European Midday Briefing: China Trade Disappointment Dents Stocks

MARKET WRAPS

Stocks:

European stocks suffered minor losses on Wednesday, as a bigger-than-expected drop in Chinese exports weighed on sentiment.

Data released earlier showed China's exports fell 7.5% from a year ago in May, far outpacing the 1% decline expected by economists.

The fall serves as the latest reminder the world's second-largest economy is contending with a fading recovery, stoking fresh concerns about global growth.

Read China's Exports Dropped in May, Cooling From Growth in Previous Two Months

Stocks to Watch

Hugo Boss's profitability potential might be overlooked by the market, UBS said, initiating coverage on the stock at buy with a EUR87 target,

It said the group is still in the foothills of a turnaround under CEO Daniel Grieder, but is already seeing strong brand momentum despite a turbulent macro backdrop.

UBS said the gross margin is set to benefit from better store productivity, offsetting investment costs, and the operating margin could reach 13.5% by 2025.

"We see the shares as undervalued versus peers."

Read Remy Cointreau May Need to Buy as Cognac Scene Darkens

U.S. Markets: Markets:

Stock futures and Treasury yields edged lower, weighed down by the China data.

The yield on the benchmark 10-year Treasury note fell to 3.689%, from 3.699% Tuesday. The two-year yield fell to 4.514%, from 4.523%.

Shares on the Move

Casey's General Stores reported a drop in both revenue and profit for the most recent quarter. Its shares fell 4.5% in off-hours trading

Coinbase shares have dropped sharply for two straight sessions, after it and rival Binance were both sued by the SEC. Early trading on Wednesday pointed to a modest recovery, with Coinbase stock rising 1.7% ahead of the opening bell.

Shopify stock extended its rise in offhours trading. Shopify shares had risen more than 6% on Tuesday after the company completed the sale of its logistics business.

Up Ahead

U.S. trade deficit data are due before the opening bell. A reading on consumer credit is also due, plus earnings from companies including GameStop and Campbell Soup.

Follow WSJ markets coverage here .

Forex:

The Turkish lira sank to new lows against the dollar on Wednesday, as concerns mounted over challenges facing the country's new finance minister, and a report emerged that state lenders have stopped selling dollars to defend it.

Citing traders, Bloomberg reported that state lenders were no longer trying to prop up the lira with costly dollar sales, which could be a sign of the new incoming finance minister's promise of a more "rational economic policy."

The report noted that the country's state banks don't comment on market interventions. Read more here .

Elsewhere, the dollar edged higher as traders are wary of selling the currency before Tuesday's U.S. inflation data and despite growing speculation the Fed could pause raising rates next week, ING said.

"The dollar's resilience probably denotes reluctance to add dollar shorts ahead of the U.S. CPI risk event on June 13 - which is still seen as having the potential to tilt the balance to a hike the following day."

Read Sterling Could Fall as Higher UK Rates May Hit Economy

Bonds:

Irish government bonds have underperformed versus peers over the past few days, pushing Irish-French yield spreads, especially in 5-10-years sectors, close to the upper end of their past six months' ranges, J.P.Morgan said.

"This relative underperformance, in our view, is likely to be in anticipation of the upcoming auction on 8 June," JPM said.

It expects Irish yields to trade modestly, by 5-10 basis points below French ones, mainly given strong Irish supply technicals, and finds current valuations quite attractive.

"We recommend investors use the 8 June auction as an opportunity to add overweight Ireland exposure given the recent underperformance," JPM said.

Read Greece Likely to Achieve Investment Grade Rating in 2H

Energy:

Oil prices were lower for a second day with Chinese trade data showing a slump in exports and imports and as the EIA said U.S. demand will rise at a slower pace than expected this year.

Metals:

Base metals were mixed with gold lower, as demand concerns and macro headwinds continued to weigh and despite bright spots in commodity data coming from China, ANZ said, with imports in May beating expectations.

"The prospects of new stimulus should support commodities demand," ANZ added.

Iron-Ore Outlook

The recent uptick in iron-ore prices on hopes for Chinese stimulus is unlikely to be sustained, according to Citi, which said effective stimulus measures will be difficult to achieve.

