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EMEA Morning Briefing: Stocks Seen Higher as Investors Weigh Mixed Economic Picture

08/08/2022 | 12:36am EDT

MARKET WRAPS

Watch For:

UK July BRC-KPMG Rtail Sales Monitor; Updates from Siemens Energy, Porsche, MTN Group

Opening Call:

Stocks in Europe are seen opening higher after closing lower Friday. In Asia, stock benchmarks were mostly lower; the dollar weakened; Treasury yields were mixed; oil rose; and gold edged lower.

Equities:

European stocks look poised to push higher at the open today, after declining Friday following much stronger-than-expected U.S. jobs data, which increases the prospect of further hefty rate rises by the Fed.

The data left investors with a mixed picture: A key pillar of the economy remains strong, which should be good news for markets. But strong data means the rate increases that have sent stock and bond prices lower this year aren't likely to go away anytime soon.

"[Friday's] jobs report is the exact opposite of a slowing economy," said Thomas Tzitzouris, head of fixed-income research at Strategas. "This report means it's going to be very difficult to support the view of rate cuts happening anytime before the end of next year."

The monthly employment report, however, is a lagging indicator. And investors and policy makers still have lots of data to sift through between now and the Fed's September policy meeting. The next reading of the U.S. consumer-price index will be released Wednesday.

"Friday's extremely strong jobs data suggests that many businesses are not allowing recession fears to stand in the way of hiring," said Ryan Belanger, managing principal and founder at Claro Advisors. "The jury is out on whether this robust pace of hiring can continue as many large and small companies have recently taken steps to slow hiring or even layoff existing employees."

Belanger said he thinks the inflation data on Wednesday will weigh more heavily on the Fed than the jobs report, as fighting inflation is the Fed's top focus.

Forex:

The dollar edged lower in Asia today, after rising Friday following a strong jobs report.

The reaction to a shockingly impressive payroll report was a surge in Treasury yields that bolstered the dollar," said Oanda's Edward Moya.

"King dollar is here to stay as the debate for higher Fed rate increases will likely be supported by the next round of inflation data. The euro defended parity against the dollar, but it will be hard for that to last as the interest rate differential will continue to widen more to the greenback's favor and as the global economic slowdown will lead to more safe-haven flows," Moya said.

Bonds:

Treasury yields were mixed early Moday after jumping sharply Friday on the July jobs report. That stoked expectations the Fed will continue to aggressively raise rates to contain inflation.

However, the spread in yields between shorter-term and longer-term bonds widened further, deepening what's known as a yield curve inversion.

Energy:

Crude-oil futures rose in Asia.

Surging natural-gas prices, freight rates and a stronger U.S. dollar have boosted the cost of transporting Brent crude oil from the ground into retail pumps, Goldman said.

While Goldman still expects Brent to trade at a wide discount to retail fuel prices, prices could soon rise to $110/bbl-$125/bbl on short supply.

Metals:

Gold inched lower in Asia.

The price of the precious metal may come under pressure after strong payrolls data on Friday, ANZ said.

That could give rise to fears that the Fed may persist with its aggressive rate-hike cycle, ANZ said.

--

Aluminum pushed a tad higher, supported by prospects of supply reductions prompted by rising energy shortages.

Sentiment seems more positive in the base metals sector, ANZ said.

Meanwhile, commodities giant Glencore warned last week that Europe's energy crisis poses a substantial threat to supply, ANZ said.

The company noted that its smelters in the region are barely turning a profit, given that aluminum is the most energy-intensive metal, added ANZ.

--

Chinese iron ore futures advanced in a likely technical rebound after prices fell in the latter half of last week, though further gains may be capped.

China's steel demand is facing significant headwinds from the property sector, where mortgage boycotts threaten to derail property construction further, CBA said.

With presold apartments an important funding source for property developers, mortgage boycotts threaten to amplify the risk that projects under construction remain uncompleted, CBA added.


TODAY'S TOP HEADLINES

Senate Passes Democrats' Climate, Healthcare and Tax Bill

WASHINGTON-The Senate passed a bill spending hundreds of billions of dollars on climate and healthcare programs while raising taxes on large, profitable companies, as Democrats unified around elements of President Biden's agenda after a year of frustrated efforts to advance a broader package.

The legislation, which passed the Senate 51-50 on Sunday with a tiebreaking vote by Vice President Kamala Harris, offers tax incentives for reducing carbon emissions, seeks to allow Medicare to negotiate the price of some prescription drugs, allots roughly $80 billion to the Internal Revenue Service and extends subsidies for health insurance under the Affordable Care Act.


Fed's Michelle Bowman Says Large Interest-Rate Rises Could Continue

A Federal Reserve official said the U.S. central bank could follow two consecutive 0.75-percentage-point rate rises this summer with a third such increase at its meeting next month.

Fed governor Michelle Bowman said she strongly supported the Fed's 0.75-percentage-point rate increase last month and "similarly-sized increases should be on the table until we see inflation declining in a consistent, meaningful and lasting way."


China's Export Growth Stays Unexpectedly Robust, Offsetting Broader Weakness

HONG KONG-China's export machine remained surprisingly resilient in July following a strong bounceback from the spring's harsh Covid-19 restrictions, defying again predictions of softening global demand for Chinese-made goods.

Chinese shipments to the rest of the world rose to $332.9 billion in July, China's General Administration of Customs said Sunday, an 18% increase compared with a year earlier. The reading beat a median forecast of 15.6% growth among economists polled by The Wall Street Journal. July's year-over-year growth rate represents an acceleration from the 17.9% pace in June.


Iran, U.S. Close In on Nuclear Deal Text but Hurdles Remain

Negotiations between Iran and the U.S. on reviving the 2015 nuclear deal are close to completion, the European Union's senior negotiator at the talks said Sunday evening, but it remained unclear whether Tehran will accept the final deal.

