European Midday Briefing : All Eyes on Powell and Lagarde

MARKET WRAPS

Stocks:

European stocks edged higher on Friday as investors awaited speeches later by Jerome Powell and Christine Lagarde at the Jackson Hole symposium.

"In light of recent market nervousness, investors will particularly scrutinize both speeches to assess whether the FOMC or the ECB's Governing Council will prioritize inflation or the economic outlook," UniCredit Research said.

Traders will be particularly cautious about whether Powell could hint at the possibility of more rate increases.

Meanwhile, Germany confirmed its economy stalled in the second quarter, and the Ifo business-climate index fell for the fourth consecutive month in August.

Read German Business Sentiment Worsened for Fourth Consecutive Month in August

ECB Rates

The outcome of the ECB's September meeting will to a large extent depend on new ECB staff projections, SEB said.

"We reiterate our view that the policy rate has likely peaked but with another hike in the autumn still a close call."

Following weaker indicators, forwards have declined to discount only an 8 basis point interest-rate rise in September and a total of 14bps in the autumn, it said.

SEB expects the ECB to deliver the first interest-rate cut in mid-2024.

Read ECB Still Has a Balancing Act to Perform on Rates

Read Bar for Another ECB Interest-Rate Rise Looks High, Jefferies Says

U.S. Markets:

Stock futures were pointing modestly to the upside with investors moving cautiously ahead of the Powell speech at the central bank summit.

Stocks to Watch

Gap reported a sales decline in the second quarter of 8% to $3.55 billion, below Wall Street estimates, while comparable-store sales fell 6%. The stock, however, was rising 3%.

Hawaiian Electric fell 19% in premarket trading after Maui County sued the utility, claiming its power lines caused recent wildfires on the island.

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Forex:

The dollar rose to its highest level in more than two months against a basket of currencies and the euro ahead of Powell's speech at the Jackson Hole symposium later.

"The dollar extended gains to the strongest levels since the beginning of summer, as traders positioned for a hawkish speech from the Federal Reserve," Swissquote said.

"Pricing in the market suggests that the Fed may already be done with its rate hikes."

Read Dollar Has Potential to Firm Against Euro in 3Q

Bonds:

Eurozone government bond yield spreads will widen mildly until year-end, according to expectations of Societe Generale.

This trend should be driven by a widening in credit spreads and rising risk aversion impacting lower credit sovereigns more, it said.

Regarding Italian fixed-rate government bonds, "we expect the 'feel good' premium in BTPs to remain in 2H as domestic investors are still buying and we don't foresee political tensions to emerge."

SocGen expects the 10-year BTP-Bund yield spread at 185 basis points in 4Q. The 10-year Spanish-German yield spread should widen to 105bps.

Read German Bunds Expected to Continue Outperforming US Treasurys

Energy:

Oil prices ticked higher but were on course for a weekly loss as concerns about easing supply tightness and a cloudy demand outlook have outweighed reduced OPEC output.

"The cutbacks in place by OPEC+, additional unilateral action by Saudi Arabia and export declines in Russia, as well as seasonally strong consumption, support the market," BMI said.

Metals:

Base metal prices were on course to end the week higher, despite weak demand from China dampening sentiment, meanwhile gold prices tracked lower.

"Industrial metals continue to face headwinds from weak activity in Mainland China," BMI said.

LME inventories for aluminum and copper have ticked higher recently, adding near-term price pressure, BMI said.

However "a modest demand recovery in Mainland China in the coming months will support gains in base metal prices."

DOW JONES NEWSPLUS

EMEA HEADLINES

Heineken Sells Russia Business...for $1

Beer giant Heineken said it sold its Russia business, which includes seven breweries and 1,800 employees, to a Russian packaging and cosmetics company for the symbolic sum of about $1.

Russia recently moved to make it tougher for companies to leave the country, passing a decree in April that allows the state to take temporary control of the assets of companies or individuals from what Moscow calls "unfriendly" states.

VinFast, Arm and Other Index Orphans Miss Out on Billions From Passive Investors

The hype around VinFast Auto, a Vietnamese maker of electric cars that this week was worth more than Ford or General Motors, and the imminent blockbuster IPO of Arm Holdings, a British chip designer about to list on the Nasdaq, conceals a common drawback of both: They are global orphans, missing from the major indexes.

The two sit in a weird no-man's-land between countries, qualifying neither for their home index nor the S&P 500, thanks to their decision to list outside their home countries. They're in a growing group of companies including the Italian fashion designer Prada, the Swedish music streamer Spotify and the German vaccine maker BioNTech, which miss out not only on the trillions of dollars tracking domestic indexes and index futures but also on global index money.

Germany Exited Recession in 2Q as Economy Remained Flat, Confirming Prior Estimates

Germany left its recession behind in the second quarter of 2023, after new data confirmed preliminary results that the economy stalled in the three months to June, but didn't contract.

Gross domestic product in Europe's largest economy flatlined from April to June compared with the previous quarter, according to preliminary data from the country's statistics office released Friday.

U.K. Consumer Confidence Recovered in August, Helped by Easing Inflation

Consumer confidence in the U.K. unexpectedly improved in August, nearly reversing July's drop, a signal that pressures on household spending may be easing as inflation ticks down, according to a survey published Friday.

Confidence among consumers rose five points to minus 25 this month, from minus 30 in July, according to an index compiled by consumer-research firm GfK. The result was better than a consensus of economists polled by The Wall Street Journal, which expected the level to remain at minus 30.

GLOBAL NEWS

China Offers Tax Breaks to Home Buyers, Finance Ministry Says

China's finance ministry on Friday unveiled tax breaks for people who sell their homes and repurchase another within a year, a move that could push more homeowners to upgrade their housing as the property downturn continues.

Taxpayers' personal-income tax can be fully refunded if the value of their newly purchased home is greater than, or equal to, the value of the home sold, according to a statement published on the ministry's website.

Rising Insurance Costs Start to Hit Home Sales

Cape Coral, Fla., was devastated by Hurricane Ian last year, but real-estate agents still pitch waterfront homes as "Gulf access haven."

Insurers take a different view. Home-insurance premiums are soaring in the Southwest Florida city, and there is evidence that the higher costs are starting to affect the real-estate market.

How Donald Trump Could Attack Georgia RICO Prosecution

The anti-racketeering law used against Donald Trump in Georgia is a powerful tool for prosecutors, but legal observers say the former president and his 18 co-defendants have several strategic plays they could use in attempting to beat charges that they conspired to overturn the 2020 election.

The linchpin of the prosecution by Fulton County District Attorney Fani Willis is the allegation that Trump and others knowingly and willfully participated in a criminal enterprise whose aim was to keep Trump in power. There is an array of additional charges against Trump and other defendants, but almost all of them flow from the alleged racketeering conspiracy. To win a conviction on the racketeering charge, prosecutors will need to prove that the former president knowingly joined a conspiracy with a plan to commit at least two underlying crimes.

Trump's Mug Shot Released After Former President Surrenders in Georgia

ATLANTA-Former President Donald Trump surrendered at the Fulton County, Ga., jail to answer charges that he operated a criminal enterprise that sought to overturn Joe Biden's 2020 electoral victory in the state.

It provided a striking moment in which, for the fourth time this year, Trump had to present himself to authorities to face criminal charges-and the first time he, or any former U.S. president, stood for a mug shot.Trump looked intently into the camera, brow furrowed.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

08-25-23 0555ET