"While the market may continue searching for positive headlines in the short term, we still hold the view that it's unlikely that we will see a major turn in steel demand from China in the absence of a strong recovery in the property sectors," Citi said.

It has kept its 0-3-month price target unchanged at $100/ton and downgraded its second-quarter target to $110/ton from $115/ton, its third-quarter target to $100/ton from $105/ton, and its fourth-quarter target to $90/ton from $105/ton.

DOW JONES NEWSPLUS

EMEA HEADLINES

Mercedes Teams Up With Green Steelmaker to Slash Emissions

Mercedes-Benz signed a deal with Swedish upstart H2 Green Steel for the long-term supply of low-emissions steel, underscoring a broader shift by the industry to reduce greenhouse-gas emissions in supply chains, according to the companies.

The deal, announced Wednesday, is significant because in addition to securing supply for Mercedes's European factories over the coming years, the companies have also agreed to explore potential steel production in North America. Mercedes has a manufacturing plant in Tuscaloosa, Ala.

German Industrial Production Rose Less Than Expected in April as Car Production Weighs

Industrial production in Germany ticked up less than expected in April, as motor-vehicle manufacturing dipped, adding to concerns about the country's key manufacturing base.

Industrial output-comprising production in manufacturing, energy and construction-rose 0.3% in April compared with the previous month on a price, seasonally and calendar-adjusted basis, from an upwardly revised 2.1% fall in March, data from the German statistics office Destatis showed Wednesday.

STMicroelectronics, Sanan Optoelectronics to Form $3.2 Bln China Joint Venture

STMicroelectronics and Sanan Optoelectronics said Wednesday that they are forming a semiconductor-manufacturing joint venture in China, with $3.2 billion in total build-out funding.

The European and Chinese semiconductor companies said they have signed an agreement to create a silicon-carbide-device manufacturing project in Chongqing, China, to tap into rising demand for semiconductors for car electrification as well as for industrial power and energy applications in the country. Production is expected to start in the fourth quarter of 2025, with full build-out anticipated in 2028, the companies said.

Inditex Earnings, Sales Rose in 1Q - Update

Spain's Industria de Diseno Textil, owner of Zara clothing stores, on Wednesday reported higher earnings and sales for the first quarter of its fiscal year.

The company, known as Inditex, posted net profit of 1.17 billion euros ($1.25 billion), from EUR766 million in the year-prior period, on sales which grew to EUR7.61 billion from EUR6.74 billion in the first quarter of the previous year.

GLOBAL NEWS

Treasury's $1 Trillion Debt Deluge Threatens Market Calm

Investors are bracing for a flood of more than $1 trillion of Treasury bills in the wake of the debt-ceiling fight, potentially sparking a new bout of volatility in financial markets.

Some on Wall Street fear that roughly $850 billion in bond issuance that was shelved until a debt-ceiling deal was passed-sales expected between now and the end of September, according to JPMorgan analysts-will overwhelm buyers, jolting markets and raising short-term borrowing costs.

China's Exports Dropped in May, Cooling From Growth in Previous Two Months

China's exports dropped 7.5% from a year ago in May, drastically cooling from the robust growth seen the previous two months.

The result compares with the median forecast of a 1.0% decline by economists polled by The Wall Street Journal, and significantly slowed from the unexpected 8.5% growth recorded in April, data from the General Administration of Customs showed Wednesday.

China's EV Juggernaut Is a Warning for the West

China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world's largest auto exporter.

How is China in contention to lead the world's most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.

McCarthy Opposes Extra Ukraine Spending After Debt Deal

WASHINGTON-House Speaker Kevin McCarthy (R., Calif.) declined to commit to providing additional financial support for Ukraine, showing the continued influence of his party's right flank and moving him into direct conflict with Senate Republicans who want more military spending beyond what Congress passed last week.

His stance also clouds the broader outlook for spending on Ukraine. Congress has authorized $113 billion in military, economic and humanitarian assistance since Russia invaded the country last year, and Republican and Democratic backers of the effort have expected that they would have to approve more funding later this year.

Write to [e-mail]

Write to us at [e-mail]

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

June 07, 2023 05:41 ET (09:41 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.