North American Morning Briefing: Stocks Seen Holding Near Record Highs; Boeing in Spotlight

OPENING CALL

Stocks were poised to open higher on Monday at the start of a holiday-shortened workweek filled with jobs data and the Federal Reserve's latest meeting minutes.

BNP Paribas said markets may react more to a downside surprise in jobs than an upside one.

"A downside surprise in payrolls may solidify current market pricing for two 2024 cuts--but may also force the market to reassess the already-elevated terminal/neutral rate priced in at about 3.75%, bull flattening the curve."

Once again, election news is in the spotlight.

Investors breathed a sigh of relief about France , after a first round of voting in parliamentary elections suggested the far right was less likely to win an overall majority.

That could reduce the risk of big fiscal changes that could hurt French public finances, as well as putting less strain on cohesion within the European Union.

Overseas Markets

European stocks rose. France's CAC 40 index gained, while the broader Stoxx Europe 600 advanced. The euro strengthened against the dollar.

Banks in Europe gained. Société Générale rose nearly 5%, while Italy's BPER Banca and Monte dei Paschi both added about 4%.

Prices fell for safer assets, including Treasury bonds and their German equivalents, pushing up yields. The spread between French and German yields retreated, but remained elevated.

Chinese stocks gained. The Shanghai Composite rose nearly 1% after a private manufacturing gauge showed greater-than-expected expansion. Hong Kong markets were closed for a holiday.

Premarket Movers

Boeing was down 1%. Reports said the Justice Department will charge Boeing with fraud. The decision comes after the Justice Department said Boeing violated the terms of a 2021 deferred prosecution agreement in May. Meantime, Boeing said it reached an agreement to buy back its fuselage supplier Spirit AeroSystems $37.25 a share in stock in a move to improve its manufacturing quality. Spirit Aero shares were up 5.2% to $34.59.

Cassava Sciences was rising 13%. The stock fell 35% on Friday following the federal indictment of a lead scientist working as an advisor for the biotech company, which has an Alzheimer's drug in Phase 3 trials.

Nike rose 0.3% after shares fell 20% on Friday, their worst day on record, following a downbeat revenue forecast for the fiscal first quarter and year.

Trump Media & Technology rose 4.6% after closing with a decline of 11% on Friday. The shares were volatile Friday as investors digested the first election debate.

Watch For:

ISM Report on Business Manufacturing PMI for June; Construction Spending for May; Canada financial markets closed for Canada Day holiday

Today's Headlines/Must Reads:

- Even a Slowly Cooling Labor Market Often Ends With a Recession

- A Real-Estate Fund Industry Is Bleeding Billions After Starwood Capped Withdrawals

- A Fight Over the Future of Recycling Brews as Plastics Legislation Gains Traction

- The Once-Dominant Rocket Maker Trying to Catch Up to Musk's SpaceX

MARKET WRAPS

Forex:

The dollar's reaction if Donald Trump wins the presidential election is uncertain and depends on whether Trump's wealthy supporters or his Christian nationalist supporters, gain the upper hand Commerzbank said.

The wealthy supporters will want to avoid dramatic upheavals and probably won't be interested in experiments that jeopardize the profitability of capital, Commerzbank said.

"Should they gain the upper hand, a second Trump presidency is likely to be dollar-positive."

The Christian nationalist supporters don't appear to have such inhibitions, Commerzbank said.

The euro was higher but its gains might be limited ahead of the second round of French elections on July 7, Swissquote said.

The euro's rally reflects a "buy the rumor, sell the fact" reaction and chatter that the National Rally might not secure an absolute majority, Swissquote added.

However, there's a "non-negligible" risk of this happening which "will unlikely let the euro run too high before more clarity."

The July 4 U.K. general election may have little impact on sterling as the opposition Labour Party is widely expected to secure a majority, ING said.

There's "very little doubt" about a possible Labour landslide win so the election shouldn't be a huge event for markets, ING added.

"We suspect that a stronger-than-expected result by populist/hard-Brexiteer Reform U.K. is the most tangible risk for some slight adverse reacting in sterling assets."

ING said the election result is unlikely to change the Bank of England's policy path and sterling should continue to rely on external drivers.

