European Midday Briefing : Fears Over Inflation, Further Fed Hikes Weigh on Stocks

MARKET WRAPS

Stocks:

European stocks extended their retreat on Thursday on worries about a possible resurgence in inflation and higher U.S. interest rates.

"As the anticipation of higher for longer interest rates builds, it continues to cast a shadow before the upcoming Jackson Hole event, as the global stock market experiences yet another downtrodden session," SPI Asset Management said.

U.S. Markets:

Modest gains for stock futures suggest the August selloff could at least be on pause on Thursday, while Treasury yields advanced again.

The benchmark 10-year rate had settled at a 15-year high on Wednesday, following the Fed minutes.

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Forex:

The dollar is likely to rise further after the latest Fed minutes showed policymakers continued to see significant upside risks to inflation, KBC Bank said.

This could cause the euro to drop imminently below its July low at $1.0833, as the dollar holds its momentum.

"We remain flabbergasted by the fact that U.S. money markets only attach a 1/3 probability for a final Fed rate hike by November despite this clear Fed guidance."

The Norwegian krone rose after Norges Bank raised its key rate by 25 basis points to 4%, as expected, and warned of further possible increases as inflation "remains high and markedly above the target."

If the krone proves weaker than previously projected or if pressures in the economy persist, a higher policy rate than signaled in June may be needed to bring down inflation, the central bank said in its policy statement.

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Bonds:

Eurozone government bond yields were trading higher as investors bank on high-for-longer monetary policy rates in developed markets.

"Markets are taking the prospect of another hike from the Fed increasingly seriously, with futures now pricing in a 45% chance of a further hike by the November meeting," Deutsche Bank Research said.

"But as well as the upcoming decisions, it's clear that investors are adjusting to the fact that rates could remain at a higher level for some time," it added.

Energy:

Oil futures steadied having fallen sharply on Wednesday, with weak Chinese economic data and the possibility of more interest-rate hikes from the Fed hitting sentiment.

A strong dollar was also hitting oil, but fundamentals remain largely constructive as cuts from OPEC+ should mean inventories will be drawn down later this year, ING said.

Metals:

Base metals were higher, reversing some of Wednesday's losses, as worries over sticky inflation in the U.S. kept the pressure on markets.

"This is a very bearish macro environment," Peak Trading Research said.

DOW JONES NEWSPLUS

EMEA HEADLINES

BAE Systems Agrees to Buy Ball's Aerospace Unit for $5.55 Bln

BAE Systems is buying buy Ball Corp.'s aerospace business for $5.55 billion in cash, in a deal expected to boost revenue visibility and provide a strong growth outlook.

The U.K. defense-and-aerospace group said Thursday an expected net present value tax benefit of around $750 million would make the underlying economic consideration for the business around $4.8 billion. BAE is targeting closing the deal in the first half of 2024, subject to customary regulatory approvals and conditions.

Aegon Swings To Net Loss; Beats View on Operating Capital Generation

Aegon swung to a net loss for the first half of 2023 on investments and assumption updates in the U.S. but reported better-than-expected operating capital generation.

The Dutch insurer and asset-manager company on Thursday posted a net loss of 199 million euros ($216.5 million) for the six months ended June 30 compared with a profit of EUR46 million a year prior.

Adyen shares slump as payments company, and its clients, deal with rising costs

Adyen shares fell as much as 22% on Thursday as the fast-growing Dutch payment company's first-half results lagged estimates.

Adyen's NL:ADYEN first-half profit was virtually flat at EUR282.2 million ($307 million), while net revenue rose 21% to EUR739.1 million, missing the consensus of EUR777 million.

Standard Bank Group Net Profit Rose On Net Interest Income Growth

Standard Bank Group posted a rise in net profit for first half of 2023 as net interest income bumped up its revenue over the period.

The South African bank on Thursday posted a net profit of 21.92 billion South African rand ($1.14 billion) for the six months ended June 30, up from ZAR16.10 billion a year prior.

Gold Fields Earnings Slipped on Lower Gold-Equivalent Productions; CFO to Retire

Gold Fields reported lower earnings for most of its key metrics together with gold-equivalent production, and said Chief Financial Officer Paul Schmidt intends to retire.

The South African mining company said Thursday it made a first half net profit of $457.8 million, compared with $509.7 million a year earlier.

Russia's War-Torn Economy Hits Its Speed Limit

The Russian central bank's jumbo interest-rate increase to halt a tumbling ruble this week points to a new reality for the Kremlin: Russia's economy has reached its speed limit.

The government has flooded the Russian economy with money to keep its troops in Ukraine supplied and insulate its businesses and citizens from the war. Thanks to the state's largess, demand in the economy is rising, helping it recover from last year's sanctions-induced recession. Supply-increasingly constrained by Russia's isolation and widespread labor shortages-isn't.

GLOBAL NEWS

China Demands U.S. Lift Steel, Aluminum Tariffs After WTO Ruling

China's Commerce Ministry has demanded the U.S. immediately lift tariffs imposed on Chinese steel and aluminum products after the World Trade Organization ruled in favor of Washington against Beijing in the nations' tariff dispute.

A WTO dispute settlement panel said Wednesday that China acted "inconsistently" with the WTO obligations by imposing additional duties on some U.S. imports in response to U.S. tariffs on steel and aluminum.

In China, Bidding Wars for Lithium Top Out at 1,300 Times the Starting Price

SINGAPORE-In the first six months of 2023, global lithium prices have more than halved. But Chinese companies have been spending heavily on domestic lithium sources as they try to secure access to the metal at the heart of the energy transition.

When a recent auction for exploration rights at a lithium site in China's southwestern Sichuan province closed, it had garnered more than 11,000 bids.

Bond Yield Hits Highest Since 2008, Adding Pressure to Borrowing Costs

The yield on the 10-year U.S. Treasury note hit a 15-year high, threatening steeper costs for many borrowers and raising concern on Wall Street about the potential fallout in the stock, bond and housing markets.

A key benchmark for interest rates across the economy, the 10-year yield settled at 4.258%, according to Tradeweb. That was up from 4.220% Tuesday and marked its highest close since June 2008, months before the collapse of Lehman Brothers and expansive Federal Reserve policy ushered in more than a decade of historically low bond yields.

Camp David Summit to Unite U.S., South Korea, Japan

WASHINGTON-A new trilateral alliance linking the U.S., South Korea and Japan will enhance cooperation among the nations in key areas, including ballistic-missile defenses, to counter rising threats from North Korea and China.

The leaders of the U.S. Japan and South Korea are meeting Friday at Camp David, where they are expected to announce details of the agreement, which will also cover intelligence sharing, supply chains and cybersecurity.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

08-17-23 0528ET