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EUROPEAN MIDDAY BRIEFING: Stocks Slip as PMI Shows Business Activity Surging

06/23/2021 | 06:25am EDT

MARKET WRAPS

Stocks:

European stocks struggled on Wednesday, with fresh data showing eurozone business activity growing at the fastest rate in 15 years, while U.S. equity futures inched up. Shares of Pernod Ricard rose after an upbeat forecast.

Data were swinging into focus for Wednesday, with the IHS Markit flash eurozone composite purchasing managers index for June climbing to 59.2 from 57.1 in May, and marking an 180-month high. That's as economies in Europe continued to reopen and COVID-19 vaccines rolled out across the continent.

"The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms," said Chris Williamson, chief business economist at IHS Markit, in a comment accompanying the data.

Among stocks on the move, shares of Pernod Ricard rose 2.7%, after the French drinks group raised its guidance for fiscal 2021, citing a stronger-than-expected recovery. Pernod is now forecasting organic growth in profit from recurring operations for fiscal 2021 of around 16%, up from previous guidance of 10%.

Vodafone shares rose 1%, after the telecoms giant said its entire European operations will be fully powered by electricity from renewable sources starting on July 1, as it aims to reach net zero carbon emissions by 2030.

On the downside, shares of French luxury-goods group LVMH Moët Hennessy Louis Vuitton fell 1.3%. Pharmaceutical giant GlaxoSmithKline was another loser, with those shares down 1.5%.

U.S. Markets:

Stock futures ticked higher signaling that the major indexes may inch toward all-time highs ahead of data on growth in the service and manufacturing sectors.

Stocks and bonds have steadied after the Federal Reserve whipsawed markets last week by signaling it might raise interest rates sooner than previously expected to ward off higher inflation. A scramble to adjust portfolios in response to that guidance has subsided, investors say. Fed Chairman Jerome Powell said Tuesday he has "a level of confidence" inflation will abate, bolstering the view that it will be many months yet before the central bank shifts its monetary policy stance.

"We should expect markets to show a heightened sensitivity to economic data from here on, now that investors have embraced the idea the monetary cycle is turning," said Paul O'Connor, head of the multiasset team at Janus Henderson Investors. "We should expect markets in the months ahead to be more volatile and more uncertain than they have been maybe over the past six months."

Surveys of purchasing managers at U.S. manufacturing and service firms are due to be released at 9:45 a.m. ET. Analysts polled by FactSet expect them to show the economy has continued to grow at a fast clip in June.

Data on sales of new homes are scheduled for 10 a.m.

Some investors have viewed the shake-up that followed the Fed's pivot as an opportunity to add to positions in value stocks and commodity markets such as copper. Sectors such as banking and energy, along with industrial metals, slid last week after benefiting from bets on higher growth and inflation for much of the year.

"There was an overreaction in bond yields and, as a second derivative of that, in bank stocks," said Matthew Quaife, heat of multiasset investment management for Asia at Fidelity International. "Growth will be pretty strong over the medium term."

Forex:

The dollar was broadly steady, edging higher against the euro and yen but falling against riskier commodity-linked and emerging-market currencies after Federal Reserve Chair Jerome Powell played down inflation risks. While acknowledging short-term risks of higher inflation, he stressed Tuesday that these would be temporary.

"After the hawkish surprise from the Fed last week, this should further help to stabilize the market and translate into a supportive environment over the summer for those cyclical currencies where local central banks have opted for meaningful tightening cycles," said ING.

These include the Brazilian real, Russian ruble, Hungarian forint and Norwegian krone, it said.

Bitcoin rose 3.3% from its 5 p.m. ET Tuesday level to $33,973.61. The cryptocurrency briefly dropped below $30,000 on Tuesday, erasing all of its gains for 2021.

The euro could struggle to rise above key psychological resistance at $1.2000, said Steen Jakobsen, chief investment officer at Saxo Bank.

A level of $1.2100 or higher would be needed to indicate a reversal of the euro's recent selloff. The rebound in the euro from last week's 2.5-month low of $1.1847 "looks modest," he said.

"The growing theme of tightening central banks globally sees little anticipation that the European Central Bank is about to send any strong message on that front."

