EMEA Morning Briefing: Shares to Extend Losses Amid Rate Uncertainty

MARKET WRAPS

Watch For:

Trading updates from Pershing Square Holdings, TCS Group, Gazprom

Opening Call:

Shares will likely open in the red on Wednesday following downbeat economic news and rising worries about the Fed's path ahead. In Asia, major stock benchmarks fell; the dollar edged higher; Treasury yields largely declined; while oil and gold were lower.

Equities:

European shares look set to extend Tuesday's losses morning amid gloomy economic data and continued uncertainty over the Fed's path of interest-rate increases.

U.S. stocks edged lower overnight in a third consecutive data of declines.

"There is perhaps a growing realization that the Federal Reserve will remain unmoved by recent data which suggested that inflation could be peaking and maintain its aggressive policy," said Richard Hunter, head of markets at Interactive Investors.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said investors had become more wary that Fed Chair Powell will seek to cement his hawkish stance when he addresses the public from Jackson Hole on Friday.

"Now that the Jackson Hole meeting approaches, those [bullish stock market] bets are vanishing, as there is no way the Fed will soften its tone while inflation still hangs around the 8.5% level," Ozkardeskaya said.

Forex:

The dollar steadied, pushing slightly higher after weakening overnight on soft U.S. economic data.

A wait-and-see stance could play out as market participants await further clues from this week's Jackson Hole symposium to drive larger movements in financial markets, IG said.

Bonds:

Treasury yields mostly declined in Asia.

The inverted spread shrank overnight, with Spartan's Peter Cardillo saying the narrowing gap is "a sign that the backup in the recent rise [in] yields has reached a near term top."

Meanwhile, dismal U.S. home sales data supported the notion that a slowing economy could soften monetary tightening.

Energy:

Oil futures fell slightly in Asia in a likely technical correction after WTI prices closed overnight at their highest level since mid-August.

But the outlook might brighten, as soft economic data released Tuesday suggest OPEC+ could justify output reductions soon, said Oanda's Edward Moya.

The oil market will probably remain tight whether business activity continues to weaken sharply or if economic growth remains choppy, Moya added.

Meanwhile, the U.S. Energy Information Administration will release its weekly report on petroleum supplies Wednesday morning.

On average, analysts expect the EIA to report a decline of 3.2 million barrels for the week ended Aug. 19, according to a poll conducted by S&P Global Commodity Insights. They also forecast inventory declines of 2.5 million barrels for gasoline and 360,000 barrels for distillates.

Metals:

Gold edged lower in Asia after prices finished higher in the U.S. overnight for the first time in seven sessions.

Given that the Fed may use Jackson Hole to push back against the notable easing in financial conditions sparked by Fed Chair Powell's past remarks, precious metals prices have begun to decline, TD Securities said.

This also fits with the recent reduction in market expectations for Fed rate cuts to immediately follow the rate-increase cycle, added TD.

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Prospects of production cuts in China driven by power shortages are supporting aluminum futures.

Concerns over further reductions to output in China are rising, said ANZ, noting that a heat wave and subsequent drought have caused hydropower in the Sichuan province to fall sharply.

This could lead to Chinese aluminum production falling in August, against a backdrop of low inventories, ANZ added.

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China's economic struggles are an ominous sign for the price of steel ingredient iron ore, said Macquarie, which downgraded its 4Q forecast to $85/ton from $135/ton previously. It also cut its 2023 projection to $99/ton from $120/ton.

Spot iron ore last fetched $102.30/ton, according to S&P Global Commodity Insights.

"Even factoring in a moderate sequential increase in China's crude steel and hot metal production from here, our iron ore balance is 'flashing red' with some of the biggest market surpluses of recent years," Macquarie said.

TODAY'S TOP HEADLINES

Fed's Kashkari Says No Time To Back Off On Inflation Struggle

Federal Reserve Bank of Minneapolis President Neel Kashkari says the U.S. central bank needs to press forward with tighter monetary policy until it is clear that very high levels of inflation are moving back down.

"When inflation is 8% or 9%, we run the risk of un-anchoring inflation expectations," Mr. Kashkari said at an appearance Tuesday, and if that happened, the Fed would likely have to embark on very aggressive rate rises to restore balance.

New-Home Sales Fall to Their Lowest Level in 6 Years

New-home sales fell further than expected last month to the lowest level since early 2016, according to data released Tuesday. It is the latest indication of higher mortgage rates' impact on the housing market.

New single-family homes in July were sold at a seasonally adjusted annual rate of 511,000, down 12.6% from June's revised rate of 585,000, the Census Bureau and Bureau of Housing and Urban Development said Tuesday. It was the slowest seasonally adjusted rate of sales since January 2016, according to historic data.

Saudis, Allies Open Door to Oil-Output Cut to Keep Prices High

RIYADH, Saudi Arabia-Saudi Arabia and some of its oil-producing allies have suggested cutting crude production, disappointing U.S. officials who predicted the kingdom would be instrumental in cooling the market after President Biden met Crown Prince Mohammed bin Salman for the first time in office.

The Saudi-led Organization of the Petroleum Exporting Countries and a coalition of producers led by Russia-collectively known as OPEC+-agreed to a smaller-than-expected production increase earlier in August.

Federal Trade Commission Drops Mark Zuckerberg From Antitrust Lawsuit

The Federal Trade Commission said it would drop Mark Zuckerberg from a lawsuit filed last month seeking to block Meta Platforms Inc. from buying a small virtual-reality company.

In return, the Meta chief executive agreed not to purchase the startup, Within Unlimited Inc., and its fitness app called Supernatural, in his personal capacity or through any other entities he controls, according to a court document filed Tuesday.

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Expected Major Events for Wednesday

05:00/FIN: Jul PPI

06:00/NOR: Jul Credit Indicator C2

06:00/NOR: 2Q Credit Indicator C3

06:00/DEN: 2Q Labour force survey

07:00/CZE: Aug Business cycle survey (consumer/business confidence)

08:00/POL: Jul Unemployment

23:01/UK: Jul UK monthly automotive manufacturing figures

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

08-24-22 0018ET