European stocks rose Monday, with Wall Street set to claw back some of the losses from last week-one of the worst for markets in months-as investors look ahead to key U.S. inflation data coming Tuesday.
Shares on the move:
Shares in conglomerate Associated British Foods fell 3.9% after releasing a trading update for the year ending Sept. 18. The company confirmed softening fourth quarter sales at Primark, which were offset by a strong margin rebuild, Jefferies said.
Primark's fourth-quarter sales were 17% below pre-pandemic levels, after having been up 3% in the third quarter, Jefferies said.
"Investors are likely to remain in 'show-me mode' before fully addressing the valuation aberration. A further sales reacceleration as high-street footfall recovers will be the key enabler," the bank said.
Data in focus:
Increasing Covid-19 cases were largely responsible for the near stagnation of the U.K. economy in July, and although the virus is no longer driving labor shortages, many people remain fearful and are likely to reduce spending if cases pick up again, Pantheon Macroeconomics said.
The economy should continue to recover in the months ahead, fuelled by higher business investment and government spending, but households' spending will be the weak link given the Covid-19 case outlook, Pantheon said.
The squeeze on incomes from a further pick-up in inflation, the end of the furlough program, and other stimulus withdrawals are likely to hit households too. Pantheon sees U.K. GDP expanding 1.5% in 3Q, half the rate expected by the Bank of England.
The eurozone's economic growth is expected to be solid in 3Q, but as the winter arrives chances are that the recovery will begin to stall, UniCredit's group chief economist Erik F. Nielsen said.
The region is expected to regain its pre-pandemic GDP levels toward the end of this year or early next year, but the final phase of the recovery back to where the economy would have been without the pandemic may be well harder to achieve, he said.
"It will largely depend on the effectiveness of Next Generation EU, as well as of the wisdom of policy makers to protect green investment in their budgets as they decide on the future of the fiscal rules," Nielsen said.
Stock futures rose, pointing to major indexes recovering some ground following the S&P 500's worst weekly performance since February.
Stocks are rebounding on investors' optimism that the Federal Reserve and the government will continue offering stimulus measures. That is because U.S. lawmakers are trying to push ahead this month with a proposed $3.5 trillion legislation for additional spending on healthcare, education and climate. But money managers say they are also waiting to assess if fresh data Tuesday shows that inflation remains elevated, and how that may impact the Fed's easy-money policies.
"I do believe that the bulls have a little more ammunition than the bears: fiscal support still remains on tap, activity indicators are strong," said Gregory Perdon, chief investment officer of Arbuthnot Latham. "Risk is still on."
The current level of yields is signaling that bond investors see higher inflation levels as transitory, according to Georgina Taylor, a multiasset fund manager at Invesco. "There's not enough inflationary pressure to really feel a reassessment of nominal growth over the long term," she said.
The dollar rose to a two-week high against a basket of currencies as investors look ahead to the U.S. Federal Reserve's Sept. 22 meeting amid prospects that asset-purchase tapering will begin this year.
UniCredit said the dollar has been helped higher after Philadelphia Fed President Patrick Harker said he favored tapering sooner rather than later.
This week will see a raft of key U.S. data, including CPI inflation, retail sales and industrial production.
Strong data may help the dollar but weaker-than-expected figures should have a bigger impact if they "raise uncertainty about the timing of the Fed's tapering process," UniCredit said.
Bitcoin traded below $45,000, slipping 0.6% from its 5 p.m. ET level on Friday. Last week, it rose above $52,500.
The yield on the benchmark 10-year U.S. Treasury note edged up to 1.344% from 1.340% on Friday.
Morgan Stanley expects the spread between U.S. and German government bond yields to widen, as the policy divergence between the Fed and the European Central Bank increases, said strategists Alina Zaytseva and Lorenzo Testa.
They expect the Fed's September 22 meeting to be one of the catalysts for the move, with 2024 dots revealed for the first time. The 10-year U.S. Treasury-German Bund yield spread is 166 basis points, according to Tradeweb.
At last week's meeting, the ECB said it would shift to a "moderately lower" purchase pace under the Pandemic Emergency Purchase Programme in the coming quarter. ECB purchases will still be higher than at the beginning of the year, however, while the Fed is expected to start tapering asset purchases later this year.
