices stalling in May, Italy’s annual rate of inflation picked up from 1.1% to 1.3%.

Market Impact

Ahead of the trade data, the EUR had fallen to a pre-stat and current day low $1.21139 before rising to a pre-stat high $1.21281.

In response to the inflation and trade data, the EUR rose to a post-stat and current day high $1.21474 before falling back to a post-stat low $1.21208.

At the time of writing, the EUR was up by just 0.01% to $1.21225.

EURUSD 150621 Hourly Chart

Next Up

Retail sales, wholesale inflation, industrial production, and manufacturing numbers from the U.S. Expect the retail sales figures to be key…

Kroger Earnings to Fall About 20% in Q1; Target Price $35

Kroger, one of the world’s largest food retailers, is expected to report its fiscal first-quarter earnings of $0.98 per share, which represents a year-over-year decline of about 20% from $1.22 per share seen in the same period a year ago.

The retailer, which operates over 2,500 supermarkets in the U.S., would post a revenue decline of 5.6% year-on-year to $39,222 million. However, it is worth noting that in the last four quarters, on average, the company has beaten earnings estimates about 19%.

Kroger is likely to have faced tough year-over-year comparisons in sales, as COVID-19 benefits are lapped. Industry experts believe that lower at-home consumption activities and a drop in pantry-loading trends might have hurt the company’s first-quarter top-line performance,” noted analysts at ZACKS Research.

Kroger shares rose over 20% so far this year. The stock ended 0.8% lower at $38.4 on Monday.

Analyst Comments

“The company has been making every effort to strengthen position not only with respect to products but also in terms of the way consumers prefer shopping. The company’s “Restock Kroger” program involving investments in omni-channel platform, identifying margin-rich alternative profit streams, merchandise optimization, and lowering of expenses has been gaining traction,” noted analysts at ZACKS Research.

“These aided the company to post decent fourth-quarter fiscal 2020 results, wherein both the top and the bottom lines grew year-over-year. However, Kroger expects tough year-over-year comparison in fiscal 2021, and signaled a decline in identical sales, without fuel. Pandemic-induced demand is likely to moderate, as vaccination drive gather space and consumers return to the old normal.”

Kroger Stock Price Forecast

Eight analysts who offered stock ratings for Kroger in the last three months forecast the average price in 12 months of $35.00 with a high forecast of $38.00 and a low forecast of $31.00.

The average price target represents a -8.85% from the last price of $38.40. Of those 8 analysts, none rated “Buy”, five rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $29 with a high of $45 under a bull scenario and $16 under the worst-case scenario. The firm gave an “Underweight” rating on the software company’s stock.

Kroger (KR) is one of the largest conventional food retailers, with competitive advantages including leading scale, an advanced customer data science platform, and ramping digital capabilities. 2020 was a historically strong year for KR driven by COVID-19 uplifts, but KR’s share gains are already normalizing we anticipate an industry sales slowdown in 2021-2022 that is underappreciated in Street estimates,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Meanwhile we model EBIT margins to return to pre-COVID-19 levels by 2022 as normalizing promotional activity and e-comm pull-forward pressure margins. Longer-term we continue to struggle to model a path to sustainable EBIT growth and margin stabilization.”

Several other analysts have also updated their stock outlook. Oppenheimer raised the price target to $38 from $34. BMO lifted the price target to $36 from $34. Jefferies increased the price target to $37 from $33. UBS raised the target price to $35 from $33. Deutsche Bank lifted the target price to $36 from $35.

Check out FX Empire’s earnings calendar

Czech Central Banker Dedek: Holding Fire in June Seems “More Reasonable”

Having kept its main two-week repo rate at 0.25% since May 2020, central bank policymakers have been weighing whether to start tightening in June or wait until the next meeting in early August.

Inflation eased to 2.9% in annual terms in May after a jump to 3.1% in April, and Dedek doubted whether flare up again so soon.

“That last figure created somewhat bigger comfort for the option to wait for another set of data,” Dedek said in an interview conducted on Monday.

“If I were to choose from the two options (June or August), then given the uncertainty, I would be more comfortable if the waiting period was longer,” he said.

His caution may not shared by others among the seven-member board. Four of them have already indicated that the bank could possibly start raising interest rates as early as the June 23 policy meeting.

