MARKET WRAPS
Watch For:
EU Business/Consumer Surveys; Germany Provisional CPI, Foreign Trade Prices; France Housing Starts; Italy Industrial Turnover/Orders; UK BOE Effective Interest Rates; Monetary/Financial Statistics; Money and Credit; Hungary interest rate decision; updates from Old Mutual, Bunzl, Harmony Gold, SEB, Givaudan
Opening Call:
Battered European stocks could bounce higher on Tuesday, although any recovery is likely to be short-lived, with sentiment still weighed by the Fed’s rate outlook. Shares in Asia were mostly higher, with the exception of major benchmarks in Hong Kong and China; the dollar and Treasury yields weakened slightly and commodities were lower across the board.
Equities:
European equities could stage a modest rebound on Tuesday, as investors continue to digest the Federal Reserve’s vow not to waver in its inflation fight.
U.S. stocks finished with back-to-back losses on Monday, handing the Dow an almost 1,193-point loss in the past two trading days.
Nonetheless, there were some glimmers of hope among investors, when the Dow and the S&P 500 briefly and periodically flashed green. Pockets of buying could also be seen in the S&P 500’s energy, utilities, and consumer-staples sectors.
However, Mark Haefele, chief investment officer at UBS Global Wealth Management, warned in a Monday note of “further volatility, earnings downgrades, and higher-than-expected default rates” over the next year.
Economic Insight:
The recent surge in energy costs following Russia’s invasion of Ukraine is a threat to European and German competitiveness, the chief financial officer of Covestro said.
“The current level of energy costs is a threat to the competitiveness of energy-intensive industries. With energy prices up eightfold or tenfold, that’s a threat.”
Covestro, a speciality chemicals company, is looking to cut down on its energy consumption and is preparing for potential shortages, though those aren’t part of the company’s current planning for the fall.
“We are considering all eventualities.”
Forex:
The surge in the dollar paused in Asia with the DXY Dollar Index a touch under 109.00, after a modest bounce in risk appetite.
Deutsche Bank said emerging market currencies are attractive as interest rates rise.
“While the broad dollar remains largely the main directional driver, carry has gained importance as a factor of currency selection, and this should continue to support EM currencies–especially vs. the EUR,” as “liquidity crunch risks are subdued and local markets in domestic currency are still appealing.”
Manufacturing and labor data later this week are likely to have an impact on currencies, as investors try to guess the Fed’s next move.
Bonds:
Treasury yields eased back having extended their climb on Monday, with the 2-year rate reaching one of its highest levels since 2007.
There were no major economic data releases on Monday, with investors focusing, instead, on Friday’s August nonfarm payrolls. The jobs report is expected to show a gain of 325,000 following a blockbuster reading of 528,000 in July.
Energy:
Oil futures dipped in Asia trade after they scored their highest finish in a month on Monday, buoyed by the prospect for an OPEC output cut
Though oil has been trending lower, OANDA said supply-side risks are too great, noting that in addition to possible OPEC+ cuts, there is also a rising risk of war in producer Libya. Against this backdrop, “the one trade that everyone can agree upon is that the oil market will likely remain tight.”
ADM Investor Services International said energy trading is likely to remain volatile “as markets chop between worrying about the impact of recessionary forces on demand, and on the other hand ongoing supply constraints and latterly the threat of an OPEC output cut.”
Read: EU Set to Tackle Soaring Energy Prices With Electricity Market Overhaul
Metals:
Gold prices continued to struggle in the aftermath of Jerome Powell’s pledge to implement higher interest rates over the coming months.
“The precious metal may largely track the negative slope in the moving average as the [Fed] prepares U.S. households and businesses for a restrictive policy,” DailyFX said.
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Copper was down almost 3% as post-Powell negative sentiment persisted.
ANZ Research said the prospects of higher-for-longer Fed rates have weighed on sentiment and took the focus off supply-side issues.
A recent media report said Chile’s Codelco is the latest producer to cut guidance on output due to operational challenges, now expecting production in the range of 1.49 million to 1.51 million tons for 2022 versus its prior forecast of 1.61 million tons.
TODAY’S TOP HEADLINES
U.S. Business Confidence in China Falls to Record Low, Survey Says
SINGAPORE-Sentiment about operating in China among U.S. businesses has plummeted to a new low, driven largely by Beijing’s continued use of sudden Covid-19 lockdowns, an annual survey by an American business group found.
