MARKET WRAPS
Stocks:
European stocks dropped on Monday after more than a week inching higher. The Stoxx Europe 600 was 0.5% lower in morning trade with the energy and mining sectors weighed by weaker commodity prices following worse-than-expected Chinese economic data.
"Weaker economic data emanating from China has spoiled the mood, with lower readings on retail sales and industrial production raising questions on whether the recovery momentum can be maintained," said nteractive Investor analyst Richard Hunter.
There also remain some health issues in Asia due to rising coronavirus cases while geopolitical concerns have surfaced after Taliban forces swept into Afghanistan's capital city of Kabul on Sunday following the sudden collapse of the country's government, he said.
Shares on the move:
BHP Group said it's in talks with Australian oil-and-natural-gas company Woodside Petroleum Ltd. on a potential deal to combine BHP's petroleum unit with Woodside. Analysts estimate the business has a value of at least $15 billion, and a deal is being explored while BHP separately hunts for a buyer for its thermal-coal mining business.
Faurecia said it has agreed to buy Hella in a deal valuing the German automotive supplier at around $8 billion.
Ultra Electronics has recommended a $3.6 billion takeover by U.K. rival Cobham, with the cash price a 42% premium to Ultra's closing share price on July 22, the day before it said it had received an approach.
Germany's finance agency said it plans to sell a stake of up to 5% in Lufthansa over the next several weeks, citing the airline's success in combating the travel crisis caused by the pandemic.
U.S. Markets:
U.S. stock futures edged down Monday, pointing to muted losses for major indexes that closed at record highs last week.
Stocks have ground higher in thin summer trading, buoyed by a bumper set of quarterly earnings reports from American companies. However, investors remain wary of the dampening effect of the Delta variant of Covid-19 on business activity, and potential pitfalls including geopolitical uncertainty and the possible removal of some stimulus by the Federal Reserve early next year.
News headlines were also focused on the situation in Afghanistan, where the Taliban has swiftly taken power after the withdrawal of U.S. forces, leading some to wonder if political fallout will extend beyond foreign policy.
"For Joe Biden, the developments in Afghanistan have created some unwelcome headlines just as further progress was being made on his economic agenda, with the Senate passage of the infrastructure bill with bipartisan support last week," said Henry Allen, strategist at Deutsche Bank.
Forex:
The euro is likely to stay under pressure against the dollar and trade at the lower half of its recent $1.1700-$1.1800 range this week, said ING. Not only will a strong dollar will put pressure on EUR/USD in the short-term but the euro lacks positive catalysts, said ING forex strategist Francesco Pesole.
The European Central Bank's loose policy stance is generating a "stark policy divergence" with the Fed. The euro may also suffer from its role as funding currency if low volatility and any stabilization in sentiment revive interest in carry trades (where investors borrow in a low-yielding currency to buy a higher-yielding currency), he said.
However, UBS Global Wealth Management said the euro is unlikely to weaken more considerably against the dollar in the near term following its recent depreciation.
"Firstly, the Covid-19 situation now seems more dire in the U.S. than in Europe, potentially hurting consumption more in the former," said UBS strategists. Secondly, Eurozone data still tend to surprise positively whereas U.S. data now tend to slightly disappoint, they added.
A number of U.K. data releases this week will be closely watched by sterling investors who will be looking to see whether it underpins or casts doubt over the Bank of England's "relatively upbeat growth outlook, " said ING.
Although strength in the safe-haven dollar could prevent GBP/USD rising about 1.4000, EUR/GBP could move back below 0.8500 if U.K. data remain supportive, it said.
U.K. data include jobs figures Tuesday, inflation Wednesday and retail sales Friday.
ING said the collapse of Afghanistan's government could exacerbate an already fragile risk appetite and boost the safe-haven dollar.
"Political developments in Afghanistan could well be adding to the ongoing deterioration of the global risk environment due to Covid-19 and the re-rating of Asia's growth outlook," said ING forex strategist Francesco Pesole. That is one reason why the dollar may find "fresh support" in a week where the release of the Fed's meeting minutes could fuel monetary policy tightening expectations, he said.
The Swedish krona is likely to trade sideways against the euro for now but could rise modestly in the medium-term, said Commerzbank.
EUR/SEK will trade within a tight range in the near-term as the Swedish and eurozone economies are both recovering with inflation being pushed up by special effects, which doesn't favor one currency over the other, said Commerzbank currency analyst Antje Praefcke.
