Five Things You Need to Know to Start Your Day: Europe
Good morning. Today is a big day with traders bracing for a doubleheader of US inflation data and the Federal Reserve meeting. Macron’s election gamble keeps investors on edge. Apple surges on artificial intelligence hope. Here’s what people are talking about.
Rare double whammy
Traders are rapidly unwinding bets for a rally in US Treasuries before a rare double whammy of CPI data landing just hours before a Fed interest-rate decision. For now, investors are fully pricing in just a single rate cut this year, awaiting an update of the central bank’s dot plot that could whipsaw markets. With the Fed widely expected to hold its rate steady for a seventh consecutive meeting, Treasuries steadied early on Wednesday while European equity futures are a tad higher and the euro is little changed.
Chaos and anger
Following Emmanuel Macron’s decision to plunge into an election campaign, many lawmakers and officials say the high-risk strategy is more likely to consolidate his party’s losses and undermine any remaining prospects for advancing his economic agenda. Some see a chance it could even hand control to the opposition led by Marine Le Pen. That risk helped send anxiety coursing through bond markets on Tuesday. (See below for broad market implications from Garfield Reynolds.) As for what the future holds for France, we have Macron’s press conference today on his vision for the country.
China tensions
The Biden administration is considering further restrictions on China’s access to chip technology used for artificial intelligence, targeting new hardware that’s only now making its way into the market, people familiar with the matter said. The US has already imposed numerous limits on the sale of advanced semiconductors and chipmaking tools to the Asian country. Commerce Secretary Gina Raimondo has repeatedly said the US will add to those measures as needed to keep the most advanced AI technology out of Beijing’s hands, over fears that it could give an edge to China’s military.
Apple soars
Apple is riding the AI boom with the iPhone maker’s shares rallying on Tuesday. The stock surge came in the wake of the company’s annual Worldwide Developers Conference, where it showcased a number of features related to AI. The event crystallized a strategy many investors felt had been missing from Apple amid AI-fueled rallies elsewhere within Big Tech. In the meantime, Oracle reported better-than-expected bookings and announced partnership deals with tech rivals. The shares gained more than 9% in extended trading.
Quant trades
Wall Street’s half-trillion-dollar business cloning quant trades has some surprising new customers: the very firms whose strategies it mimics. Once hostile to the copycat products being churned out by big banks, hedge funds are becoming a major driver of the boom in what are known as quantitative investment strategies, or QIS. These tools take popular systematic trades and typically turn them into swaps or structured notes, creating a quick and cheap way to gain exposure.
Coming up
The main events of the day, the FOMC rate decision, and the projections, will be released at 2 p.m. in Washington with Fed Chair Jerome Powell to hold a press conference 30 minutes later. Before we get there, European traders have UK industrial production and trade balance and Germany inflation final readings, along with the IEA’s Oil Market Report for June. The ECB’s Vujcic, Guindos and Nagel speak. US CPI data for May land at 8:30 a.m. in Washington.
What we’ve been reading
This is what's caught our eye over the past 24 hours.
Europe poised to delay Basel bank trading rules by a year
JPMorgan risk swap ends up at a familiar place: rival banks
Ex-Deutsche Bank trader sues for her $3.3 million bad bank bonus
Asia’s family office frenzy comes with plenty of imposters
GameStop raises $2.14 billion on back of Roaring Kitty-led rally
Britain’s ‘quiet quitters’ are costing the economy £257 billion
China weighs ban on bank distribution of hedge fund products
And finally, here’s what Garfield is interested in this morning:
European bond traders paid the price this week for failing to anticipate political turmoil going into elections for the region’s parliament over the weekend. The fallout from the surprisingly poor showing for the parties of national governments led France’s President Macron to call snap elections. That in turn spurred the sharpest sell-off in the country’s benchmark bond futures for two months, sending the front-dated contract to levels last seen around the depths of the September-October 2023 global bond meltdown.
https://www.bloomberg.com/news/newsletters/2024-06-12/stock-markets-today-fed-us-cpi-macron-apple-china-tensions