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EMEA Morning Briefing : Stocks Face Cautious Start Despite Some Reassuring China Data

11/15/2021 | 06:44am EDT


Watch For:

Eurozone Foreign Trade; Christine Lagarde appears at Committee on Economic and Monetary Affairs; BOE Governor Andrew Bailey appears before Treasury Committee; updates from Vantage Towers, Aeroports de Paris, RWE, Vodacom, Gazprom, Ultra Electronics, Smiths Group, Investors House, Land Securities, Ahold Delhaize

Opening Call:

Europe may struggle for momentum early Monday despite some above-forecast economic data from China. In Asia, shares were mixed, with the dollar, bond yields, oil and gold all easing lower.


European stocks face a mildly-cautious opening session despite some upbeat economic data from China and a firmer finish for Wall Street on Friday.

Asian markets were mixed, with shares in Hong Kong and China lower, as traders assessed October readings for China's major economic indicators which came in better than expected, despite rising headwinds from renewed Covid outbreaks, a property market downturn and power shortages.

Stocks to Watch: Rio Tinto's and Anglo American's carbon-abatement targets, for Scope 1 and 2 emissions, are ambitious compared with those of their peers, but shouldn't materially affect their fiscal strength over the next few years, said Fitch. That is in part because of existing "substantial financial flexibility and very conservative debt levels."

Furthermore, Fitch expects those companies' decarbonization initiatives to strengthen their businesses over the long run, as improvements safeguard their operations against possible regulatory changes, such as the global rollout of carbon-pricing schemes.


The dollar dipped, with sentiment in Asia boosted by a positive handover from Wall Street, said IG.

CBA said the dollar should remain elevated this week if U.S. interest rate-increase expectations keep firming. "We believe the FOMC is behind the curve on inflation. Last week's stronger than expected CPI print was just the latest evidence that underlying inflation is high and broadening."

That said, U.S. data this week probably won't break or make the case for tightening, CBA reckons. Among major pairs, the bank sees AUD/USD risks skewed to the downside and EUR/USD likely to edge lower. GBP/USD will be driven in part by the U.K. labor market report due Tuesday.

Goldman Sachs said in its 2022 macro outlook that it continues to see "structural vulnerabilities for the dollar, due to its high valuation, more competitive asset returns overseas, and new pressures on the currency's global role."

However, bank added "the prospect of earlier Fed tightening reduces the scope for sustained dollar weakness over the coming months. Unless U.S. inflation comes down more than expected, allowing the Fed to remain on hold for a lengthier period, prepare for a range-bound dollar, especially vs the euro."


Treasury yields eased back in Asia, s traders remained focused on the highest U.S. inflation rate in almost 31 years and the need for a possible response by the Federal Reserve.

Capital Economics thinks the recent pickup in bond-market volatility will persist and that volatility in currency markets also will rise further as uncertainty around the U.S. economic outlook and monetary policy remains high--even though FX markets have remained relatively calm despite the rise in actual and expected bond market volatility.

Senior markets economist Jonas Goltermann said that bond and FX volatility typically move closely together. He said global factors are driving bond market volatility, including a surge in energy prices and increasing uncertainty around the inflation outlook.

"Combined with the somewhat muddled messages from some policy makers about their plans for policy normalization, this has also increased uncertainty around central bank reaction functions."

However, Bank of America said a softer tone from central banks regarding monetary policy has "calmed the fixed-income market" and boosted inflows into dollar-, sterling- and euro-debt funds. "Inflows have picked up across high-grade and high-yield funds amid renewed need for yield," BofA said, citing data from fund-tracker EPFR.

High-grade corporate-bond funds recorded their third inflow in a row last week, and the largest in eight weeks as rates volatility has been off the recent peak. "In a world of high inflationary pressures and above-target inflation, we think that inflows into assets that offer superior returns vs. inflation will continue, thus supporting higher-yielding assets."


Oil futures fell further in Asia after they ended lower on Friday for a third-straight week, ahead of a potential U.S. move to ease high prices.

During a White House press conference Friday, Press Secretary Jen Psaki said the U.S. continues to look at "every tool in our arsenal" to lower gasoline prices, and has taken a range of actions, including engaging with entities abroad such as OPEC.

"What this tells us is that behind the scenes in the White House, they're not quite sure what to do," Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

He said an SPR release and a ban on U.S. oil exports would both fail to provide any lasting relief from high oil and gasoline prices.

A release from the reserve "will only serve to increase demand," he said. "It will artificially lower prices in a market where the demand is insatiable and fundamentally undersupplied," Flynn said. A ban on U.S. oil exports, meanwhile, would serve to make U.S. production fall given that the U.S. produces light oil that is "better suited for foreign refineries."


Gold futures were slightly lower but may continue their recent uptrend as concerns about higher inflation persist.

Gold's popularity has been boosted by rising inflation and investors have turned to it like an old friend in time of need, said Oanda. Unless the Fed and other central banks provide substantial reassurances that they're going to tackle higher inflation, beyond waiting for inflation to pass and hope they're right, gold will likely stay in favor, Oanda added.

Bullion finished with a gain on Friday, stretching its winning streak into a seventh consecutive session, with prices scoring the biggest weekly percentage gain since May.

"Inflation is a very real fear, and the price of gold is reflecting this, " said Adam Koos, president at Libertas Wealth Management Group.

Copper prices look likely to gain on continued inventory drawdowns, with Goldman Sachs noting that last week's 9% drop in global copper stocks was the 20th consecutive weekly decline for inventories of the industrial metal.

