EUROPEAN MIDDAY BRIEFING : Stocks Led Higher by Retail, Oil and Gas

MARKET WRAPS

Stocks:

European stocks were broadly higher Wednesday. The Stoxx Europe 600 added 0.9%, led by retail, oil and gas stocks.

Shares on the move:

Carrefour slipped more than 4% in early trade Wednesday after investor Bernard Arnault said he was selling off what remains of his stake, a move analysts say sends a clearly negative signal concerning the French supermarket group.

Late Tuesday, Carrefour said the Agache Group had decided to sell the remainder of its stake. Agache is the holding company of Mr. Arnault, founder and chief executive of France's largest company by capitalization, luxury-goods conglomerate LVMH Moet Hennessy Louis Vuitton SE.

The stake sale continues an exit from Carrefour begun in September 2020, Carrefour said. Chief Executive Alexandre Bompard thanked Mr. Arnault for his "trust and unwavering support" at "every stage of the group's transformation."

U.K. retailer WH Smith dropped over 6% after saying the uncertain recovery in travel had weighed on profits.

Data in focus:

Manufacturing activity in the eurozone held up in August and seems to have grown at a solid pace, albeit losing some momentum from the previous months amid widespread supplier shortages and inflation pressures.

The final reading for the eurozone's manufacturing PMI for August was 61.4, a six-month low, data from IHS Markit showed Wednesday. This was down from 62.8 in July and marginally below the 61.5 preliminary estimate. A reading above 50 indicates an expansion an activity, while below this threshold signals a contraction.

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Manufacturing activity in Germany expanded in August at the slowest pace since February as goods producers faced constraints caused by supply-chain issues, according to a survey compiled by IHS Markit.

The manufacturing PMI stood at 62.6 in August, down from 65.9 in July. Production slowed significantly in the month, with firms indicating that their efforts to raise output were hampered by raw material and component shortages, the report said.

Cost pressures for manufacturers remained high, while optimism about future activity waned somewhat, IHS Markit said. "A further steep rise in employment levels shows that efforts are still being made to expand capacity and prepare for higher output in the future," said Phil Smith, associate economics director at IHS Markit.

U.S. Markets:

Stock futures rose, signaling major indexes will continue to grind higher after the S&P 500 advanced for a seventh straight month.

Futures for the S&P 500 gained. The benchmark stocks index has climbed for nine of the past 10 months and closed Tuesday a fraction below its all-time high.

Stocks rose over the summer, buoyed by expectations that the economic recovery would enable corporate profits to keep expanding. Investors are broadly optimistic that shares will continue to eke out gains.

However, some money managers caution that markets are likely to become more volatile in the fall, pointing to catalysts including the curtailment of stimulus programs by the Federal Reserve.

"September can be quite a challenging month for risk assets," said Suzanne Hutchins, head of real return investments at Newton Investment Management. "Markets are pretty high across the board, valuations are pretty rich."

Other potential risks on the horizon include China's crackdown on technology companies and Germany's federal election in September, Ms. Hutchins said. At the same time, "there is a lot of liquidity that needs to find a home, which is always pretty supportive," she added.

In corporate news, Campbell Soup is due to report quarterly results ahead of the opening bell as earnings season winds down. Costco Wholesale is scheduled to publish monthly sales data after markets close.

Investors will parse manufacturing data to assess whether the Delta variant of Covid-19 has dented the pace of the U.S. economic expansion. Due at 10 a.m. ET, the Institute for Supply Management's survey of purchasing managers at factories is expected to show activity expanded at a slower pace in August than in July.

Forex:

The dollar is likely to weaken by year-end as the market may need to push back expectations on interest rate rises as the Delta coronavirus variant hits the economy, Commerzbank said.

"The more obvious the signs get that the economic recovery is faltering the less the Federal Reserve is likely to feel like rushing into a tightening of its monetary policy," Commerzbank currency analyst Esther Reichelt said.

That may result in a slower pace of tapering asset purchases, delaying potential rate rises, she said.

The market would need to adjust its rate expectations while high inflation would affect the dollar's purchasing power for longer, she said.

Any gains in the euro against the dollar will remain limited as the Federal Reserve is more likely to make a meaningful reduction in stimulus than the European Central Bank, MUFG Bank said.

