MARKET WRAPS
Stocks:
European shares were slightly lower on Wednesday, as investors considered mounting risks to the global economy.
Data on Chinese exports and imports left investors concerned both about the effects of lockdowns on the domestic economy, and the strength of global demand for Chinese goods.
In Europe, money managers remained laser-focused on how high energy prices are hurting industry and government finances.
"Give me a reason why markets should be going up," said BNP Paribas Asset Management strategist Daniel Morris when asked why markets were down.
Stocks to Watch:
Allianz's current market cap is EUR68.8 billion, which implies that the stock is at an EUR11.8 billion discount to its peer average valuation, Berenberg said.
This discount might mean the market is anticipating another large loss, potentially similar to the EUR5.6 billion provision to deal with losses at its structured alpha funds. Instead, this low valuation can be an opportunity, Berenberg added.
The insurer's CFO is expected to say that earnings are fully on track during September conferences, and that buybacks are a core part of the investment case, according to Berenberg. It also expects the CFO to say that further back-book deals in the life business could lift cash remittances to above the EUR23 billion 2022-24 cumulative target.
Economic Insight:
Odds are high that the European Central Bank will opt for a 75 basis-point interest-rate increase at Thursday's meeting, Morgan Stanley Wealth Management said.
The energy situation in Europe continues to worsen, pressuring inflation, which also raises the probability of a severe recession, it added.
"Complicating matters is that the ECB is hamstrung, likely having to begin an inflation-fighting rate hike cycle while the economy is going into a slowdown ," Morgan Stanley said.
---
A recession in Germany is inevitable as high inflation hits consumers and businesses' finances, Deutsche Bank CEO Christian Sewing said in a speech during the Handelsblatt Banking Summit in Frankfurt.
Sewing said the German economy looks resilient enough to cope with a coming recession because corporate balance sheets are strong and debt is low by international standards. However, central banks need to act quickly and decisively to tame price growth.
"The longer inflation remains high, the greater the strain and the higher the potential for social conflict."
Read: German Industrial Production Likely to Fall Further in Coming Months
U.S. Markets:
Stock futures wobbled after two days of losses-following three straight weeks of declines-as investor sentiment remained under pressure from multiple macro factors.
Stocks remained vulnerable to what would be the fourth straight week of losses if a turnaround fails by Friday. September has a reputation as the worst month of the year for stocks, and so far post-Labor Day trading has been far from upbeat.
"With different asset classes swinging between gains and losses over the last 24 hours, it's been difficult to point to a single factor behind the various moves," said Jim Reid, a strategist at Deutsche Bank.
Stocks to Watch:
Coupa Software reported a narrower loss and better-than-expected revenue in the latest quarter. Its shares shot 14% higher off hours.
---
UiPath shares plunged 16% off hours after it cut its forecast for the year due to foreign currency headwinds and macroeconomic uncertainty.
Forex:
The euro could fall as the ECB is likely to raise interest rates by 50 basis points on Thursday rather than 75bp as some expect, although any declines may be limited, ING said.
"Markets are pricing in 66bp at the moment, and the consensus is leaning in favor of 75bp, so we see some downside risks for the euro. Much of the market reaction will also be driven by any hints about future policy."
However, the currency impact may be short-lived as EUR/USD has been "blatantly unreactive" to ECB rate expectations lately as the energy crisis continues to drive the pair, ING added.
---
Sterling could experience further volatility on Wednesday as details about the plans of new U.K. Prime Minister Liz Truss emerge, ING said.
Potential cost-of-living support measures will reportedly be funded by a bigger deficit, ING said.
"All this matters for sterling not only because it has an impact on the growth outlook and Bank of England policy, but because it may have rather wide implications for the UK's debt position. This is a factor that FX may start to be increasingly sensitive to especially in those instances [like the U.K.] where there is an increasingly negative current account balance."
---
The dollar is a growing headache for the U.S., Swissquote Bank said, referring to the currency's strength starting to weigh on company profits, as seen in second-quarter earnings.
"So, if the dollar continues rising at this speed, it's not only that the countries other than U.S. will continue seeing their energy bills, denominated in U.S. dollars, inflate more than 'necessary,' but the U.S. economy will also hit a wall," Swissquote Bank said.
Bonds:
The gilt curve is expected to steepen further after Tuesday's headlines about the spending plans of PM Truss, Mizuho said.