Over the medium-term "things look a little different" as the Riksbank's asset purchase program ends on Dec. 31 while the ECB is likely to increase asset purchases, she said. That points to a moderately stronger krona against the euro.
Bonds:
Morgan Stanley expects eurozone government bonds to outperform Treasurys in the coming weeks, as net supply is set to be broadly negative in the coming period.
The eurozone's government bond market is set to start positioning for a pickup in issuance after the seasonal slowdown in the past few weeks, said Morgan Stanley. The bank's strategists expect a large part of duration to come via syndications, while the EU will also resume issuance under the NextGenerationEU program.
The European Central Bank's continuing quantitative easing, however, will keep issuance net of redemptions and net of QE negative for most European sovereigns from September through year's end, said Morgan Stanley.
Danske Bank said German Bunds seem expensive, but it isn't yet time to short them.
"Almost all market participants are talking about the higher rates coming in 2H 2021, and 'everybody' wants to short, but we need a catalyst--notably in the US," said Danske Bank's chief strategist Piet Haines Christiansen, referring to the need to wait for CPI data, labor market data or more hawkish comments from the Federal Reserve.
For the very near term, "I'd rather be long than short Bunds simply because of the carry, but it's not a strong conviction call in the near term," he said. He sees the 10-year Bund yields between -0.30% and -0.20% by year end.
Eurozone governments have completed almost 70% of gross bond issuance for 2021, with the progress driven by heavy syndicated bond supply in earlier parts of the year, said Barclays's strategists.
Smaller issuers, such as Greece, Ireland and Portugal, each have raised more than 80% of their annual bond funding needs. Gross government bond supply is expected to amount to EUR130 billion in September compared with approximately EUR60 billion in August and Barclays estimates the net bond funding will amount to around EUR160 billion in the remainder of the year compared with close to EUR650 billion projected for 2021 as a whole.
Sales of new euro-denominated corporate bonds are likely to pick up this week relative to levels the week before, said Mizuho.
"We expect EUR IG supply will be busier than last week," analysts at the bank said. Yet issuance is still expected to be curbed by the summer holiday period and unlikely to increase substantially until the week starting on August 30, which includes the first days of September. "The pace will probably not pick up significantly until the week after [this week]."
Commodities:
Oil losses approached 2% in Europe on concerns about waning demand and rising U.S. supply.
Adding to the market's caution was disappointing Chinese economic activity, suggesting the recovery in the world's second-largest economy is losing steam. Meanwhile, the number of U.S. rigs exploring for oil jumped by the largest amount since April last week, suggesting greater supply is on the way.
Lingering concerns about the delta variant and fresh lockdowns were also weighing on crude prices, said Vivek Dhar at Commonwealth Bank. "Restrictions on mobility remain the primary concern for oil markets given that transportation accounts for two-thirds of global oil demand," he said.
Base metals prices on the LME were also lower across the board. "The Chinese data shows the withdrawal of covid fiscal support and the desire of Beijing to cool the economy is working," said Malcolm Freeman, CEO of metals brokerage Kingdom Futures.
EMEA HEADLINES
BHP Considers Sale of $15 Billion-Valued Petroleum Business
SYDNEY-The world's biggest mining company is plotting a new future. It wants to focus solely on mining.
BHP Group Ltd. said it is considering selling its oil-and-gas business in what would rank as one of the energy industry's biggest deals this year: Analysts estimate the unit could be worth at least $15 billion. It is talking with Australia's Woodside Petroleum Ltd. about a possible deal in which BHP shareholders would receive Woodside stock.
Faurecia Offers to Buy Hella for About $8 Bln
Faurecia SE has launched a tender offer to acquire all shares in Hella GmbH & Co. KGaA in a deal that values Hella at about 6.8 billion euros ($8.02 billion), the companies said.
Faurecia's offer is to acquire all Hella shares at a price of EUR60 apiece as part of a total consideration of EUR60.96 a share including an expected dividend, it said Saturday.
Ultra Electronics Agrees to GBP2.57 Bln Takeover by Advent's Cobham
Ultra Electronics Holdings PLC said Monday that it has agreed to a 2.57 billion-pound ($3.56 billion) takeover by Cobham Ultra Acquisitions Ltd., as first announced last month.
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08-16-21 0601ET