Bonds:

The yield on 10-year Treasury notes ticked up to 1.472% from 1.471% on Tuesday.

The U.S.-German 10-year government bond yield spread doesn't seem to be correctly pricing a disparity between central-bank support in the eurozone and the U.S., UniCredit said.

The Italian bank expects this spread to widen in the coming months to reflect the difference in central-bank support, especially once the U.S. Fed starts a formal discussion on tapering of its asset purchases.

In the near term, UniCredit expects Bund yields to remain at current levels on the back of the European Central Bank's continuing accelerated pace of asset purchases, while strong data are likely to drive 10-year U.S. Treasury yields higher and the 10-year UST-Bund spread wider.

The 10-year UST-German Bund yield spread is just below 169 basis points, according to Tradeweb.

Commodities:

Oil prices rose after data showed U.S. crude oil stockpiles shrank last week. API's weekly data on U.S. oil inventories released Tuesday showed stocks fell by 7.2 million barrels last week. The decline was larger than the consensus estimates, said Helge Andre Martinsen, senior oil analyst at DNB Markets.

Focus is on OPEC+'s July 1 meeting, amid reports that some cartel members are considering advocating increasing supply.

"A potential supply hike of 0.5 million barrels a day from OPEC+ for August, will probably be too little too late, as the oil market will continue in undersupply and further erode OECD oil inventories," he said.

Copper prices rose as fears of tightening from the Federal Reserve ease while China outlines plans to sell its metals reserves.

Three-month copper on the LME was up 0.9% at $9,353.00 a metric ton. China's state reserve body said it would auction 20,000 tons of copper, 30,000 tons of zinc, and 50,000 tons of aluminum. The details helped ease uncertainty about the planned sales which had been weighing on metals markets.

Gold inched higher in early European trade. However, OCBC noted the precious metal may break the crucial support at $1,770 this week if U.S. Fed officials produce more hawkish rhetoric in the coming days.

EMEA HEADLINES

Apple's Fight for Control Over Apps Moves to Congress and EU

Apple Inc. is stepping up its fight to maintain tight controls over which apps can be installed onto customers' iPhones, as political pressure grows in Washington, D.C. and Brussels to upend those restrictions.

In a report released Wednesday, the company argues that allowing users to download apps directly onto their iPhones without having to use Apple's App Store would harm customers by threatening privacy protections, complicating parental controls and potentially exposing users' data to ransomware attacks.

Pernod Ricard Raises Fiscal 2021 Guidance

Pernod Ricard SA has raised the guidance for its fiscal year on the back of a stronger-than-expected recovery.

The French drinks group said Wednesday it now anticipates an organic growth in profit from recurring operations for fiscal 2021 of around 16%, up from previous guidance of 10%.

Berkeley Group FY 2021 Profit Rose, Proposes Additional Shareholder Return

Berkeley Group Holdings PLC said Wednesday that profit and revenue rose for fiscal 2021, revealed a range of new sustainability targets and proposed an additional shareholder return of surplus cash.

Swiss Re Sells 6.6% Stake in Phoenix for Roughly $610 Mln

Swiss Re AG is selling a 6.6% stake in U.K. long-term savings and retirement business Phoenix Group Holdings PLC for 437 million pounds ($609.7 million).

The Swiss reinsurance company said Wednesday that it has agreed to a 90-day lock-up period for its remaining stake of around 6.6%.

Heineken Buys 15% Stake in United Breweries, Taking Shareholding to 61.5%

Heineken NV said Wednesday that it has expanded its shareholding in Indian conglomerate United Breweries Ltd. to 61.5% from 46.5%.

The Dutch beer company said it acquired an additional 39.6 million shares. Based on the current share price of INR1,429.50, the acquired stake has a value of 56.67 billion rupees ($763.9 million).

Old Mutual Year-To-Date Profitability Rises on Higher Funds Under Management

Old Mutual Ltd. said Wednesday that its profitability improved in the year to date as a result of higher funds under management.

The African financial-services group reported results from operations of 2.68 billion rand ($188 million) for the five months to end-May, up 52% from a year earlier. Funds under management as at May 31 rose to ZAR1.164 trillion from ZAR1.105 trillion a year ago.