After suffering its deepest recession due to the COVID-19 pandemic, the Czech economy has shown signs of a strong revival.

While the gross domestic product fell 2.1% year-on-year in the first quarter, output in industry — key to the heavily manufacturing-based Czech economy — soared by 55.1% in April compared to the same month last year, when COVID-19 disruptions shut many factories and automaker plants like Volkswagen’s Skoda Auto.

Even with such promising signs of recovery, Dedek said it was perhaps too early begin tightening policy.

“To use the monetary policy, that in fact means to step on brakes. To step on brakes when you are at a bottom… it would be better to start using brakes when the economy gets better.”

Dedek also said that tightening could put additional pressure on public debt financing, when it is already dealing with the government’s loose fiscal policy.

The bank’s quarterly staff forecast update from May penciled around three interest rate hikes by year-end.

Following the bank’s hawkish signals, the market has priced in almost two full hikes by the year-end, with around 50% chance of the first hike already this month.

Should the Czech central bank decide to tighten, it would be among the first in the European Union, with Hungary’s central bank signaling its intention to tighten when it meets on June 22.

(Reporting by Robert Muller; editing by Jan Lopatka & Simon Cameron-Moore)

 

EU, U.S. Sow Seeds for Climate Cooperation, Dodge Coal’s end Date – Draft

U.S. President Joe Biden will meet the chief of the European Union’s executive, Ursula von der Leyen, and European Council President Charles Michel on Tuesday for a summit tackling issues from trade to the COVID-19 pandemic.

The meeting marks the return of EU-US collaboration on fighting climate change, after former President Donald Trump pulled the United States out of the Paris Agreement and rolled back environmental regulations.

The United States and EU are the world’s second- and third- biggest emitters of CO2, respectively, after China. A draft of their summit statement, seen by Reuters, outlines plans for a transatlantic alliance to develop green technologies, and points to sustainable finance as an area for closer transatlantic collaboration.

The EU and United States will also “scale up efforts” to meet an overdue spending pledge of $100 billion a year by rich countries to help poorer countries cut carbon emissions and cope with global warming, the draft said.

It did not include firm promises of cash. Canada and Germany both pledged billions in new climate finance on Sunday, and campaigners had called on Brussels and Washington to do the same.

The United States pledged in April to double its climate funding by 2024 from high average levels hit during the Obama administration of roughly $2.8 billion.

The EU and its member countries are, taken together, the biggest provider of climate finance to developing countries, contributing 21.9 billion euros in 2019.

The draft EU-US statement echoed a statement made by G7 leaders this weekend, which pledged to stop government financing for international coal plants without carbon capture technology by 2022.

But it also stopped short of setting a date for the United States and EU to quit burning coal, the most polluting fossil fuel and the single biggest of greenhouse gas emissions. Brussels and Washington said they will largely eliminate their CO2 emissions from electricity production by the 2030s.

While Biden set an executive order setting a goal for net zero emissions in the US electric sector, U.S. Democrats and Republicans are at odds over whether to include a measure to enact that goal in an infrastructure package that is being debated in Congress, worrying environmental groups.

“It’s a minimal expectation that the Biden administration does everything it can and use all the tools at its disposal,” said Nat Keohane, international climate director at the Environmental Defense Fund. “That will take some political capital and creativity.”

(Reporting by Kate Abnett, additional reporting by Valerie Volcovici; Editing by Marguerita Choy and Andrew Heavens)

 

European Equities: Economic Data from the Eurozone and the U.S in Focus

Economic Calendar

Tuesday, 15th June

German CPI (MoM) (May) Final

French CPI (MoM) (May) Final

French HICP (MoM) (May) Final

Italian CPI (MoM) (May) Final

Eurozone Trade Balance (Apr)

Wednesday, 16th June

Eurozone Wages in euro zone (YoY) (Q1)

Thursday, 17th June

Eurozone Core CPI (YoY) (May) Final

Eurozone CPI (MoM) (May) Final

Eurozone CPI (YoY) (May) Final

The Majors

It was a mixed start to the week for the European majors on Monday.

The CAC40 and the EuroStoxx600 rose by 0.24% and by 0.18% respectively, while the DAX30 slipped by 0.13%.

