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European Midday Briefing: Shares Edge Higher as Inflation Fears Ease

08/12/2022 | 05:42am EDT

MARKET WRAPS

Stocks:

European stocks made modest gains on Friday as investors weighed more signs of cooling U.S. inflation.

The drop in the U.S. PPI on Thursday was the latest sign of easing inflation, following Wednesday's softer-than-expected consumer price index report, which had traders weighing whether inflation has peaked and if the Federal Reserve might cool its hawkish rhetoric.

"This week has been all about the inflation data and, frankly, it could be the dominant force in the markets now right up until the Jackson Hole symposium," wrote Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA.

"The fact that inflation not only decelerated in the U.S. but at a faster pace than the consensus forecasts was a double win and risk assets are feeling the benefit."

Stocks to Watch:

Shares in GSK, Sanofi and Haleon edged higher, recouping some of the heavy losses of the past few days, after the companies responded to recent comments related to Zantac litigation in the U.S.

Read more here.

Economic Insight:

Sweden's July CPI report shows the gap between underlying inflation signals and the Riksbank's forecasts widening further, Handelsbanken said.

"We judge that this forecast error and, first and foremost, the current inflation outlook and risks, will make the Riksbank tighten policy faster than it has so far headline communicated."

July headline CPIF inflation eased to 8% on the year from 8.5% in June, but the step down is hardly a signal about easing underlying inflation, instead, it was due to cooling in still highly elevated energy prices, Handelsbanken said.

The bank now expects the Riksbank to raise its policy rate by 75 bps at its September meeting, from 50 bps previously.

Read: Swedish Core Inflation Rise Will Keep Riksbank in Hawkish Mode

Read: Swedish Inflation Broke The Upside Surprise Trend in July

U.S. Markets:

Stock futures were higher headed into Friday's open, with a preliminary reading on consumer sentiment for August likely to further clarify how consumers are feeling about rising prices.

Stocks to Watch:

Electric-vehicle manufacturer Rivian's net loss in the second quarter [nearly tripled to $1.7 billion, further pressuring it to conserve cash and move quickly to fill customer orders. Its shares shed 2.4% off hours.

Deutsche Telekom reiterated plans to build its stake in T-Mobile and said it is nearing majority ownership of the U.S.'s second-largest wireless carrier by customers. T-Mobile shares nudged up 0.3% off hours.

Forex:

The dollar was slightly higher in Europe against a basket of currencies but may weaken again as "Fed pivot" bets grow, analysts said.

If the Fed meets market expectations to raise rates by only 50 basis points in September, this will likely mark the peak of its aggressive rate-increase cycle, according to CMC Markets.

However, other central banks may keep pace on tightening, especially the European Central Bank which appears to have just begun its aggressive rate-increase cycle and which may cause further dollar weakness.

---

Sterling is more likely to be driven by broad risk appetite than Friday's better-than-expected U.K. economic growth data, said MUFG Bank.

"In reality the better June print doesn't change the overall backdrop and won't alter at all the Bank of England's outlook and hence its policy outlook," MUFG said.

The U.K. economy contracted 0.6% on month in June, less than the 1.3% decline expected by economists in a WSJ survey. For the second quarter, the economy contracted by 0.1% on quarter against expectations for a 0.2% drop.

Read: The Bank of England is Under Attack. Why Investors Should be Wary

Read: UK's Record Current Account Deficits Negative for Pound

Bonds:

The 10-year Treasury yield has probably reached bottom, based on technical charts, according to UOB Global Economics & Markets Research.

On Thursday, the 10-year yield rose to breach resistance on a declining trendline and the 55-day exponential moving average. These developments and the yield's movements suggest the 10-year yield's downside risk has dissipated and the 2.516% level is likely a bottom which may hold for at least several weeks.

Going forward, the 10-year yield is expected to move between 2.516% and 3.103%, UOB said.

Energy:

Oil prices ticked higher in early trade and remained on course for a weekly rise as concerns about limited supplies persist.

Recession fears have undermined the demand outlook for oil and weakened prices in recent days but investors remain concerned about extreme tightness in the market, limited spare capacity, and a lack of investment in new supplies, said Neuberger Berman.

"We know supply across the board is visibly tight due to underinvestment and supply is going to remain very tight."

Metals:

Base metals and gold were holding steady in London, with sentiment wavering over mixed macro signals.

Figures from the U.K. showed the economy contracted 0.1% in the three months to June, with a recession likely from October onward.

In Asia, "sentiment onshore is still generally positive this week, especially when domestic demand is expected to improve in the second half of 2022," according to Marex.

DOW JONES NEWSPLUS


EMEA HEADLINES

GSK, Sanofi, Haleon Shares Recover Some Recent Losses After Zantac Drug Responses

Shares in GSK PLC, Sanofi and Haleon PLC all rose on Friday--recouping some of their losses over the past few days--after the companies issued statements responding to recent comments related to the U.S. lawsuits over discontinued heartburn drug Zantac.

Shares of GSK are currently trading 2.0% higher at 1,427.60 pence, Sanofi 0.4% higher at EUR85.18 and Haleon 0.3% higher at 266.70 pence.


