European stocks suffered broad losses Thursday, as investors remained cautious ahead of a Federal Reserve gathering and as persistently high Covid-19 cases worldwide weighed on travel-related shares. Miners were also under pressure with commodities prices, particularly oil, in the red.
"Risk assets have done well this last week and as we go into the Fed event, there is some profit taking," said Shaniel Ramjee, multiasset fund manager at Pictet Asset Management. "No one can honestly say they know what's going to happen, this uncertainty will put some reduction on risk."
JPMorgan said forecasts anticipate an acceleration in global growth in the third quarter but incoming data across the globe suggests the economic recovery is losing traction. China policy tightening, the Delta variant and persistent supply-side constraints are factors contributing to this deceleration, the bank said.
"While it is still likely that global growth remains well above trend, risks for the second-half forecast for global GDP to grow nearly 3% above its potential pace are now skewed to the downside."
Shares on the move:
Shares in DWS Group fell almost 10% earlier Thursday before recovering slightly, after The Wall Street Journal reported the asset-management arm of Deutsche Bank was under investigation by U.S. authorities over potential overstated efforts on environmental and other issues.
DWS, a $1 trillion asset manager, is being probed by the SEC and federal prosecutors after its former head of sustainability said it overstated efforts to use sustainable investing criteria to manage its assets, the Journal reported, citing people familiar with the matter.
Deutsche Bank owns a roughly 80% stake in DWS.
Vivendi stock climbed more than 4% after Universal Music Group's inaugural capital-markets day. The event provided the kind of color that should boost confidence in its prospects as a separately-listed entity, though the value "is only part of the story" for parent company Vivendi, said analysts at Citi.
UMG's long-term prospects support the EUR35 billion--or more--valuation suggested by recent transactions, and consensus forecasts could even see minor upgrades following the investor update, said Citi. While September's planned listing should be smooth, uncertainty remains around related tax considerations and the value of Vivendi's other assets, added Citi. It has maintained a neutral rating on the French media group and a EUR30.50 target price.
Data in focus:
Consumer sentiment in Germany is expected to weaken in September, according to the latest GfK survey, as a rise in Covid-19 cases and inflation sour the mood in the nation's households.
GfK's forward-looking consumer sentiment index sees confidence declining to minus 1.2 points in September from minus 0.4 points in August. Economists polled by The Wall Street Journal forecast a smaller drop, expecting sentiment to decline to minus 0.8 points.
Rising Covid-19 cases, a slowdown in vaccinations and discussions about how to deal with people that wish to stay unvaccinated have unsettled consumers, as they fear that restrictions could be tightened again, said Rolf Buerkl, consumer expert at GfK.
Inflation is also playing a role in discussions about economic developments in the country, he said. Consumer prices rose 3.8% on year in July, measured by national standards.
Stock futures wavered ahead of economic data that could provide fresh insights into the pace of the recovery.
Data on the U.S. economy's growth in the second quarter and on the latest week's jobless claims, seen as a proxy for layoffs, are both due at 1230 GMT. That data is likely to feed into policy makers' view on the recovery, investors have said.
Applications for unemployment benefits reached a new pandemic low in the second week of August, signaling an improving labor market. Economists are expecting Thursday's data to show a level that is relatively unchanged.
"The labor market is clearly recovering very well," said Matteo Cominetta, an economist at Barings. But the next few weeks will be crucial because federal unemployment benefits in the U.S. are being phased out, so "now you will see if the labor market can walk on its own. It is still a very mixed picture," he said.
The health of the labor market is a key indicator used by the Fed, so this uncertainty is another reason why the central bank is likely to remain cautious, Mr. Cominetta said.
The euro is stuck below $1.18, although selling is limited as investors tread carefully ahead of the Federal Reserve's Jackson Hole symposium, said Swissquote Bank analyst Ipek Ozkardeskaya.
Euro sellers remain timid before Jerome Powell's speech in case he says something "surprisingly dovish" on plans to taper bond purchases due to caution over the economic outlook, she said.
