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EMEA Morning Briefing: Shares to Rise as Cooling Inflation Curbs Fed Rate Bets

08/11/2022 | 12:35am EDT

MARKET WRAPS

Watch For:

Germany Balance of Payments; OPEC, IEA Monthly Oil Market Reports; updates from Siemens, ThyssenKrupp, RWE, Hapag Lloyd, Deutsche Telekom, Daimler Truck, Zurich Insurance, Antofagasta, AEGON, Entain

Opening Call:

A strong finish on Wall Street, with Nasdaq entering a new bull market, should support European stocks on Thursday. In Asia, most major indexes were solidly higher; the dollar steadied after its post U.S. CPI slide; Treasury yields were little changed; and oil and metals fell.

Equities:

European stocks should extend gains early Thursday, as investors continue to react to the latest U.S. inflation data and news that Russian oil pipeline flows halted to Central Europe have resumed.

U.S. stock indexes closed at their highest levels since early May on Wednesday, after July's headline consumer price index showed inflation slowing, due largely to lower energy prices, and potentially easing the burden on the Federal Reserve's monetary policy.

"A number of components that people have been flagging as being potentially problematic and keeping inflation persistent at high levels, started to show some easing," said Key Private Bank, adding that it "opens the possibility to the Fed considering 50 basis point hikes instead of 75."

The Fed will consider the data ahead of its September 20-21 policy meeting where it is expected to raise its benchmark interest rate again.

Read: Fed Likely to Want Further Evidence of Inflation Slowdown

Read: Stock-Market Investors Cheer Inflation Data. Big-Name Firms Like Pimco, BlackRock Aren't So Sure

Economic Insight:

A standstill at a key bottleneck on the Rhine river, the Kaub, could completely halt shipping on the German river as happened in 2018, when transport to and from the southern industrial sites had to be interrupted, said Deutsche Bank.

Though transport is still possible at this stage, it is becoming increasingly expensive due to reduced loading capacity for ships and additional surcharges for low water levels.

Transport by rail could take on some loads, but capacities are already stretched, so that wouldn't solve the whole problem, Deutsche Bank said.

Truck transport couldn't be a viable substitute either, as the loads transported by water are much larger than those that can be moved by truck, and Germany already has a truck-driver shortage.

Forex:

The dollar made modest gains in Asia after it slumped on Wednesday, with the ICE Dollar Index down by the most since June and earlier in the day had traded at its lowest levels since March 2020.

"Investors are convinced the Fed will have a much slower rate hiking cycle now," said OANDA. "The top of the dollar could be in place right now if inflation continues to decelerate sharply."

Bonds:

U.S. bond yields barely moved in Asia, having fallen on Wednesday as investors increased their bets on a less hawkish Fed next month, reducing the inverted spread to its lowest point in five days.

But some pundits warned it is too early to call victory over inflation. Amherst Pierpont said that CPI analysis by the Cleveland and the Atlanta Fed show inflation's underlying trend well above target. PPI due later Thursday is forecast to slow down, and jobless claims are expected to be slightly higher.

Asset manager Louis Navellier said that concerns for an even more hawkish Fed are easing, which is "best reflected by the shift in expectations for the next Fed increase in September from 75bps to 50bps, with 50bps now considered a 2/3 likelihood from 1/3 before the CPI numbers."

Read: Pre-Covid Inflation Levels Seen as Unlikely to Return

Energy:

Crude-oil prices edged lower in early Asian trade, likely due to the easing of global supply concerns as Russian pipeline operator Transneft resumed supplying to the Druzhba pipeline toward Ukraine, said ANZ.

Oil futures finished more than 1% higher on Wednesday, erasing earlier losses after EIA data showed a bigger-than-expected drop in U.S. gasoline inventories and a jump in refinery utilization, though crude inventories rose.

Metals:

Gold futures weakened as risk appetite improved.

OANDA said gold's trajectory remains higher, but this might take a little longer if equities stay bid for a while.

Goldman Sachs late on Tuesday reduced its forecasts for the precious metal, along with silver, citing increased focus on the Federal Reserve's shifting priorities.

Goldman cut its 3, 6 and 12-month gold forecasts to $1850, $1950 and $1950 an ounce from a prior $2100, $2300 and $2500, respectively. The bank expects silver to reach $21, $23 and $25 an ounce, respectively, from a prior $30 an ounce across that multimonth time frame.

"While we expected nominal rates to increase on the back of Fed hikes, we did not expect inflation expectations to fall so much after the failure of the transitory narrative and high persistent inflation surprises," said Goldman Sachs.

"The main conclusion is that in the current environment of tightening policy and persistent recession concerns, the tactical direction of gold will be determined by shifts in Fed priority function between inflation fight and growth support."

---

Base metals were mixed, as market participants assessed various developments.

Copper edged higher, erasing earlier losses, and aluminum advanced while zinc fell. Traders seem to have weighed up an uncertain economic backdrop against continuing supply-side issues, said ANZ.

TD Securities said metals supply risk was trending higher. Covid-19 cases continue to rise in China's industrial regions, leading officials to reportedly lock down urban areas in Guixi city, which has massive copper smelters.