Better than expected economic data from the Eurozone and hopes of an accommodated FED delivered support on Monday.

While FOMC members have signaled a willingness to begin discussion on tapering, NFP numbers have yet to press for a hasty response.

The market focus early in the week will be on the FED, with the FOMC meeting kicking off later today.

The Stats

In April, industrial production increased by 0.8%, coming in ahead of a forecasted and March 0.4% rise.

According to Eurostat,

  • Production of consumer goods rose by 3.4%, energy by 3.2%, capital goods by 1.4%, and intermediate goods by 0.8%.
  • Bucking the trend, however, was a 0.3% decline in the production of non-durable consumer goods.
  • Belgium (+7.4%), Malta (+5.6%), and Estonia (+4.4%) recorded the largest monthly increases.
  • Lithuania registered the largest monthly decrease of 2.4% in the month.
  • Compared with April 2020, industrial production was up by 39.3%.
  • The production of durable consumer goods was up by 117.3%, year-on-year.
  • There were also marked increases in the production of capital goods (+65.4%) and intermediate goods (+38.7%).
  • Non-durable consumer goods (+15.4%) and energy (+14.4%) production were up modestly by comparison.

From the U.S

It was a particularly quiet day on the economic calendar, with no material stats to provide direction late in the session.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Monday. Volkswagen and Daimler fell by 0.94% and by 0.97% respectively, with Continental ending the day down by 0.72%. BMW saw a more modest 0.03% loss on the day.

It was a bearish day for the banks, however. Deutsche Bank and Commerzbank ended the day down by 1.44% and 1.38% respectively.

From the CAC, it was a mixed day for the banks. BNP Paribas and Credit Agricole rose by 0.23% and by 0.27% respectively. Soc Gen ended the day flat.

It was also a mixed day for the French auto sector. Stellantis NV ended the day flat, while Renault fell by 0.18%.

Air France-KLM slid by 1.40%, while Airbus SE eked out a 0.04% gain on the day.

On the VIX Index

It was back into the green for the VIX on Monday, marking 4th gain in 8 sessions.

Reversing a 2.80% fall from Friday, the VIX rose by 4.73% to end the day at 16.39.

The Dow fell by 0.25%, while the NASDAQ and the S&P500 ended the day up by 0.74% and by 0.18% respectively.

VIX 150621 Daily Chart

The Day Ahead

It’s a busier day ahead on the European economic calendar.

Finalized inflation figures for France, Germany, and Italy are due out along with trade data for the Eurozone.

Expect the Eurozone’s trade data for April to draw the greatest interest.

From the U.S, it’s a busy day ahead, with NY Empire State Manufacturing Index, wholesale inflation, and retail sales figures the key stats of the day.

Industrial production and inventory numbers are also due out but should have a muted impact on the majors.

Away from the economic calendar, further chatter following the G7 Summit will also need monitoring.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 23 points.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Waver as Investors Eye the Fed

The Dow Jones Industrial Average fell 248.82 points, or 0.72%, in midday trading. The S&P 500 lost 11.83 points, or 0.28%, while the Nasdaq Composite added 53.24 points, or 0.38%.

Yields on benchmark 10-year U.S. Treasuries rose slightly to 1.495%, after falling to a three-month low of 1.43% on Friday, a dip experts pegged to positioning and a watchful eye on the global pandemic.

“While it’s not entirely intuitive to us, we understand the move to be a combination of positioning, peak liquidity and renewed concerns about COVID as the U.K. pushes back its latest steps toward re-opening,” said Stephanie Roth, senior markets economist at JPMorgan Private Bank. “We are not surprised to see choppy markets ahead of Wednesday’s FOMC. Investors are wondering… whether the Fed will hint at tapering.”

That sentiment weighed on gold prices as well, as the precious metal slipped as much as 1.7%. Spot gold prices were down 0.66% by 1:26 p.m. EDT (1726 GMT) to $1,864.19 an ounce. U.S. gold futures dropped 0.7% to $1,865.10.

The recent uptick in inflation data heightens the stakes for the Fed’s upcoming policy-setting meeting, which will be followed by a news conference by Chairman Jerome Powell. Analysts said the central bank will have to tread a fine line, laying out its strategy for exiting an unprecedented era of pandemic-spurred accommodation without spooking investors.