The text of an agreement could be closed in coming hours, said the EU's Enrique Mora, the coordinator of the talks. However, Iran must still decide whether to set aside its demand that the nuclear deal can only be revived if a multiyear United Nations atomic agency probe into its nuclear program is closed.


Investors Brace for More Market Volatility as Earnings Estimates Slump

Corporate-earnings expectations are falling. That means the stock market is again at risk of appearing expensive, even after this year's tumble.

Wall Street often uses the ratio of a company's share price to its earnings as a gauge for whether a stock appears cheap or overpriced. By that metric, the market as a whole had been especially pricey for much of the past two years when easy monetary policy propelled major stock indexes to dozens of new highs.


UPS Nears Deal to Buy Italian Healthcare-Logistics Provider Bomi Group

United Parcel Service Inc. is nearing a deal to acquire Italy's Bomi Group, according to people familiar with the matter, as the transportation giant looks to bolster its medical-product-distribution business.

The deal, worth several hundred million dollars, could be finalized as soon as Monday assuming the talks don't break down at the last minute, the people said.


Explosions Rock Ukraine's Zaporizhzhia Nuclear Power Plant

ZAPORIZHZHIA, Ukraine-Explosions shook Europe's largest nuclear plant over the weekend, prompting fears that the war could unleash a nuclear catastrophe.

Located in the Russian-occupied city of Enerhodar along the Dnipro river, which divides the Russian and Ukrainian forces in the area, the Zaporizhzhia nuclear power plant is now perilously close to the front lines of the fighting.


Oz Minerals Rejects BHP Takeover Proposal

ADELAIDE, Australia-Oz Minerals Ltd. on Monday rejected a nonbinding takeover proposal from BHP Group Ltd. that values the Australian copper-and-gold mining company at almost 8.4 billion Australian dollars (US$5.8 billion), calling the approach highly opportunistic following a fall in copper prices.

Adelaide-based Oz Minerals said it received on Friday the unsolicited and conditional proposal from the world's largest mining company by market value to acquire its shares for A$25.00 each. Its stock last traded at A$18.92 a share.


Ben & Jerry's to Take On Owner in Court Hearing Over Israeli Business

A request by Ben & Jerry's to block parent company Unilever PLC's sale of the ice-cream brand's Israeli business is set to be heard by a New York court Monday in what lawyers say is a first-of-its-kind case.

At the heart of the case is what powers Ben & Jerry's independent board, a unique corporate-governance arrangement Unilever granted when buying the brand, has in practice.


Write to hoishan.chan@dowjones.com


Expected Major Events for Monday

05:45/SWI: Jul Unemployment

06:00/DEN: Jun Industrial production & new orders

06:00/NOR: Jun Industrial Production Index

07:00/AUT: May Foreign Trade

07:00/CZE: Jun Industry, Construction

07:00/CZE: Jun External trade

07:00/HUN: Jun Preliminary External Trade

07:00/CZE: Jul Unemployment data

08:00/ICE: Jul External trade, preliminary figures

09:00/GRE: Jul CPI

10:00/IRL: Jul Irish Live Register latest monthly figures

(MORE TO FOLLOW) Dow Jones Newswires

08-08-22 0035ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.02% 0.6531 Delayed Quote.4.92%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.00% 0.6402 Delayed Quote.-10.41%
BHP GROUP LIMITED 0.92% 38.52 Delayed Quote.17.38%
BRC INC. 1.84% 7.73 End-of-day quote.-23.84%
BRITISH POUND / EURO (GBP/EUR) -0.02% 1.1381 Delayed Quote.-6.23%
BRITISH POUND / US DOLLAR (GBP/USD) 0.00% 1.116 Delayed Quote.-19.96%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.01% 0.737975 Delayed Quote.8.56%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.00% 0.7227 Delayed Quote.-7.30%
DR. ING. H.C. F. PORSCHE AG -0.02% 82.48 Delayed Quote.0.00%
EURO / US DOLLAR (EUR/USD) 0.01% 0.9801 Delayed Quote.-13.57%
GLENCORE PLC -1.77% 478.15 Delayed Quote.27.52%
INDIAN RUPEE / EURO (INR/EUR) 0.18% 0.012519 Delayed Quote.7.10%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.04% 0.01227 Delayed Quote.-8.53%
LONDON BRENT OIL -3.84% 85.29 Delayed Quote.14.15%
MTN GROUP LIMITED 0.39% 119.88 End-of-day quote.-29.78%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.00% 0.5594 Delayed Quote.-16.40%
OZ MINERALS LIMITED 0.12% 25.78 Delayed Quote.-8.65%
POWER SOLUTIONS, LTD. -0.40% 2520 Delayed Quote.7.88%
S&P GSCI ALUMINUM INDEX -1.55% 136.9054 Real-time Quote.-22.02%
S&P GSCI BRENT CRUDE INDEX -2.34% 724.5966 Real-time Quote.13.20%
S&P GSCI CRUDE OIL INDEX -2.59% 435.657 Real-time Quote.8.50%
S&P GSCI NATURAL GAS INDEX -1.57% 316.79 Real-time Quote.84.26%
SIEMENS AG 2.99% 101.2 Delayed Quote.-33.72%
SIEMENS ENERGY AG 0.57% 11.385 Delayed Quote.-49.38%
UNILEVER PLC -2.73% 3969 Delayed Quote.0.60%
UNITED PARCEL SERVICE INC -2.29% 161.54 Delayed Quote.-24.63%
US DOLLAR / EURO (USD/EUR) -0.01% 1.020304 Delayed Quote.17.15%
WTI -2.49% 79.673 Delayed Quote.8.35%
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