European Midday Briefing : Rate Concerns Weigh as US Inflation Data Eyed

MARKET WRAPS

Stocks:

European stock losses gathered pace on Wednesday with investors cautious ahead of the U.S. inflation report and with the European Central Bank's latest policy meeting looming.

The key U.S. data will be closely watched because it comes a week before the Federal Reserve's two-day policy meeting. Officials are likely to hold interest rates steady while debating whether another increase in November or December will be needed to maintain recent progress slowing inflation and economic activity.

And ahead of Thursday's ECB meeting, swaps trading implied a roughly one-in-three chance the central bank will hike interest rates from the current 3.75%.

Shares in European wind-power companies traded higher after the European Union said it would introduce a package of measures to support the industry. Vestas, Nordex and Siemens Energy all traded higher. Read more .

Stocks to Watch

Stellantis still faces the very real prospect of a strike by the UAW union in the U.S., but negotiations seem to be narrowing toward a wage increase of between 15% and 35%, Citi said, which is neutral on the stock with a target price of EUR18. Read more .

U.S. Markets:

Stock futures inched lower while Treasury yields climbed with the CPI expected to show that headline inflation rose 3.6% in August from a year earlier, versus 3.2% in July.

Economists suspect that rising energy prices may have contributed to a slight uptick.

"Even though headline inflation [could tick] up this time, it's expected to resume its downward trend from next month onward, which should keep [the] Fed on track to end its rate hiking cycle," Jefferies said.

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Forex:

U.S. inflation data due at 1230 GMT could cause volatility in the dollar if, as expected, it gives a mixed picture, with headline inflation rising but core inflation falling, DZ Bank Research said.

"The expectation that the overall and core rates will move in different directions could initially make for more volatile dollar action, with the greenback likely to ultimately opt for the 'hawkish' side due to the solid U.S. economic environment," DZ Bank said.

Elsewhere, sterling hit a three-month low against the dollar and a one-month low against the euro as recent weak U.K. data dampened expectations for multiple interest-rate increases by the Bank of England.

Sterling got a knock after Tuesday's U.K. labor market data on Tuesday and U.K. rates markets have become less confident that the BOE will deliver several further rate increases, MUFG said.

"The U.K. rate market is currently attaching around a 50:50 probability to the BOE delivering one final hike after next week's 25bp hike, which is viewed as almost a done deal."

Read; BOE Set to Pull Rate Trigger Despite Faltering Output

Energy:

Oil futures held steady at a roughly 10-month high as investors continued to worry about supply cuts tightening the market.

Investors were also awaiting the IEA's monthly report later on Wednesday for its view on the global outlook.

Metals:

Base metals dipped as concerns over China's property sector continued to linger.

Concerns about the sector have been a consistent drag on metals in recent weeks. Home sales in China are slowing while worries about the nation's real-estate giants remain high, ANZ said.

"Industrial metals fell as the outlook for China's property sector weakened. Investor sentiment remains bleak," ANZ said.

DOW JONES NEWSPLUS

EMEA HEADLINES

UK Economy Shrinks in Sign BOE Policy Is Working - Update

The U.K. economy contracted more than expected in July, including in the services sector, adding to indications that the Bank of England's efforts to take some heat out of demand is working as it mulls whether to continue its cycle of interest-rate rises.

Gross domestic product fell 0.5% compared with the previous month, data from the Office for National Statistics showed Wednesday. This missed forecasts for a shallower 0.2% fall in output, according to economists polled by The Wall Street Journal.

Inditex Sales Top Hopes Fueled by Stores, Online

Zara Owner Inditex on Wednesday reported first-half sales which beat market forecast, thanks to a strong performance both online and in stores.

The Spanish fashion giant, which also owns Bershka, Massimo Dutti and Pull&Bear, said that net profit for the six months ended July 31 surged to 2.51 billion euros($2.70 billion), from EUR1.79 billion last year.

BP CEO Bernard Looney Resigns Over Past Relationships With Colleagues

BP CEO Bernard Looney resigned abruptly Tuesday over past relationships with colleagues, the company said, less than four years after taking over the London-based oil giant and embarking on an ambitious plan to position it at the vanguard of the global transition to renewable energy.

