EMEA Morning Briefing: Shares to Rise as Investors Await Clues on Fed Path

MARKET WRAPS

Watch For:

ECB accounts of last monetary policy discussions; Germany 2Q GDP detailed breakdown, Ifo business climate index; France monthly business survey; UK capital issuance, CBI distributive trades survey; trading updates from Gold Fields, CRH, Sibanye-Stillwater, Norwegian Air Shuttle, Harbour Energy

Opening Call:

A firmer start is likely in Europe on Thursday after gains by U.S. stocks overnight. In Asia, stock benchmarks advanced; the dollar fell; Treasury yields mostly gained; while oil and gold rose.

Equities:

European shares look poised to post gains at the open, after U.S. stocks snapped a three-day losing streak on Wednesday.

"The market is in this 'treading water' phase right now," said Brian Price, head of investment management at Commonwealth Financial Network. "It's hovering near flat in anticipation of [Federal Reserve Chairman Jerome] Powell's speech."

"We still have the same problems we need to solve: shortages of labor, shortages of energy and other commodities, and the headwinds of a tightening cycle," said Giorgio Caputo, a senior portfolio manager at J O Hambro Capital Management.

A data release showed durable-goods orders in July were flat, coming in below economists' forecasts.

"Growth is falling quite precipitously everywhere. We've had a pretty big signal of weakening economic conditions," said Fahad Kamal, chief investment officer of Kleinwort Hambros. "But I think we'll see Powell stick to his hawkish tone; he has to keep talking tough on inflation."

Forex:

The dollar fell slightly in Asia.

The onus is on USD bulls to defend the greenback's recent strength, IG market strategist Yeap Jun Rong said.

Markets are pricing in expectations of a hawkish tone in Powell's speech at the Jackson Hole symposium, Yeap added.

If the speech contains no surprises or brings up some consideration of rate cuts ahead, this could spur some unwinding of stronger USD bets, he added.

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"The sharp rally in European natural gas prices over the past few months, and the last couple of weeks in particular, has sparked renewed questions on the terms of trade implications for the euro and other gas-exposed currencies," said Goldman Sachs's Karen Reichgott Fishman, adding that a recent selloff in oil opens up the risk of a significant rebound.

She said the firm's estimates imply a fairly negligible effect on the euro from a positive natural-gas price shock, but "if these price shifts prove to be more persistent, it would have important implications for the currency bloc's international balances, and a larger exchange rate adjustment--i.e., more sustained depreciation--may be required."

Bonds:

Treasury yields were mostly higher early Thursday.

Overnight, two, 10- and 30-year Treasury yields advanced to two-month highs, as investors digested hawkish comments from Fed official Neel Kashkari.

Expectations for medium-term inflation have been rising sharply, despite the latest hawkish remarks from a Fed official -- a sign that the market has turned "pessimistic" about the Fed's ability to hit its inflation goals, according to Steve Englander of Standard Chartered Bank.

Attention is on Powell's Jackson Hole speech on Friday.

"I expect that Powell will walk a fine line on Friday," said Nick Tell, chief executive of Armory Group.

"In other words, he will not provide specific guidance on the September rate hike and will continue to state that the Fed's actions will be data dependent. As a result, I expect continued volatility in the bond and equity markets as investors will need to look to other sources to speculate on the direction of the Fed," Tell said.

Energy:

Oil futures rose early Thursday, buoyed by prospects that a U.S.-Iran deal may not materialize.

There are reports that the recently negotiated nuclear deal, which would lead to the return of around 1 million barrels/day of oil from Iran to the global markets within a year, has been rejected by the U.S., said Bart Melek, head of commodity strategy at TD Securities.

This news comes alongside leaked statements from OPEC+ officials that they are ready to cut supply, he added.

Metals:

Gold futures advanced in Asia, though the precious metal is likely to be rangebound ahead of the three-day Jackson Hole symposium.

Gold has carved out a pre-Jackson Hole range of $1,740/oz to $1,780/oz, Oanda senior market analyst Edward Moya said.

Fed Chair Powell's speech could give traders enough clues on whether the rise in Treasury yields will continue. This will determine what happens with gold, Moya added.

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Aluminum futures face mixed developments, as supply-cut worries offset a weakening demand outlook.

Aluminum producer Speira said it's mulling reducing output at its German smelter to 50% of capacity, following reports that Germany's power prices hit an intraday record high earlier this week, ANZ said.