Vodafone Says Its European Operations Will Be Fully Powered by Renewables From July

Vodafone Group PLC said Wednesday that its European operations will be fully powered by electricity from renewable sources starting on July 1, as part of its plan to reach net zero carbon emissions by 2030.

The U.K. telecommunications company said it is committed to achieve the same milestone in Africa by 2025.

GFG Alliance, Credit Suisse Agree to Standstill Amid Refinancing

(MORE TO FOLLOW) Dow Jones Newswires

06-23-21 0624ET

Stocks mentioned in the article
ChangeLast1st jan.
APPLE INC. 0.06% 146.92 Delayed Quote.10.72%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.35% 0.6192 Delayed Quote.-1.34%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.51% 0.7258 Delayed Quote.-5.16%
BITCOIN - EURO -1.46% 35891.44 Real-time Quote.54.35%
BITCOIN - UNITED STATES DOLLAR -1.61% 42051.3 Real-time Quote.47.86%
BRITISH POUND / EURO (GBP/EUR) -0.22% 1.1661 Delayed Quote.4.45%
BRITISH POUND / US DOLLAR (GBP/USD) -0.37% 1.36698 Delayed Quote.0.34%
CANADIAN DOLLAR / BRAZILIAN REAL (CAD/BRL) 0.68% 4.2173 Delayed Quote.2.67%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.25% 0.674459 Delayed Quote.4.53%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.01% 0.7897 Delayed Quote.0.57%
CHRISTIAN DIOR SE -1.22% 649 Real-time Quote.42.76%
DJ INDUSTRIAL 0.10% 34798 Delayed Quote.13.59%
DOW JONES AFRICA TITANS 50 INDEX -0.12% 511.21 Delayed Quote.-3.27%
EURO / BRAZILIAN REAL (EUR/BRL) 0.47% 6.2556 Delayed Quote.-1.87%
EURO / NORWEGIAN KRONER (EUR/NOK) -0.04% 10.06207 Delayed Quote.-3.93%
EURO / US DOLLAR (EUR/USD) -0.18% 1.1718 Delayed Quote.-3.88%
GLAXOSMITHKLINE PLC -1.84% 1388 Delayed Quote.3.43%
HEINEKEN HOLDING N.V. -0.85% 75.5 Real-time Quote.-2.01%
HEINEKEN N.V. -0.96% 90.32 Real-time Quote.-0.99%
INDIAN RUPEE / EURO (INR/EUR) 0.18% 0.011559 Delayed Quote.2.98%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.01% 0.013548 Delayed Quote.-1.04%
JANUS HENDERSON GROUP PLC -0.19% 41.88 Delayed Quote.28.82%
LONDON BRENT OIL 0.94% 78.01 Delayed Quote.49.38%
LVMH MOËT HENNESSY LOUIS VUITTON SE -1.71% 642.9 Real-time Quote.25.84%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.73% 0.7012 Delayed Quote.-1.60%
OLD MUTUAL LIMITED 0.38% 15.7 End-of-day quote.32.04%
PERNOD RICARD -0.05% 191.4 Real-time Quote.22.07%
PHOENIX GROUP HOLDINGS PLC -0.53% 641.6 Delayed Quote.-8.42%
S&P AFRICA 40 INDEX -0.44% 165.74 Delayed Quote.-4.06%
S&P GSCI ALUMINUM INDEX -0.52% 185.37 Delayed Quote.48.39%
S&P GSCI CRUDE OIL INDEX 0.69% 405.4586 Delayed Quote.51.42%
S&P GSCI INDUSTRIAL METALS INDEX 0.18% 486.9438 Delayed Quote.27.50%
SWISS RE LTD -0.15% 80.3 Delayed Quote.-3.65%
THE BERKELEY GROUP HOLDINGS PLC -1.27% 4495 Delayed Quote.-5.21%
UNITED BREWERIES LIMITED -3.01% 1606.5 End-of-day quote.35.48%
US DOLLAR / BRAZILIAN REAL (USD/BRL) 0.66% 5.3377 Delayed Quote.2.10%
US DOLLAR / EURO (USD/EUR) 0.18% 0.853388 Delayed Quote.4.04%
VODAFONE GROUP PLC -0.47% 113.8 Delayed Quote.-5.90%
WTI 0.93% 73.961 Delayed Quote.52.07%
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