European markets rose as investors stayed positive despite downbeat trading in Asia, where indexes were hit by gathering fears around an economic slowdown and debt problems with giant property developer China Evergrande Group.
Growth across a range of Chinese economic indicators pulled back sharply in August, as a new outbreak of the Covid-19 Delta variant and tighter government regulations on the property market hit consumer spending and the housing sector.
Investors were also worried that problems at Evergrande, one of China's largest residential developers, could upend the country's real-estate sector, which makes up a large part of economic spending and household wealth.
"Evergrande has brought forward that there are so many vulnerabilities in the China system and it's hard to know where the Chinese government steps in," said Seema Shah, chief strategist at Principal Global Investors. "There is that just weighing on confidence.
Elsewhere, the Bank of England is likely to leave monetary policy unchanged next week despite a stronger labor market and higher inflation, said RBC Capital Markets.
The Canadian bank adjusted its BOE call after the August meeting and is now forecasting two interest rate rises in 2022, encompassing a 15 basis-point increase to 0.25% at the May 2022 meeting and a further 25 basis-point increase to 0.5% at the November 2022 meeting.
"That change was prompted by the rapid improvement in the labour market, " analysts said. While the Monetary Policy Committee were still relatively confident that goods price inflation would prove temporary as mismatches between supply and demand issues ironed themselves out, it was less certain the same was true of the labor market, RBC said.
Shares on the move:
Shares of Lagardère surged 20% after media conglomerate Vivendi struck a deal to increase its stake in the French group, a move that opens the door to a full takeover.
Shares of Ryanair Holdings rose 4% after the airliner raised its five-year growth forecast to 225 million passengers by March 2026. Shares of other airlines also gained, with EasyJet up 3.3% and Wizz Air Holdings up 2.9%.
Data in focus:
Oxford Economics' eurozone recovery tracker posted a modest improvement over the past two weeks, rising to 86.3, a new pandemic high.
"Despite a markedly slower pace compared to the second quarter, the gains show the recovery remains on solid footing and point to robust growth in 3Q," Oxford Economics' economist Tomas Dvorak said.
The eurozone economy remains well below its pre-pandemic size, and with most of the easy gains from reopening nearly exhausted, economic recovery moves into a slower and tougher phase, the economist said.
Dvorak said consumer spending will continue driving the recovery. Mobility has enjoyed a strong summer and remains solid, while supply-chain bottlenecks continue weighing on the industrial sector, keeping it under pre-pandemic activity levels, Dvorak said.
Stock futures wavered ahead of retail sales.
U.S. retail sales, due at 8:30 a.m. ET, are expected to fall in August. Supply-chain issues are hindering auto production and crimping sales, while resurgent Covid-19 is denting consumer confidence and possibly purchases at stores, restaurants and online.
Investors will also get fresh figures on the number of Americans who applied for first-time unemployment benefits in the week ended Sept. 11. Filings for jobless benefits reached a pandemic low at the start of September, but economists surveyed by The Wall Street Journal expect claims could tick higher in the most recent data.
"Markets, particularly in the U.S., are cherry-picking news headlines and tier-two data to fit the narrative of flip-flopping daily sentiment, " said Jeffrey Halley, an analyst at broker Oanda.
Halley said he expects to see Wall Street's Wednesday surge reversed if U.S. retail sales print lower than -0.8%, but investors could equally ignore those data and focus on the Philadelphia Fed manufacturing survey or initial jobless claims.
"Hopefully, next week's cast of ...central bank policy decisions, starting with the Federal Reserve, delivers more thematic clarity," Halley added.
U.S. retail sales for August are expected to be weak, with the consensus in a WSJ poll calling for a 0.8% on-month decline, which could cause the dollar to fall, UniCredit said. The impact will likely be limited, however, as major currencies remain stuck in tight ranges.
UniCredit expects a 1.0% monthly fall in retail sales which it says in theory could "prove sharply USD negative" but in practice the dollar might not fall too far.
Aggressive EUR/USD buying is unlikely given the euro has failed to rise above $1.1850 in recent days, while the DXY dollar index is "flipping around 92.50," it said.
Eurozone government bond yields are moving higher in early trade as the market faces up to around EUR20 billion in bond issuance from Spain, France and Austria, but the market is still in a search of direction, UniCredit analysts said.