---

Chinese iron-ore futures were higher on generally positive market sentiment, spurred by the softer-than-expected U.S. inflation reading.


TODAY'S TOP HEADLINES

Fed Likely to Want Further Evidence of Inflation Slowdown

A slowdown in inflation last month, following recent indications of a robust labor market, complicates the Federal Reserve's decision on how much to raise interest rates next month.

Data on inflation and economic activity are likely to guide whether central bank officials lift their benchmark federal-funds rate by a half-percentage point or three-quarters of a point at their Sept. 20-21 policy meeting. They have said they want to see evidence that price pressures and economic growth are cooling before they moderate their pace of rate increases.


Lower Gasoline Prices Portend Higher Consumer Confidence, Affect Inflation

Consumers are likely to travel and spend more because U.S. national gasoline prices have fallen for weeks, economists said, delivering an expected boost to the economy.

The average cost of a gallon of regular unleaded gasoline fell below $4 on Wednesday, according to energy data provider OPIS. That is well below the record high of $5.02 reached in mid-June but still about 80 cents a gallon higher than prices were a year ago.


Regulators Weigh Asking Hedge Funds to Report Crypto Exposure

WASHINGTON-The collapse in cryptocurrency prices this year has left U.S. regulators scrambling to understand the risks that digital-asset markets could pose to the broader economy.

They may soon enlist hedge funds in the effort.


Ukraine Wins Investor Approval to Pause Payments on Foreign Debts

Investors approved a two-year payment delay on roughly $20 billion of Ukraine's foreign-currency debt, heeding calls from Washington and other allied governments to grant the embattled nation a financial reprieve as it burns through cash.

Ukraine asked bondholders last month to push back payments of interest and principal on a clutch of dollar- and euro-denominated government bonds, with a combined face value of nearly $20 billion, by two years. The government's request came as little surprise to creditors, who had expected that Kyiv would need to restructure its debts as the war dragged on.


Write to paul.larkins@dowjones.com


Expected Major Events for Thursday

06:00/ROM: Jul CPI

06:00/DEN: 2Q Consumer credit

07:00/SVK: Jun Employment and average monthly wage in selected branches

07:00/SVK: Jun Turnover in selected branches of economy, incl Industry & Construction

07:00/TUR: Jun Balance of Payments

08:00/FRA: Aug IEA Oil Market Report

08:30/UK: 2Q Mortgage and landlord possession statistics

08:30/UK: 2Q Mortgage Arrears and Possessions data

10:00/IRL: Jul CPI

16:59/GER: Jun Balance of Payments

16:59/AUT: Aug OPEC Monthly Oil Market Report

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

Write to us at newsletters@dowjones.com

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


(END) Dow Jones Newswires

08-11-22 0034ET

Stocks mentioned in the article
ChangeLast1st jan.
AEGON N.V. -3.22% 4.063 Real-time Quote.-7.51%
ANTOFAGASTA PLC 0.00% 1101.5 Delayed Quote.-17.71%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.32% 0.64845 Delayed Quote.-11.37%
BLACKROCK, INC. -3.67% 563.92 Delayed Quote.-38.41%
BRITISH POUND / US DOLLAR (GBP/USD) -0.68% 1.10864 Delayed Quote.-20.72%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.29% 0.7285 Delayed Quote.-7.88%
DAIMLER TRUCK HOLDING AG -3.43% 22.695 Delayed Quote.-29.72%
DEUTSCHE BANK AG -3.31% 7.594 Delayed Quote.-31.08%
DEUTSCHE TELEKOM AG -1.38% 17.638 Delayed Quote.8.21%
DOW JONES FXCM DOLLAR INDEX 0.11% 13401.1 Real-time Quote.10.41%
EURO / US DOLLAR (EUR/USD) -0.29% 0.97995 Delayed Quote.-14.64%
GOLD -0.11% 1662.37 Delayed Quote.-10.96%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.22% 0.012247 Delayed Quote.-8.86%
LONDON BRENT OIL -0.76% 88.03 Delayed Quote.9.98%
NASDAQ COMPOSITE -2.84% 10737.51 Real-time Quote.-29.36%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.42% 0.57164 Delayed Quote.-17.64%
RWE AG -1.88% 38.09 Delayed Quote.6.63%
S&P GSCI ALUMINUM INDEX 0.80% 140.2117 Real-time Quote.-24.66%
S&P GSCI CRUDE OIL INDEX -0.89% 443.3847 Real-time Quote.8.68%
S&P GSCI UNLEADED GASOLINE INDEX -1.52% 504.0334 Real-time Quote.6.73%
SIEMENS AG -1.21% 98.26 Delayed Quote.-35.64%
SILVER -0.37% 18.8378 Delayed Quote.-21.09%
THYSSENKRUPP AG -7.59% 4.223 Delayed Quote.-56.39%
WTI -0.97% 80.909 Delayed Quote.8.46%
ZURICH INSURANCE GROUP LTD -0.63% 395.5 Delayed Quote.-0.60%
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