European equities struggled for direction on Thursday, as investors analyzed a heavy slate of earnings reports and despite easing worries about the future pace of U.S. interest rate rises.
The eurozone is expected to face a recession this autumn as inflation is likely to remain elevated driven by high natural gas prices, said Berenberg.
Russia lowered deliveries through Nord Stream to just 20% of the pipeline's capacity on Wednesday and this made European benchmark spot and futures prices for natural gas surge even further. Higher gas prices drive up firms' costs and squeeze consumers' budgets, leaving them less money to spend on other goods and services, Berenberg said.
It forecasts eurozone GDP to fall by 1% in 2023 after rising 2.2% this year, while average annual inflation is expected at 8.1% in 2022 and 4.3% in 2023.
Germany's annual inflation is seen declining to 7.4% in July, posting a second consecutive decrease after falling to 7.6% in June from 7.9% in May, said UniCredit Research.
The core rate, which exclude volatile food and energy components, is likely to remain at 3.2%, UniCredit Research said. The major trigger behind the slight easing in headline inflation is likely to have been lower gasoline and diesel prices.
UniCredit expects inflation to accelerate above 8% in September, when the price cap on fuel prices and the nine-euro monthly train ticket end.
The inflation data is due at 1200 GMT.
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Goldman Sachs Asset Management said the Fed will likely continue tightening into restrictive territory after the 75-basis point rate rise on Wednesday, due to resilience in U.S. jobs growth and consumer spending.
"Growing evidence of slowing demand has however curbed the need for speed--hence the Fed did not provide forward guidance on its policy path."
It added that for financial markets, the risk of the Fed taking an overly aggressive stance has eased over the past week due to mixed growth and inflation data. In addition, there are also signs of inflationary pressures easing.
Algebris Investments said the next few months will show which side the Fed will err on, hawkishness or caution.
"Debate among market participants has shifted recently to whether the Fed will overcorrect and push the economy into recession or capitulate early on its rate-hiking path as economic indicators deteriorate."
Stock futures ticked lower ahead of a bumper day of corporate earnings, including figures from some of the world's biggest technology names, and data on U.S. economic growth.
Investors are looking to earnings figures from major blue-chip and technology companies Thursday for guidance. Pfizer, Comcast, Mastercard and Honeywell are among the firms set to report ahead of the opening bell. Amazon and Apple are due to report earnings after markets close.
Ahead of the opening bell, Facebook-parent Meta Platforms fell more than 4% after reporting its first decline in revenue after hours on Wednesday. Qualcomm declined 3.5% after issuing a muted sales outlook. Ford jumped almost 6% after reporting a 50% rise in revenue. Etsy gained more than 8% after it reported better-than-expected results.
Spirit Airlines rose 4.4% after The Wall Street Journal reported that JetBlue Airways is nearing a deal to buy the carrier.
In bond markets, the yield on the benchmark 10-Year Treasury note rose to 2.811% from 2.731% on Wednesday. The yield on the 2-year note weakened to 2.980% from 2.968%.
The German inflation data could have a tangible impact on the euro ahead of eurozone inflation figures due on Friday, said ING.
"Should there be evidence of some further deceleration--albeit likely quite marginal--from the 7.6% July headline reading, the euro could come under some pressure."
However, potentially uninspiring U.S. gross domestic product data at 1230 GMT might have a similar impact on the dollar, which could keep EUR/USD near the 1.0200 mark, ING said.
The euro is expected to be more sensitive to economic data after the European Central Bank removed its forward guidance at last week's policy meeting.
The dollar extended its losses, but ING expects it to strengthen again, albeit with higher volatility as the currency becomes more sensitive to economic data.
Markets currently assume the Fed will slow rate rises, but dollar weakness "may start to fade quite soon," ING said.
A global economic slowdown and geopolitical risks should support the safe-haven dollar, while investors should keep buying the currency until clearer signs of the Fed "pivoting to a less hawkish stance."
The dollar may strengthen from now until the Fed's September meeting, ING added.
Inflation in the eurozone may not have peaked yet, with Metzler viewing the recent slide in bond yields with skepticism as a result.
Government bond issuance in the eurozone is set to fall sharply in August, a month of seasonally low supply, said Citi's rates strategist.
"We forecast EUR61 billion of gross supply in August, in line with the seasonal drop in supply typically observed in August."