"The bond market continues to be caught between a rise in inflation globally, with investors uncertain whether this is a temporary phenomenon or something more persistent, and concerns about global growth due to the spread of the Delta variant," UniCredit said.
The 10-year Bund yield was trading 1.5 basis points higher at -0.303%, while yield increases are smaller in bonds of peripheral countries, such as Italy, Spain and Portugal, according to Tradeweb.
U.S. Treasurys could gain if retail sales data show another drop in spending, said UniCredit.
After a move higher in global inflation expectations drove Treasury yields higher and bond prices lower Wednesday, another fall in retail sales driven partly by the spread of the Delta variant could trigger some risk-off sentiment and lift Treasury bond prices, analysts at the bank said.
Gains could be even higher if the data undershoots expectations.
Pictet Asset Management said it remains neutral on U.S. Treasurys, saying that 10-year U.S. yields appear too low at current levels of around 1.30%.
The current market levels are a good 40 basis points below what Pictet AM's own models suggest as a long-term fair value. That said, the asset manager said it doesn't foresee a disruptive rise in yields.
Oil prices held steady a day after rallying to their highest level since mid-July on a larger-than-expected drawdown in U.S. crude oil stocks. U.S. crude inventories fell by 6.4 million barrels last week to 417.4 million barrels.
Stockpiles are being drawn down while refiners in the Gulf of Mexico continue to recover from Hurricane Ida.
"Hurricane Ida is limiting any material increase in supply from the U.S.," said Helge Andre Martinsen at DNB Markets.
"Demand is reviving in China, while easing restrictions in other countries are keeping oil demand prospects strong," he said.
Gold was slightly lower as investors weigh the rise in Treasury yields, which is sapping appetite for the precious metal, ANZ said.
"Subdued inflation expectations have been a headwind, with our gold valuation model still suggesting it is undervalued, driven by expectations that the spike in inflation will transitory," it said.
Oanda thinks support for gold remains at $1,780.00. If it breaches that level then Oanda expects deeper losses to $1,750.00.
Base metals prices slipped after China says it has new plans to release metals from state reserves. Three-month copper on the LME fell 1.7% to $9,442 a metric ton while aluminum dropped 0.8% to $2,867 a ton and nickel slumped 2.7% to $19,400 a ton.
Unhappy about high prices for the metals on which its economy depends, China has auctioned off some of its metals stockpiles in an attempt to cool the market.
China's National Development and Reform Commission said Thursday that it planned to continue releasing stocks of copper, aluminum, and zinc in order to bring prices down. "Currently, copper, aluminum, and zinc prices are still high," a Chinese official said, according to Reuters.
Lagardere Shares Surge After Vivendi Paves Way for Full Takeover
Shares in French media group Lagardere SA surged Thursday after Vivendi SE struck a deal to increase its stake in the company, a move that opens the door to a full takeover.
At 0800 GMT, Lagardere shares traded 21% higher at EUR23.60.
Ryanair Raises Five-Year Passenger Growth Forecast to 50%
Ryanair Holdings PLC on Thursday raised its five-year growth forecast to 225 million passengers by March 2026.
The Irish airline said it expects to deliver traffic growth of 50% from the pre-pandemic figure of 149 million passengers a year. This is up from the previous target of 33% and 200 million passengers a year by March 2026.
Eurozone Exports Rose on Month in July
Eurozone exports rose in July after six consecutive falls, signaling that international goods trading was on a weak footing despite the easing of most coronavirus-related restrictions.
The European Union's statistics agency said Thursday that the currency area's exports rose by 1.0% in July from June, while imports increased 0.3%, both adjusted for seasonal variations. The seasonally adjusted trade surplus was 13.4 billion euros ($15.8 billion) compared with EUR11.9 billion in June.
EU New Car Sales Declined Noticeably in August
Passenger-car registrations in the European Union fell strongly in August, as EU markets showed a weak performance during the summer amid a semiconductor shortage.
New car registrations--a reflection of sales--declined 19% on year to 622,993 vehicles in August, the European Automobile Manufacturers Association said Thursday. The EU's major markets--Spain, France, Italy and Germany--all reported strong decreases.
Airbus, Air New Zealand to Jointly Study Hydrogen Aircraft Feasibility
Airbus SE and Air New Zealand Ltd. have agreed to jointly research the feasibility of operating a hydrogen-fueled aircraft by the end of this decade.
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