ECB officials Robert Holzmann and Klaas Knot suggested the central bank could soon start slowing the pace of emergency bond purchases but most policymakers will probably oppose such a move at the ECB's next policy meeting on September 9, MUFG analysts said.

"At most, the guidance may become less explicit by merely stating that the pace of purchases would remain roughly unchanged." That would compare to the ECB's last policy statement that purchases would continue at a "significantly higher pace."

The euro-sterling exchange rate may struggle to rise above 0.8600 for now but it could break higher later in September on fresh Brexit concerns, ING said.

In the near-term there is "still much doubt" about what the ECB will do next, while the Bank of England is more formally looking to start tightening monetary policy, probably in late 2022, ING analysts said.

EUR/GBP could rise more considerably closer towards September 30 when an extended grace period for restrictions on chilled meats moving between Great Britain and Northern Ireland expires and the "mood music" between the U.K. and the EU could deteriorate again, they said.

Bonds:

Yields on 10-year Treasury notes ticked up to 1.330% from 1.303% Tuesday.

Generali Investments expects peaking economic indicators and ongoing concerns about the next Covid wave will likely prevent a significant increase in government bond yields in the eurozone, said senior bond strategist Florian Spaete.

"However, the moderate upward trend is seen to continue," he said.

The strategist forecasts non-core eurozone government bond yield spreads to remain stable in the short term, before potential widening. Generali Investments expects the 10-year Bund yield to rise to -0.30% on a three-month horizon and to 0.15% on a 12-month horizon.

BNP Paribas Markets 360 said there is some disparity between the perception of economic growth by bond investors and by central banks, with the former tending to be more pessimistic.

"Bond markets appear to be (overly, in our view) concerned that growth is slowing from its peak," said Luigi Speranza, chief global economist and Sam Lynton-Brown, head of global developed markets strategy and head of G10 FX strategy, Europe.

They add that contrarily, Federal Reserve Chair Jerome Powell and European Central Bank chief economist Philip Lane, while eyeing the risks posed by the resurgence of Covid-19, sounded cautiously optimistic on the economic outlook.

Commodities:

Oil prices rose ahead of a meeting of members of the Organization of the Petroleum Exporting Countries, Russia and the cartel's other partners. Brent-crude futures, the benchmark in international energy markets, climbed 0.9% to $72.28 a barrel.

The group agreed in July to boost output by 400,000 barrels a day each month through the end of 2022. Since then, the spread of the Delta variant of coronavirus has threatened to stall the recovery in demand, prompting volatility in oil prices.

Gold prices continued to trade largely sideways as investors await data on the health of U.S. manufacturers and the job market. Investors are looking ahead to ADP jobs data later Wednesday for clues on private-sector jobs.

The figures come ahead of the weekly jobs report due Thursday, which could influence the monetary policy outlook. "The labor market data for August are likely to play an important role in whether the U.S. Federal Reserve decides at its next meeting in three weeks' time to scale back its bond purchases," Daniel Briesemann at Commerzbank said.

EMEA HEADLINES

Europe's Banks Get a Cash Boost From ECB Credit Moves

The European Central Bank wants to make sure credit is flowing into Europe's economy to support its recovery as the pandemic drags on. Banks are cashing in.

Eurozone banks are making money from an ECB program that basically pays them to lend, boosting their earnings and helping offset some of the costs associated with the continent's long-running negative interest rates.

Eurozone Manufacturing Sector Cooled Slightly in August Amid Persistent Supply Disruptions

Manufacturing activity in the eurozone held up in August and seems to have grown at a solid pace, albeit losing some momentum from the previous months amid widespread supplier shortages and inflation pressures.

The final reading for the eurozone's manufacturing PMI for August was 61.4, a six-month low, data from IHS Markit showed Wednesday. This was down from 62.8 in July and marginally below the 61.5 preliminary estimate. A reading above 50 indicates an expansion an activity, while below this threshold signals a contraction.

Eurozone Unemployment Rate Fell in July

The jobless rate in the eurozone continued to decline in July as the reopening after the easing of pandemic-related restrictions fueled a strong economic recovery over summer.

The eurozone jobless rate fell to 7.6% in July from a revised 7.8% in June, data from the European Union's statistics agency, Eurostat, showed Wednesday.

Carrefour Shares Fall as Long-Time Investor Arnault Jumps Ship

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09-01-21 0616ET