"The plan appears to be to freeze energy bills until 2024, to provide an aid package of GBP40bn for U.K. businesses, and to cap wholesale gas prices," Mizuho said.
More certainty about the magnitude of costs is likely yet to come, "but the market has already tried to price the potential increase in gilt supply."
---
Huge fiscal bills and high inflation in Europe will make funding governments unattractive at current yield levels, Jupiter Asset Management said.
"This is a medley of reasons why the selloff [in bonds] has been so rapid over the last few weeks as the strain shifts from the currency to the interest rates markets."
Jupiter said the market has been too timid on central-bank pricing in Europe, focusing too much on the growth-risk side.
"Moves into restrictive policy need to be priced in, and yield curves in Europe and the U.K. need to flatten hard, as the market balances policy rate hiking into a sluggish backdrop."
Energy:
Oil prices were down around 1.4%, with Brent at a seven-month low, as fears about global demand continued to drag on sentiment.
Chinese import data is adding to a weak picture. The nation's oil imports recovered month-on-month but were down more than 9% on year. "The downside pressure is explained by the growing fear of recession," Swissquote Bank said.
Metals:
Base metals were lower in early trade, pulled down by weak demand and fears over slowing global growth.
Chinese construction should be a key watchpoint currently in terms of base demand as we are in the usual peak demand season currently, but base demand still remains weak in Asia, Marex said.
"Also, we do have waning demand not just within China but on a global scale, as recession fears continue to be present as analysts everywhere continue to talk about how the economies worldwide are slowing down."
Other News:
Cobalt sulfate prices are likely to remain high over the next two to three years on strong demand from the battery sector, Fitch said, largely due to growth in the electrical vehicle sector.
Sulfate prices are currently around $8,597 a metric ton, down from $19,865 a ton in April, with firms looking to cut cobalt usage within battery cells due to cost, Fitch added.
However, strong Chinese demand should help to negate further falls in the country's new energy vehicle sector. That said, moving past the three year mark, prices are likely to ease as additional supply comes to market, Fitch said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Repsol to Sell 25% Stake in Upstream Business to EIG for $4.8 Bln
Repsol SA will sell a 25% stake in its upstream business to U.S. institutional investor EIG Global Energy Partners for a total consideration of $4.8 billion, the Spanish energy company said Wednesday.
The deal values the business at $19 billion and will allow Repsol to remain a majority shareholder and to consolidate the business within the wider group, the company said.
Shares of Assassin's Creed Maker Ubisoft Slump After Tencent Buys Stake in Holding
Shares in Ubisoft Entertainment SA, the maker of the Assassin's Creed videogame series, plunged Wednesday after Tencent Holdings Ltd. acquired a minority stake in the family holding that controls the French videogame company.
At 0805 GMT, Ubisoft shares traded 12% lower at EUR38.46.
Barratt FY 2022 Pretax Profit Fell on Sales Costs, Starts GBP200 Mln Share Buyback
Barratt Developments PLC said Wednesday that fiscal 2022 pretax profit fell despite a rise in revenue as sales costs increased, and began a 200 million-pound ($230.4 million) share buyback program.
The FTSE 100 home builder said that for the year ended June 30, pretax profit fell to GBP642.3 million from GBP812.2 million a year prior, as gross margin slipped to 17.1% from 21.0%.
Ukraine Seeks Corridor to Evacuate Civilians Near Zaporizhzhia Nuclear Plant
Scores of people were trying to evacuate from villages near the Zaporizhzhia nuclear-power plant, Ukrainian officials said, as an explosion cut off access to electricity and water at a nearby town.
Electricity and water supplies in Enerhodar, Ukraine, were stopped after residents reported a powerful explosion Tuesday that shook the town, said Mayor Dmytro Orlov. Ukrainian Deputy Prime Minister Iryna Vereshchuk appealed for Russia to allow civilians from the area-which is controlled by Russian forces-to cross into Ukrainian-held territory.
Solvay to Cut Waste From Soda-Ash Plant in Italy After Criticism
Belgian chemicals maker Solvay SA plans to cut waste that its Italian soda-ash plant discharges into the Mediterranean Sea following accusations of pollution.
(MORE TO FOLLOW) Dow Jones Newswires
09-07-22 0542ET