Whatever the outcome, EUR/USD is likely to fall over the medium-term as the Fed will taper asset purchases sooner rather than later while the European Central bank takes the opposite direction of continued loose policies, she added.
Sterling's performance versus the safe-haven dollar has been largely driven by risk appetite and it remains stuck in a tight range against the euro in the absence of U.K.-specific catalysts, said ING. "This looks unlikely to change today considering there is no data out of the U.K."
ING analysts said GBP/USD could struggle to move back above the 200-day moving average at 1.3800 on Thursday if the dollar continues to stabilize after its recent weakness.
Eurozone government bond yields were lower, starting to reverse Wednesday's bond selloff that moved yields out of their recent tight ranges.
"Eurozone government bonds and gilts finally break out of tight ranges, not far from levels to fade the pace of the move in the near-term," said Mizuho's rates strategists.
Italy's 0.65% May 2026 BTPei, an inflation-linked bond, is trading toward its most expensive levels since mid-June--nonetheless, it looks to offer value relative to the 1.30% May 2028 BTPei, said Citi rates strategists Saumesh Dutta and Antoine Gaveau.
Their comments comes ahead of Italy's EUR750 million to EUR1 billion tap of this inflation-linked bond at an auction on Thursday. The Italian treasury will also auction EUR2.25 billion to EUR2.75 billion in 0% January 2024 BTP, a short-dated conventional bond.
Oil prices extended their losses in Europe despite bullish inventory data, as concerns about the Delta coronavirus variant and upcoming OPEC+ supply increases weighed on sentiment.
Wednesday's EIA data is "not enough to keep the current rally...going for much longer," said Bart Melek, head of commodity strategy at TD Securities. Crude will continue to face headwinds from the coronavirus as vaccination rates take time to rise. At the same time supply increases in the coming months and the likely tapering of Fed's bond-buying program "will very likely be an additional headwind," Melek added.
Copper prices edged lower as supply concerns eased and the dollar rose.
Supervisors at Andina copper mine, run by Codelco--Chile's state-owned miner--have reached an agreement on pay, ANZ said, lifting concerns about strike action. Investors' risk appetite remains supportive for base metals but "the market remains wary that demand recovery may be susceptible to further weakness as the pandemic is not over."
U.S. Authorities Probing Deutsche Bank's DWS Over Sustainability Claims
U.S. authorities are investigating Deutsche Bank AG's asset-management arm, DWS Group, after the firm's former head of sustainability said it overstated how much it used sustainable investing criteria to manage its assets, according to people familiar with the matter.
The probes, by the Securities and Exchange Commission and federal prosecutors, are in early stages, the people said. Authorities' examination of DWS comes after The Wall Street Journal reported that the $1 trillion asset manager overstated its sustainable-investing efforts. The Journal, citing documents and the firm's former sustainability chief, said the firm struggled with its strategy on environmental, social and governance investing and at times painted a rosier-than-reality picture to investors.
German Consumer Confidence Is Expected to Wane in September on Covid-19 and Inflation Fears
Consumer sentiment in Germany is expected to weaken in September compared with the previous month as a rise in Covid-19 cases and inflation sour households' mood, according to data from the market-research group GfK released Thursday.
GfK's forward-looking consumer sentiment index sees confidence among households declining to minus 1.2 points in September from minus 0.4 points in August. Economists polled by The Wall Street Journal forecast a smaller drop, expecting sentiment to decline to minus 0.8 points.
Europeans Are Flying Again, Just as Americans Pull Back
LONDON-European air travel is finally returning, thanks to a barrage of cheap tickets from discount carriers and the relatively smooth rollout of a continentwide vaccination-certification system.
Until just recently, U.S. and China domestic air-travel markets have been booming, with passengers taking advantage of what had been a fall in Covid-19 cases in both places. In the U.S., a robust vaccination drive also boosted traveler confidence.
Bouygues Raises 2021 Views After Swing to 1H Net Profit
Bouygues SA said Thursday that it has raised its guidance for the year after swinging to a net profit for its first half, while it has named a new chief executive for its Bouygues Construction unit.
(MORE TO FOLLOW) Dow Jones Newswires