However, recent data have also pointed to weakening economic activity in the U.S., Asia and Europe, ANZ added.

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Iron ore futures in China rose following Beijing's latest rollout of measures to support economic growth. A series of measures were announced at China's State Council meeting on Wednesday.

Lower benchmark interest rates and the government's economic stimulus are beneficial to ferrous metals in the short term, Huatai Futures said.

TODAY'S TOP HEADLINES

Bank of Japan to Patiently Continue Powerful Monetary Easing, Says Board Member

TOKYO--Bank of Japan policy board member Toyoaki Nakamura said Thursday that the central bank would continue its powerful monetary easing because the current inflation triggered by higher energy prices is unlikely to be sustainable.

"Judging from the current situation in which prices of only some items are rising significantly due to higher import costs, it would be more effective to take measures targeting specific items, rather than monetary policy which controls overall demand," Mr. Nakamura said in a speech.

Job Market Stronger Than Previously Reported, Data Show

The U.S. labor market pumped out more jobs in its recovery from the pandemic than previously thought.

Employers added about 462,000 more jobs in the year through March than the Labor Department originally estimated, the agency said Wednesday as part of routine annual revisions. That means the economy added an average of nearly 39,000 more jobs each month for the year ended in March than previously thought.

Texas Blacklists Blackrock, UBS and Other Financial Firms Over Alleged Energy Boycotts

Texas has blacklisted BlackRock Inc., BNP Paribas, UBS Group AG and other financial companies for allegedly boycotting the fossil-fuel industry, a move that could lead state pensions and other public entities to sell their shareholdings in those companies.

Texas Comptroller Glenn Hegar on Wednesday published a list of 10 financial companies and nearly 350 investment funds, an exercise mandated under a state law meant to punish Wall Street banks that have purportedly burnished their green image by turning away from oil and gas.

U.S., Iran Edge Toward Nuclear Deal as Israel Warns It Cedes Too Much to Tehran

As Washington and Tehran edge closer to restoring the nuclear deal, Israeli Prime Minister Yair Lapid on Wednesday slammed the agreement being negotiated, saying it wouldn't stop Iran from developing a nuclear weapon and would hand Tehran a significant financial boon.

Talks toward a deal, which lifted most international sanctions on Iran in exchange for tight but temporary restrictions on its nuclear program, appeared close to collapse in recent months but U.S., Iranian and European officials say an agreement now looks possible.

Ukraine Says Missile Strike Kills 22 as Country Marks Subdued Independence Day

KYIV, Ukraine-President Volodymyr Zelensky said Russian missiles struck a train station and house in eastern Ukraine and killed at least 22 people, as the U.S. pledged another $3 billion to support the Ukrainian military in the months ahead.

The strike in the small town of Chaplyne was the deadliest to hit civilians in weeks and came as Ukraine marked its 31st Independence Day in muted defiance.

Twitter, Elon Musk Lawyers Battle Over User Data in Court After Whistleblower Complaint

Lawyers for Twitter Inc. and Elon Musk argued Wednesday over Mr. Musk's requests for some data around the social-media platform's calculation of monetizable daily active users, or MDAUs, with Twitter saying it has cooperated as required and Mr. Musk saying he needs more information.

In a hearing in Wilmington, Del., Alex Spiro, a lawyer for Mr. Musk, argued that Twitter cherry-picked documents and misled the public about the data it presented investors on spam and fake accounts, and he asked the court to require the company to hand over more data and communications.

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Expected Major Events for Thursday

06:00/NOR: 2Q Labour Cost Index - preliminary figures

06:00/GER: 2Q GDP - Detailed breakdown

06:00/NOR: Jun Labour force survey SA, incl unemployment

06:45/FRA: Aug Monthly business survey (goods-producing industries)

07:00/SPN: Jul PPI

07:00/HUN: Jul Employment & unemployment

08:00/GER: Aug Ifo Business Climate Index

08:00/ICE: Jul Labour Force Survey

08:30/UK: Jul Capital issuance

09:00/LUX: Jun Trade

10:00/UK: Aug CBI Distributive Trades Survey

10:00/IRL: 2Q Labour Force Survey

13:00/BEL: Aug Business Confidence Survey

23:01/UK: Jul Zoopla House Price Index

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

08-25-22 0017ET