“The Fed’s messaging this year will be critical; the Fed needs to convey its intention to wind down ultra-accommodative policy, but at the same time convey that it has no intention of abruptly tightening policy, a fine line that could easily be miscommunicated,” wealth management firm Glenmede cautioned in a client note.

The prospect of a return to economic normalcy put gas into oil prices, which hit their highest levels in more than two years. Brent rose 34 cents to $73.03 a barrel by 12:56 p.m. EDT (1656 GMT). Earlier in the session, it reached $73.64 a barrel, its highest since April 2019, boosted by the economic recovery and anticipated demand growth as vaccination campaigns accelerate.

U.S. West Texas Intermediate rose 27 cents to $71.18 a barrel. It hit a session high of $71.78 a barrel, its highest since October 2018. [O/R]

BITCOIN BUMP

In currencies, the U.S. dollar dipped slightly on Monday after logging its largest weekly change in over a month.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.058 point or 0.06%.

The yen stood little changed at 109.92 yen, while the British pound changed hands at $1.4108, near the lower end of its trading range over the past month.

Bitcoin has bounced back somewhat after Tesla Inc CEO Elon Musk tweeted that the electric carmaker could reopen the door to bitcoin transactions in the future. It was last bought at $40,140.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting Pete Schroeder in Washington. Editing by Jacqueline Wong, Alexander Smith, Chizu Nomiyama and Dan Grebler)

USD/INR Posts Longest Daily Losing Streak in Over Two Months

The Indian rupee depreciated against the U.S. dollar for the fifth straight day on Monday as rising oil prices weighed on the currency despite strength in domestic equity markets.

The USD/INR rose to an intraday high of 73.2910 against the U.S. currency from Friday’s close of 73.24. The rupee has lost 49 paise in the last five trading sessions – its longest losing streak in more than two months.

“The Indian Rupee declined further amid dollar demand. USD/INR pair settled 0.55% higher at 73.24.  The US dollar/rupee pair formed an inside bar indicating breather for rupee near strong hurdle placed at 72 levels over past six months,” Dharmesh Shah, Head – Technical, ICICI direct

“We expect the rupee to take a breather around 72-mark and consolidate in 72- 74 band. Only a decisive move below 72 would indicate extended gains for the rupee.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, fell 0.12% to 90.45. The index is expected to rise further after the relatively impressive US consumer price index data, which rose by 5% year-on-year – the highest since 2008.

The rupee was also under some pressure ahead of the Federal Reserve monetary policy meeting scheduled this week. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The Indian equity market witnessed a strong influx of retail investors, pushing the benchmark BSE Sensex index up 76.77 points, or 0.15% higher at 52,551.53, while the broader NSE Nifty gained 12.50 points or 0.08% to close at 15,811.85.

On the other hand, global oil benchmark Brent futures rose 0.94% to $73.36 per barrel. Foreign institutional investors were net buyers in the capital market on Friday as they purchased shares worth Rs 18.64 crore, as per provisional data.

The Indian rupee was one of Asia’s best performers, having risen 2.3% in May, but lost ground last two weeks. The USD/INR is expected to rise over 1% to INR 74.00 against the U.S. dollar rate over the coming year.

The domestic currency remained under pressure as the RBI slashed India’s growth projections down to 9.5 percent from the earlier evaluation of 10.5 due to the ongoing pandemic. Sentiments were further hampered after the World Bank axed India’s GDP projections to 8.3 percent for FY22, down from the earlier forecast of 10 percent,” noted currency analyst at Angel Broking.

“Steady increase in Oil prices, widening trade deficit and imports triggered inflation in India also added to the downside. However, bets on paced recovery in global economies and an accommodative stance by the US Federal Reserve limited the gains for the US Dollar. The Indian Rupee also found some support after the exports in the first week on June’21 stood at $7.71 billion, higher by 52.4 percent. The Indian Rupee might remain under pressure in the days ahead following the increase in demand for the Dollar in the global markets.”

Stocks Mixed At The Beginning Of The Week

Traders Wait For Additional Catalysts

S&P 500 futures are mostly flat in premarket trading as traders wait for key catalysts that will be released later this week.

There are no important economic reports scheduled to be released today, and traders will have to wait until Tuesday to see the important Retail Sales data for May. Analysts expect that Retail Sales declined by 0.7% on a month-over-month basis.