Citigroup expects eurozone government bond yield spreads stable near-term, while vulnerability might emerge for the long-term, strategist Jamie Searle said.
The fact that the ECB's pandemic emergency asset purchases will be lowered only moderately versus the peak in the remainder of the year will provide comfort to intra-eurozone spreads, and so will hopes that the constraints of the regular Asset Purchase Programme might be adjusted, he said.
On the longer-term, "however, there is still likely to be a cliff in asset purchases next spring and the ECB appears to be slowly shifting tactics from capping EMU spreads to instead anchoring core rates, precisely because such an approach is less reliant on asset purchases," Searle said.
Oil rose, with prices extending their gains over the past week. While prices have lacked strong direction over the past week, data showing strong U.S. gasoline demand over the Labor Day weekend gave prices a boost on Friday.
Meanwhile, 49% of U.S. Gulf of Mexico production remains closed after Hurricane Ida, DNB Markets' Helge Andre Martinsen said. Still, Iran's signaling that it is ready to return to nuclear talks could put pressure on prices in the coming weeks. The market is awaiting OPEC's monthly market report, due later Monday.
Gold prices were listless as a stronger dollar dents the safe-haven's appeal. The U.S. dollar index rose 0.2% to 92.80, diminishing appetite for dollar-denominated gold among holders of other currencies.
With gold's price performance lackluster and the Fed expected to soon begin tapering its stimulus measures, speculative investors have been cutting back heavily on their gold exposure, TD Securities said.
Investors "are anticipating higher real rates and less capital to flow into the yellow metal, as the Fed prepares to start tapering its aggressive asset purchasing program," the bank said in a note. "Robust equity market performance also likely persuaded funds to ease up on their gold exposure," TD said.
Discontent Simmers Over How to Police EU Privacy Rules
The European Union's recent $270 million fine against WhatsApp was held up for months by disagreements among national authorities, ratcheting up tensions over how to enforce the bloc's privacy rules.
The varied approaches to policing the EU's strict General Data Protection Regulation are fueling calls to redesign how national authorities from the 27 EU countries can intervene in each others' cases and to explore creating a broader EU-wide regulatory system.
AB Foods Sees FY Adjusted Operating Profit Growth, But Primark Sales Missed Expectations
Associated British Foods PLC said Monday that its full-year adjusted operating profit is now expected to surpass the previous year's despite lower-than-expected sales, and that Primark and the AB Food business are anticipated to exceed management's previous expectations.
The British conglomerate said that Primark's adjusted operating profit for the year ending Sept. 18 is expected to be ahead of last year, and that the operating margin for the fourth quarter was strong.
Iran Pledges to Cooperate With U.N. Atomic Agency, Easing Nuclear Talks Threat
Iran reached an agreement Sunday with the United Nations atomic agency that will grant international inspectors access to some of the country's nuclear-related sites, a step likely to avert a crisis in the negotiations on restoring the 2015 nuclear deal.
The agreement comes after International Atomic Energy Agency Director-General Rafael Grossi made a last-minute trip to Tehran this weekend in a bid to persuade Iran to step up its cooperation with the agency ahead of a meeting of the IAEA's top member states starting Monday.
Shipping Options Dry Up as Businesses Try to Rebuild From Pandemic
A wave of shipping consolidation over the past five years is adding to the supply-chain woes caused by Covid-19 outbreaks, further delaying the movement of cargo across the oceans.
A handful of big shipping players control the majority of containers via giant vessels, leaving the world with fewer routes, fewer smaller ships and fewer ports that could keep the flow of goods moving when the pandemic disrupted operations, according to cargo owners and freight forwarders, who secure ship space to move cargo.
Funds Overseas Cash In on Crypto Boom
Some overseas investors are reaping big gains from a handful of exchange-traded products that have surged alongside many digital coins.
Eight of the 10 best-performing exchange-traded products in the world this year are European-based funds that track some form of cryptocurrency. A binance coin-tracking exchange-traded product run by Swiss firm 21Shares AG is up 10-fold this year. A pair of ethereum notes managed by CoinShares in Europe have risen more than threefold, as has a ripple-based ETP run by 21Shares.
Older Voters Dominate German Politics, but Now the Young Are Fighting Back
(MORE TO FOLLOW) Dow Jones Newswires