Bonds:

French government bond yield spreads will likely reflect the likelihood of it becoming even more difficult to pass budget cuts, implying further increase in France's public debt ratio, Capital Economics said.

Capital Economics' central scenario is that the 10-year [OAT] spread to Bunds will settle around 100 basis points, once any initial volatility around the French election and its aftermath has eased.

Mizuho said the 10-year French government bond yield spread over German peers was narrowing but price action in French bonds will likely be choppy until the next election round.

"While we expect some relief-tightening in OAT-Bund spreads, there is still uncertainty ahead. Our analysis suggests that any significant tightening will be unstable given worrying debt sustainability dynamics."

Energy:

Oil prices rose and expectations for a tighter market continue to pull in speculative money, with the latest trader data showing the net long increased over the last week, ING said.

Drilling activity in the U.S. continues to slow, with the oil rig count falling by six to 479 active rigs, the lowest level since December 2021, ING added.

"We continue to hold a supportive view towards Brent, although there are concerns around demand, such as U.S. gasoline demand and Chinese apparent demand," ING said.

Metals:

Gold futures remained in a narrow range and going forward, the market is looking for data that points to U.S. stagflation, which will be supportive for the metal, MKS PAMP said.

Given that Treasuries have been noticeably sensitive to data, it may not be as quiet a summer as some traders expect on an intraday to short-term basis for gold, MKS PAMP said.

Phillip Nova said gold is likely to remain in an uptrend in the long term.

The precious metal has been hitting "diminishing highs" over the past couple of months, and while the bullish consolidation continues, prices will likely test the immediate resistance around the $2,350-an-ounce level, it said, adding a mild pullback in the dollar will likely support prices of the yellow metal.

TODAY'S TOP HEADLINES

The Mouse House Sets Sail With Timely Cruise Expansion

New cruise ships don't exactly go up overnight. That makes Disney's timing all the more fortuitous.

Walt Disney Co. has been in the cruise business for nearly 30 years, but it has long been a drop in the industry's ocean: The five ships it operates have a combined passenger capacity of about 5% of market leader Carnival. But three more ships are coming online over the next 18 months, including a 208,000 gross ton behemoth called Disney Adventure that will be the Magic Kingdom's first entry into the flotilla of megaships that have been hitting the seas lately. The three new vessels will more than double Disney's cruise capacity by the end of next year, Bernstein analyst Laurent Yoon estimates.

BlackRock to Acquire Data Provider Preqin for $3.22 Billion

BlackRock agreed to acquire U.K. data provider Preqin in a $3.22 billion deal, part of efforts by the world's largest asset manager to bolster data capabilities as it expands into private-market investments.

The New York-based company said late Sunday that it had agreed to acquire privately held Preqin for 2.55 billion pounds, or $3.22 billion, in cash. It expects the deal to close before the end of the year pending regulatory approvals.

Fast-Food Giants Go to Battle Over Value Meals

The nation's biggest restaurant chains are duking it out over deals and discounts.

McDonald's joined the fight in recent days, launching a new $5 value meal. The Golden Arches is squaring off against Burger King, which earlier in June unveiled its own meal deal, and Starbucks, where the latest promotion gets customers four beverages for $20.

Tech Industry Wants to Lock Up Nuclear Power for AI

Tech companies scouring the country for electricity supplies have zeroed in on a key target: America's nuclear-power plants.

The owners of roughly a third of U.S. nuclear-power plants are in talks with tech companies to provide electricity to new data centers needed to meet the demands of an artificial-intelligence boom.

Amazon, Built by Retail, Invests in Its AI Future

Amazon built a $2 trillion company through years of aggressive spending on its retail and logistics businesses. Its future gains will likely be determined by the billions designated to fund its artificial-intelligence push.

Amazon is planning to spend more than $100 billion over the next decade on data centers, an impressive level of investment even for a company known for its spending ways. The Seattle company is now devoting more investment money to its cloud computing and AI infrastructure than to its sprawling network of e-commerce warehouses.

Rising Government Debt Threatens Financial Stability, Inflation, BIS Says

Governments should cut back on borrowing to ease one of the biggest threats to the stability of the global financial system and support efforts to tame inflation, the Bank for International Settlements said Sunday.

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July 01, 2024 06:15 ET (10:15 GMT)

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