Traders will also have a chance to take a look at Producer Prices data for May. Producer Prices are expected to grow by 6.3% year-over-year in May, but it remains to be seen whether the market will be impressed by these numbers since it has successfully ignored the recent increase of Inflation Rate.

On Wednesday, market’s focus will shift to Fed Interest Rate Decision and the subsequent commentary. This Fed meeting is especially important since the Fed will release FOMC Economic Projections which will likely have a material impact on markets.

WTI Oil Is Moving Towards The $72 Level

WTI oil continues to move higher as traders remain focused on the rebound of oil demand. The recent data from U.S. airlines suggests that demand continues to rise which is bullish for oil.

Interestingly, energy-related stocks failed to gain sufficient upside momentum in recent trading sessions, but the continuation of oil rally will likely push them to higher levels.

Precious Metals Decline At The Start Of The Week

Gold declined below the 20 EMA at $1875 and gained strong downside momentum. Currently, it is trying to get to the test of the 50 EMA which is located at $1840. Silver also found itself under significant pressure and is testing the major support level at $27.50.

It looks that precious metals traders were surprised by the recent strength of the U.S. dollar. U.S. dollar is flat against a broad basket of currencies today, but the U.S. Dollar Index has recently failed to settle below the psychologically important support level at 90 which served as a material bearish catalyst for gold and silver. In this light, gold mining stocks and silver mining stocks will find themselves under pressure at the start of the week.

For a look at all of today’s economic events, check out our economic calendar.

Eurozone Industrial Production Figures for April Deliver EUR Support

It’s a quieter day on the economic data front this morning. Industrial production figures for the Eurozone were in focus this morning.

Industrial Production

In April, industrial production increased by 0.8%, coming in ahead of a forecasted and March 0.4% rise.

According to Eurostat,

  • Production of consumer goods rose by 3.4%, energy by 3.2%, capital goods by 1.4%, and intermediate goods by 0.8%.
  • Bucking the trend, however, was a 0.3% decline in the production of non-durable consumer goods.
  • Belgium (+7.4%), Malta (+5.6%), and Estonia (+4.4%) recorded the largest monthly increases.
  • Lithuania registered the largest monthly decrease of 2.4% in the month.
  • Compared with April 2020, industrial production was up by 39.3%.
  • The production of durable consumer goods was up by 117.3%, year-on-year.
  • There were also marked increases in the production of capital goods (+65.4%) and intermediate goods (+38.7%).
  • Non-durable consumer goods (+15.4%) and energy (+14.4%) production were up modestly by comparison.

Market Impact

Ahead of the trade data, the EUR had fallen to a pre-stat and current day low $1.20943 before rising to a pre-stat high and current day high $1.21208.

In response to the industrial production figures, the EUR slipped to a post-stat low $1.21085 before rising to a post-stat high $1.21187.

At the time of writing, the EUR was up by 0.06% to $1.21154.

EURUSD 140621 Hourly Chart

Europe Carbon Prices Expected to Rise to 2030 – Industry Survey

The EU’s emissions trading system (ETS) is the largest carbon market in the world, covering around 45% of the bloc’s output of greenhouse gases and charging emitters for every tonne of carbon dioxide they emit.

The survey by the International Emissions Trading Association (IETA) found members expect carbon prices in the EU ETS to average 47.25 euros ($57) a tonne between 2021 and 2025 and 58.62 euros a tonne between 2026 and 2030.

This is mainly due to a tougher EU goal of cutting emissions by at least 55% by 2030, compared to 1990 levels.

Last year’s survey predicted an average price of 31.71 euros a tonne for the third phase of the ETS which runs from 2021 to 2030. Benchmark prices in the ETS currently trade around 53 euros a tonne.

Britain’s domestic emissions trading scheme started trading in May this year. The majority of survey respondents expect it will link with the EU scheme by 2023.

Participants anticipate that the average global carbon price needed by 2030 to put the world on track to meet goals to curb global temperature rise is 63.20 euros a tonne, up from last year’s expectation of 55.97 euros a tonne.

IETA’s members include banks, exchanges and energy and industrial firms. The association received responses from 158 member representatives for the survey.