"On the current pace of drawdowns, a near depletion in current visible stocks is possible by February next year," said Goldman Sachs, forecasting a 212,000-ton deficit in 2022. Prices are likely to rise further as a result, with the bank expecting the "market will balance at $12,000/ton into next year."

Aluminum prices were around 1.5% lower, hit by news that the U.S. may ease import tariffs on the metal from Japan, a move that could help to resolve the metal's supply-chain issues.

U.S. trade and commerce officials said in a statement Friday that the U.S. and Japan will start talks to address bilateral concerns over steel and aluminum issues, including the tariffs imposed by the Trump administration.

Ausbil said it should be at least 18 months before any increase in lithium supply, encouraged by rising prices, emerges to drag prices lower.

Today, supply is tight and prices are trending higher as demand accelerates, said James Stewart, co-portfolio manager of Ausbil's global resources fund, adding that there's very limited excess capacity available to increase output at present.

"Because of this, we expect lithium prices to remain elevated for some time until we see a supply response." Miners' share prices and analysts' forecasts for those companies' earnings are likely to rise in the interim, Stewart said.


Japan Economy Shrinks, Hit by Supply-Chain Troubles

TOKYO-Japan's economy shrank in the July-September period owing to a fall in exports caused by supply-chain constraints and lower consumer spending during a Covid-19 state of emergency.

The decline will likely give a push to Prime Minister Fumio Kishida's plans for cash handouts to families to stimulate the economy, although economists expect growth to resume in the current quarter regardless.

Major Chinese Economic Indicators for October Beat Expectations

BEIJING-October readings for China's major economic indicators came in better than expected, despite rising headwinds from renewed Covid outbreaks, a property market downturn and power shortages.

Industrial production rose 3.5% from a year earlier in October, speeding up from September's 3.1% expansion, the National Bureau of Statistics said Monday.

COP26 Opens Path to International Carbon Trading

International carbon markets got a shot in the arm in Glasgow on Saturday after governments agreed on long-stalled rules for how countries, and companies, can trade carbon-emissions credits across borders.

Negotiations over the carbon agreement were overshadowed at the United Nations climate summit by a higher-profile deal on emissions cuts and climate-change funding. That broader deal asks its 190-plus signatories next year to revisit emissions-cutting plans that fell short of what scientists say is enough to prevent the worst possible effects of climate change. The deal, though, left big questions about how governments will follow through.

On Inflation Surge, the Fed Is Running Out of Excuses

Every time the Federal Reserve comes up with an excuse for raging inflation and why it won't last, the data knock it back down.

(MORE TO FOLLOW) Dow Jones Newswires

11-15-21 0039ET

Stocks mentioned in the article
ChangeLast1st jan.
AHOLD DELHAIZE N.V. 1.36% 25.295 Real-time Quote.-17.19%
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) -0.08% 0.5642 Delayed Quote.4.94%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.51% 0.6646 Delayed Quote.4.29%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.63% 0.7104 Delayed Quote.-3.14%
BANK OF AMERICA CORPORATION 5.94% 35.87 Delayed Quote.-23.89%
BELIEVE -3.38% 9.575 Real-time Quote.-41.35%
BRITISH POUND / EURO (GBP/EUR) -0.51% 1.1769 Delayed Quote.-0.63%
BRITISH POUND / US DOLLAR (GBP/USD) 0.64% 1.25783 Delayed Quote.-7.70%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) -0.24% 0.62256 Delayed Quote.6.61%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.72% 0.732977 Delayed Quote.5.94%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.35% 0.7825 Delayed Quote.-1.59%
EURO / BRITISH POUND (EUR/GBP) 0.46% 0.849 Delayed Quote.0.48%
EURO / US DOLLAR (EUR/USD) 1.08% 1.0686 Delayed Quote.-7.23%
GOLD 0.34% 1852.5 Delayed Quote.0.89%
INDIAN RUPEE / BRITISH POUND (INR/GBP) -0.18% 0.010256 Delayed Quote.3.63%
INDIAN RUPEE / EURO (INR/EUR) -0.66% 0.012064 Delayed Quote.3.10%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.43% 0.012899 Delayed Quote.-4.36%
INVESTORS HOUSE OYJ -0.37% 5.44 Delayed Quote.-2.15%
LAND SECURITIES GROUP PLC 2.78% 761.8 Delayed Quote.-4.53%
LONDON BRENT OIL 0.69% 113.34 Delayed Quote.44.68%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.73% 0.6465 Delayed Quote.-6.31%
PUBLIC JOINT STOCK COMPANY GAZPROM NEFT -2.63% 407 End-of-day quote.-25.29%
RWE AG 0.46% 43.32 Delayed Quote.20.72%
S&P 500 1.86% 3973.75 Real-time Quote.-18.14%
S&P GSCI ALUMINUM INDEX 0.16% 187.4204 Real-time Quote.4.92%
SMITHS GROUP PLC 1.65% 1538.5 Delayed Quote.-4.18%
ULTRA ELECTRONICS HOLDINGS PLC 0.00% 3320 Delayed Quote.4.40%
US DOLLAR / BRITISH POUND (USD/GBP) -0.63% 0.794761 Delayed Quote.8.35%
US DOLLAR / EURO (USD/EUR) -1.09% 0.935804 Delayed Quote.7.79%
VODACOM GROUP LIMITED 0.59% 144.88 End-of-day quote.7.62%
WTI 0.36% 110.563 Delayed Quote.44.84%
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