The poll of member companies by the U.S.-China Business Council found American multinationals increasingly losing confidence in the near-term prospects for their China ventures, according to results published Monday. This year, 21% of respondents said they were pessimistic or somewhat pessimistic about their five-year business outlook in the world’s second-largest economy, compared with 9% last year.
EU Set to Tackle Soaring Energy Prices With Electricity Market Overhaul
BRUSSELS-European officials are preparing plans to overhaul how the continent’s electricity is priced in an effort to provide some relief to consumers as energy costs surge ahead of the winter heating season.
The plans are part of a broader effort by the European Union to prepare for cold months with limited access to energy from Russia, which last year supplied about 40% of natural gas consumed in the bloc. Record-high natural-gas and electricity prices are already squeezing households and businesses across the continent, and officials expect price pressures to worsen once Europeans start turning on their heating this fall.
U.N. Inspectors Head to Ukraine Nuclear Plant as Safety Fears Grow
KYIV, Ukraine-United Nations atomic-energy inspectors are heading to the Zaporizhzhia nuclear power plant amid fears that fighting in the area has damaged power lines and caused fires at the facility that could lead to nuclear catastrophe.
The International Atomic Energy Agency said Monday that a team led by its director general, Rafael Grossi, was heading to the plant to assess damage, check safety and security systems and evaluate staff conditions. The inspection will begin on Wednesday and last until Saturday, according to an internal Ukrainian government document seen by The Wall Street Journal.
EU Considers Visa Restrictions for Russian Civilians
European foreign ministers will assess options for restricting visas for Russians this week amid a sharp divide over whether to stop Russian civilians entering the bloc.
Russia’s neighbors in the European Union over recent weeks have pushed to bar Russian tourists. Estonia became the first country to block Russians with already-issued visas entering the country earlier this month and a number of other countries in the region have effectively stopped issuing tourist visas.
Violence Erupts in Baghdad After Iraqi Cleric Moqtada al-Sadr Quits Politics
BAGHDAD-Violent clashes gripped Iraq’s capital after an influential cleric said he was quitting politics, as protesters stormed government buildings and heavily armed militias flooded into the capital’s government center, setting off an intense urban battle that threatened the government’s stability.
At least 17 people were killed by gunfire and more than 90 were reported wounded in clashes in the Green Zone on Monday, turning the heavily fortified district of government offices, embassies and villas of senior Iraqi officials into a besieged zone.
Write to paul.larkins@dowjones.com
Expected Major Events for Tuesday
04:30/NED: Aug Producer confidence survey
04:30/NED: Jul PPI
06:00/DEN: Aug Business tendency survey
06:45/FRA: Jul Housing starts
07:00/SWE: Aug Consumer Tendency Survey
07:00/SWE: Aug Monthly Business Tendency Survey
07:00/SVK: Aug Economic sentiment indicator
07:00/SVK: Aug Business tendency survey
07:00/SWI: Aug KOF economic barometer
07:00/SPN: Jul Retail Sales
07:00/SPN: Aug Flash Estimate CPI
07:00/CZE: 2Q GDP
08:00/ITA: Jun Industrial turnover & orders
08:00/ICE: Aug CPI
08:00/BUL: Jul PPI
08:00/ICE: Jul PPI
08:00/GER: Aug Bavaria CPI
08:00/GER: Aug Hesse CPI
08:00/GER: Aug Baden-Wuerttemberg CPI
08:00/GER: Aug Brandenburg CPI
08:30/GER: Aug North Rhine Westphalia CPI
08:30/UK: Jul Bank of England effective interest rates
08:30/UK: Jul Monetary & Financial Statistics
08:30/UK: Jul Money and Credit – Lending to Individuals, Lending to Businesses, Broad Money and Credit
09:00/GRE: Jul PPI
09:00/CYP: Jun Industrial Production Index
09:00/EU: Aug Business & Consumer Surveys – Business Climate Indicator & Economic Sentiment Indicator
09:00/CRO: Jul Retail trade
09:00/GER: Aug Saxony CPI
09:30/BEL: Aug CPI
10:00/POR: Jul Retail trade
12:00/HUN: Aug Hungarian interest rate decision
12:00/GER: Aug Provisional CPI
23:01/UK: Aug Shop Price Index
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This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
August 30, 2022 00:34 ET (04:34 GMT)
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