($1 = 0.8262 euros)

(Reporting by Nina Chestney; Editing by Emelia Sithole-Matarise)

 

Euro Zone at a Turning Point but Too Early to Debate End of ECB Help: Lagarde

The ECB last week agreed to maintain an elevated pace of bond purchases to keep borrowing costs ultra low and policymakers did not even entertain questions about tapering support, even as growth rebounds faster than earlier predicted.

“I am not suggesting that the pandemic emergency purchase programme (PEPP) is going to stop on 31 March,” Lagarde was quoted on Monday as saying. “We have plenty of flexibility, but in terms of economic outlook we are heading in the right direction.

“It is far too early to debate these issues,” she said about winding down the 1.85 trillion euro PEPP, which is scheduled to last at least until March 31 or until the crisis phase of the pandemic is over.

Economists expect the ECB to start discussing the end of PEPP at their September meeting and the vast majority of ECB watchers polled by Reuters do not expect PEPP to be enlarged and extended again.

Instead, the ECB is more likely to shift policy support to an older and more rigid Asset Purchase Programme, which is likely to remain in place indefinitely as inflation is due to undershoot the ECB’s target for years to come.

“We are at a turning point where, bearing in mind alternative (virus) variants, we are on that recovery path, heading firmly towards a return to the pre-COVID-19 level,” Lagarde added.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Balazs Koranyi; Editing by Kim Coghill)

Adobe Could Hit New All-Time High on Strong Q2 Earnings; Target Price $567

The U.S. multinational computer software company Adobe is expected to report its fiscal second-quarter earnings of $2.81 per share, which represents year-over-year growth of about 15% from $2.45 per share seen in the same period a year ago.

The San Jose, California-based software company would post year-over-year revenue growth of over 19% to $3.73 billion. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 7%.

Adobe’s better-than-expected results, which will be announced on June 17, would help the stock hit new all-time highs. Adobe shares rose over 8% so far this year. The stock ended 1.07% higher at $541.26 on Friday.

Analyst Comments

“Upside to Digital Media net new ARR, positive checks in Digital Experience, and conservative operating margin forecasts for 2Q make us buyers into the print. Multiple rev growth engines and durable 20%+ EPS growth frames an attractive risk/reward for this solid secular growth franchise,” noted Keith Weiss, equity analyst at Morgan Stanley.

Adobe has leading market share in some of the most dynamic secular growth areas in software: creative design, dynamic media, and marketing automation. As such, we see the longer-term growth story for ADBE as better than most. With a large recurring rev base and operating margin improvements expected (as margin pressure from recent acquisitions comes to an end), we expect 20%+ EBIT CAGR from FY20-FY22 and believe this durable growth is not fully reflected in shares. Our $575 PT is based on 41x CY22e EPS of $13.96, which implies ~2.3x PEG on 16% EPS CAGR from FY20-FY22e.”

Adobe Stock Price Forecast

Twenty analysts who offered stock ratings for Adobe in the last three months forecast the average price in 12 months of $567.78 with a high forecast of $650.00 and a low forecast of $520.00.

The average price target represents 4.90% from the last price of $541.26. Of those 20 analysts, 17 rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $575 with a high of $698 under a bull scenario and $438 under the worst-case scenario. The firm gave an “Overweight” rating on the software company’s stock.

Several other analysts have also updated their stock outlook. Wolfe Research set an “outperform” rating and a $650.00 target price for the company. The Goldman Sachs Group reiterated a “neutral” rating and issued a $523.00 price target.

Bank of America reiterated a “buy” rating and issued a $570.00 price target on shares. Credit Suisse issued an “outperform” rating and a $575.00 price target for the company. Jefferies raised the target price to $630 from $560.

ADBE +8% YTD trails SP50 13% and peer INTU 24%, despite strong fundamentals (FY21 JEFe rev +20% with OM +150bp to 44%). Our expert calls have been very positive, especially for DX,” noted Brent Thill, equity analyst at Jefferies.

“These point to a decent size FQ2 beat (JEFe 2%+), though stock may need more to overcome headwinds affecting growth & software sectors and CFO transition uncertainty. Improving momentum into 2H could help turn around cautious sentiment. ADBE remains a top 4 large-cap software pick.”

Check out FX Empire’s earnings calendar