UK Economy Contracted in 2Q As Inflation and Ukraine War Takes Toll

The U.K. economy contracted in the second quarter, as inflation and uncertainty from Russia's invasion of Ukraine took their toll on the economy.

U.K. gross domestic product fell 0.1% from April to June compared with the preceding quarter, the Office for National Statistics said Friday, easing from the 0.8% expansion registered in the first quarter. Economists polled by The Wall Street Journal expected the economy to contract by 0.2%.


Flutter Swung to 1H Pretax Loss on Higher Costs; Revenue Rose

Flutter Entertainment PLC said Friday that it swung to a first-half pretax loss due to higher operating and sales costs, though revenue rose and the second half has begun well.

The FTSE 100 gambling group posted a first-half pretax loss of 51.4 million pounds ($62.7 million), compared with a profit of GBP77.0 million a year prior, after a GBP286 million charge for amortization of acquired intangibles.


Deutsche Telekom Nearing Majority Ownership of T-Mobile

German telecommunications giant Deutsche Telekom AG reiterated plans to build its stake in T-Mobile US Inc. and said it is nearing majority ownership of the U.S.'s second-largest wireless carrier by customers.

Deutsche Telekom has been looking to retake a majority stake in T-Mobile since the unit's 2020 merger with Sprint, which SoftBank Group Corp. previously controlled. The German company already has majority voting power in the U.S. wireless carrier.


Shell Working to Fix Leak That Halted Gulf of Mexico Oil Output

Shell said Thursday it halted activity at several of its offshore oil production platforms in the Gulf of Mexico due to leaky pipelines, but said it expects to have the pipelines fixed by Friday.

"Shell can confirm that the Mars and Amberjack Pipelines have been shut-in due to a flange leak at the Fourchon booster station," it said in an emailed statement, noting about two barrels of oil leaked, and they have been contained. The Fourchon station is on land along the Louisiana coast.


EU Proposes Significant Concession to Iran to Revive Nuclear Deal

BERLIN-European Union diplomats trying to break a deadlock in talks over an Iran nuclear accord have proposed a significant new concession to Tehran aimed at speedily ending a U.N. investigation into the Islamic Republic's past atomic activities.

A key sticking point in 16-month-old talks to revive the 2015 deal, which put limits on Iran's nuclear programs in exchange for sanctions relief, has been a probe by the International Atomic Energy Agency into undeclared nuclear material found in Iran in 2019.


Satellite Images of Crimea Air Base Indicate Explosions Destroyed Russian Jets

Satellite images of the Russian air base in Crimea hit by explosions appear to show several destroyed war planes, contradicting Russia's official account that no planes were lost in the blasts.

Ukrainian President Volodymyr Zelensky said in a video address late Wednesday that Russia lost nine combat aircraft in Crimea. Officials in Kyiv have mocked Russia but not taken responsibility for the blasts.


GLOBAL NEWS

U.S. Home Prices Jumped to Record High in Second Quarter

Home prices continued to climb across nearly all the U.S. in the second quarter, when buyer demand started to fade due to higher mortgage rates but still exceeded the housing market's unusually low supply.

The median sales price was higher in the quarter compared with a year ago for 184 of the 185 metro areas tracked, the National Association of Realtors said Thursday. The only metro area to post a decline was Trenton, N.J., where median prices fell 0.7%, NAR said.


Trump Won't Oppose Release of Search Warrant

WASHINGTON-The Justice Department on Thursday asked a Florida judge to unseal the warrant FBI agents used to search former President Donald Trump's Mar-a-Lago home this week, along with a list of items they took from the property.

The request raises the prospect that underlying reasons for the extraordinary search of the former president's home could soon become public.


Write to paul.larkins@dowjones.com

Write to us at newsletters@dowjones.com

(MORE TO FOLLOW) Dow Jones Newswires

08-12-22 0541ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.42% 0.64071 Delayed Quote.-10.87%
BRITISH POUND / US DOLLAR (GBP/USD) -0.75% 1.06451 Delayed Quote.-20.44%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.33% 0.72619 Delayed Quote.0.00%
DEUTSCHE TELEKOM AG -0.12% 17.812 Delayed Quote.9.28%
EURO / US DOLLAR (EUR/USD) -0.38% 0.95594 Delayed Quote.-15.60%
FLUTTER ENTERTAINMENT PLC 2.40% 10260 Delayed Quote.-12.76%
FTSE 100 -0.52% 6984.59 Delayed Quote.-4.92%
GSK PLC -0.63% 1316.6 Delayed Quote.-19.90%
HALEON PLC -2.64% 278.8 Delayed Quote.0.00%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.12% 0.012239 Delayed Quote.-8.75%
LONDON BRENT OIL -1.37% 85.04 Delayed Quote.11.58%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.72% 0.55892 Delayed Quote.-17.14%
SANOFI 0.01% 77.45 Real-time Quote.-12.56%
SOFTBANK GROUP CORP. -2.76% 4891 Delayed Quote.-6.77%
SVENSKA HANDELSBANKEN AB 1.53% 94.52 Delayed Quote.-4.86%
T-MOBILE US 0.27% 132.68 Delayed Quote.14.09%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.45% 58.4125 Delayed Quote.-21.89%
WTI -1.49% 77.444 Delayed Quote.1.76%
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