Looney's resignation was a surprise, and the company said in a release on Tuesday that his departure is immediate.

Old Mutual Limited Sees Lower 1H Headline Earnings

Old Mutual Ltd. said on Wednesday that it expects to report headline earnings of between 3.88 billion South African rand and 4.83 billion South African rand ($205.3 million-$255.6 million)for the first half of 2023.

The pan-African financial-services group reported headline earnings of ZAR4.75 billion a year earlier.

Tullow Oil Narrows Full-Year Production View After Pretax Profit, Revenue Fell

Tullow Oil narrowed its full-year production guidance after pretax profit more than halved in the first half of the year, reflecting lower realized oil prices.

The Africa-focused oil producer said Wednesday that it now expects production at 58,000-60,000 oil-equivalent barrels a day, due to its Jubilee field performing slightly below expectations in the first six months as well as the timing of the Jubilee South East start-up in the second half-year. It previously guided for 58,000-64,000 boe/d for 2023.

GLOBAL NEWS

What to Watch in the CPI Report: Did Inflation Continue to Cool in August?

Wednesday's inflation report could flash seemingly divergent signals: Consumers are likely to note that gasoline prices jumped in August, and the Federal Reserve could welcome further signs of milder underlying price pressures.

The consumer-price index report will be closely watched because it comes a week before the Fed's two-day policy meeting. Officials are likely to hold interest rates steady while debating whether another increase in November or December will be needed to maintain recent progress slowing inflation and economic activity.

Will the ECB hike rates or not? Decision set to be cliff hanger as economic data sours

Central bankers love to steer the market, but the messages coming from European Central Bank officials on what they will do on Thursday are anything but crystal clear.

Swaps trading imply a roughly one-in-three chance the ECB will hike interest rates from the deposit rate's current 3.75%. That's as the central bank has to balance inflation still uncomfortably high, at 5.3% year-over-year for both the headline and for core, with survey data showing the economy weakening, if not unravelling.

Saudi Oil Cuts Set to Keep Gasoline Prices Higher

Saudi Arabia's decision to extend cuts to its crude-oil output until the end of the year is likely to lead to a significant supply shortfall for the rest of the year, keeping prices higher at the pump, according to the International Energy Agency.

In its monthly report, the IEA said cuts from the Organization of the Petroleum Exporting Countries, a cartel of oil-producing nations where Saudi Arabia is the largest producer and de facto leader, have led to 2.5 million barrels a day being removed from the market since January, though this has mostly been mitigated by record supply coming from the U.S. and Brazil, with non-OPEC supply up by 1.9 million barrels a day.

Hedge Funds' Big Bet Against Treasurys Isn't What You Think

The basis trade, an innocuous-looking practice at the center of some of Wall Street's historic blowups, is back.

A popular way for hedge funds to profit from bond trading while minimizing their exposure to swings in the market, the basis trade exploits the price difference between Treasurys and Treasury futures. The resurgence is attracting fresh scrutiny from Wall Street because previous meltdowns have rattled global markets.

Kim Jong Un and Vladimir Putin Meet at Russia's Vostochny Cosmodrome

Vladimir Putin welcomed North Korea's Kim Jong Un at Russia's main spaceport, as the leaders from two of the U.S.'s nuclear-armed adversaries seek to strengthen military ties.

The 39-year-old dictator shook hands with Putin on Wednesday morning, according to video footage released by the Kremlin. The two leaders toured the Vostochny cosmodrome, located in Russia's Far East, then sat down for talks, which are expected to last around three hours, Russian state media reported. North Korean media didn't have an immediate report on Wednesday's proceedings.

Russian Navy Shipyard Targeted by Missile Strikes in Sevastopol, Two Vessels Hit

ODESA, Ukraine-Ukrainian missile strikes hit Russian navy shipyards in the Crimean port city of Sevastopol overnight, causing huge blasts and a fire that damaged two warships undergoing repair, Russian authorities said.

There was no immediate claim of responsibility by Ukraine, which in recent months has carried out a series of missile and drone attacks on key Russian military and logistics targets in Crimea, an area that Moscow seized in 2014.

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

(END) Dow Jones Newswires

09-13-23 0534ET