The decline will be significant compared with an estimated issuance of EUR90 billion in July, but it is in line with the seasonal trend, Citi said.
Oil prices pushed higher still, with SPI Management saying the Fed's change in tone "signaled monetary policy is now in neutral territory," a significant change for markets with fewer rate hikes now expected, thus striking a bullish tone for oil.
Further support has come from reduced U.S. crude stockpiles, SPI added.
Metals prices rallied after the Fed's as-expected rate rise, with the market now pricing fewer increases this year helping to boost hopes the economy is not in recession, said Peak Trading Research.
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DOW JONES NEWSPLUS
Shell Posts Record Quarterly Profit on Soaring Energy Prices
LONDON-Shell PLC reported a second consecutive record quarterly profit as the oil major benefited from soaring global energy prices and a continued rebound in the global economy.
The London-based company said Thursday that strong demand and higher prices had allowed it to reverse $4.3 billion in impairments it took early in the Covid-19 pandemic. It also said that strong fuel-refining earnings had added more than $1 billion in profit in the second quarter.
Barclays Profit Nearly Halves After Fresh Hit From Debt-Sale Blunder
Barclays PLC's profit nearly halved in the second quarter from a year earlier, as the London-based bank took a fresh hit from a debt-sale blunder and braced for an increase in bad loans.
The British bank said Thursday it earned GBP1.07 billion, equivalent to $1.3 billion, in the three months through June. That was down from GBP2.11 billion in the same period a year earlier. Analysts had expected a quarterly profit of GBP1.19 billion, according to FactSet.
Rising Costs Drag on Nestlé's Profit Despite Higher Selling Prices
Higher costs for commodities, freight and energy are starting to eat into profit at Nestle SA, even as the world's largest packaged foods company pushes up prices for its Nescafé coffee and KitKat chocolate.
Nestlé and other consumer-goods companies have for much of the past year been grappling with high inflation as the recovery from Covid-19 gains steam. This year, the war in Ukraine has sent energy prices soaring further.
Diageo Boosted by Drinkers' Growing Thirst for High-End Spirits
LONDON-Diageo PLC reported a surge in annual sales and profit, buoyed by a recovery in trade at bars and restaurants as well as drinkers' growing taste for the booze giant's high-end spirits despite surging inflation.
The owner of Smirnoff vodka and Guinness beer said Thursday it hasn't yet seen any signs that drinkers are trading down to cheaper brands, indicating that while consumers are pulling back in some areas they are still willing to pay for high-end alcohol.
Volkswagen 2Q Profit Falls; Backs 2022 Guidance
Volkswagen AG said Thursday that earnings dropped in the second quarter, but backed its full-year targets.
The German auto maker said aftertax profit came in at 3.91 billion euros ($3.99 billion), compared with EUR5.04 billion in the same period year-prior. Operating profit before special items fell 28% to EUR4.74 billion and the corresponding return on sales fell to 6.8% from 9.7%, as it booked around EUR2.4 billion in negative fair value effects mainly related to raw material hedging.
ArcelorMittal Tops Expectations in 2Q Despite Inflationary Pressures
ArcelorMittal on Thursday beat expectations slightly on profit and sales, but flagged potential energy-supply restrictions ahead amid turbulent inflationary pressures.
The steelmaker said net profit was $3.92 billion in the three months to the end of June, down from $4.01 billion in the same period last year.
AB InBev 2Q Profit Fell Despite Revenue Beating Views; Backs 2022 Guidance
Anheuser-Busch InBev SA on Thursday reported a fall in net profit for the second quarter of 2022, despite a better-than-expected increase in revenue and volumes, and backed its full-year guidance.
The brewer--which houses the Stella Artois and Budweiser brands among its portfolio--made a net profit of $1.60 billion in the second quarter compared with $1.86 billion for the same period a year earlier.
Orange 2Q Revenue Fell Amid Fiber Investments
Orange on Thursday posted higher earnings despite lower revenue for the second quarter as fiber network investments weighed on the top line.
The French telecommunications company said revenue slipped to 10.72 billion euros ($10.93 billion) from EUR10.76 billion the previous year. France, Orange's home market, accounted for the lion's share of revenue, contributing EUR4.44 billion despite a 2.7% decline.
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