MARKET WRAPS

Stocks:

Shares in Europe were slightly lower by midmorning on Wednesday, but had pared early, heavier losses, as investors continued to react to data that showed U.S. inflation eased slightly in August but remained elevated.

"There has been a fresh bout of anxiety on financial markets amid worries that inflation is still proving to be a formidable opponent to take down," Hargreaves Lansdown said.

In relation to the latest U.K. CPI figures, Hargreaves Lansdown said the Bank of England "can't rest easy" but isn't expected to raise interest rates as aggressively as the Federal Reserve."

Stocks to Watch:

Ocado was cut to underperform from neutral by Credit Suisse, with its price target slashed 39% to 590 pence from 960 pence.

The "benefits of Ocado's advanced technologies aren't delivering consistent results in retail joint ventures," Credit Suisse said, adding that Ocado has likely "exhausted large market potential opportunities with exclusive agreements in most major developed markets."

And higher costs in the grocery sector and a slowdown in online food deliveries could pose risks to existing partnerships, Credit Suisse said.

Economic Insight:

ABN Amro raised its forecast for the European Central Bank's deposit rate, expecting it to settle at 2% through 2023, up from its previous forecast for the peak at 1.5%.

"We now expect the ECB to raise its deposit rate to 2% most likely by the end of this year," it said.

After last week's 75 basis point interest rate rise by the ECB, ABN Amro expects another 75 bp increase in October, followed by a 50bp step in December.

U.S. Markets:

Stock futures gained after the major indexes suffered their worst day since June 2020 on Tuesday.

The yield on the benchmark 10-year Treasury note edged higher, with the yield on the two-year note, which is more sensitive to near-term rate expectations, also rising.

The previous day's increase in bond yields was another indication that investors expect more upward pressure on interest rates after the inflation data.

"The hope of seeing a dovish pivot regarding Fed policy is clearly dashed," said Swissquote Bank.

"Activity in Fed funds futures price in a 100% chance for at least a 75bp rate hike at the FOMC's meeting next week, while there is 34% chance of a 100bp hike next week."

Forex:

The dollar pulled back slightly after rising sharply in reaction to Tuesday's higher-than-expected U.S. inflation data.

The dollar's reaction to the data was due to the fact Fed officials did "quite a lot over the past weeks to strengthen their credibility when it comes to fighting inflation," Commerzbank said.

"From the market's point of view, the stubbornly high inflation levels increase the likelihood of more pronounced Fed rate hikes."

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The euro's scope to rise will remain limited while the Fed maintains a restrictive policy stance and this is unlikely to change in light of Tuesday's inflation data, UniCredit Research said.

Evidence that U.S. consumer price inflation hasn't fallen much in August and core inflation rose "dashed EUR/USD recovery attempts," UniCredit said.

That illustrates that factors lifting the euro--including European Central Bank officials signalling further interest rate rises, positive Ukraine war developments reducing the dollar's safe-haven appeal, and a EU debate to address soaring energy prices--do no more than help the common currency remain resilient rather than triggering a complete turnaround sentiment, UniCredit said.

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Sterling fell after data showed U.K. inflation eased slightly in August, although it remain elevated.

Annual inflation fell to 9.9% in August from 10.1% in July, in line with expectations in a WSJ poll of analysts. Core inflation, however, rose to an annual rate of 6.3% in August from 6.2% in July, as forecast.

"The moderation in headline inflation, driven by a reduction in fuel prices, eases the pressure on the Bank of England to act more 'forcefully' than in August, while the core print...retains the need to hike rates further towards restrictive territory," Monex Europe said.

ING said the BOE should raise interest rates by another 50 basis points at its September 22 meeting after the inflation data but the overall environment remains sterling negative.

"Running a large current account deficit and having a large financial sector representation in the U.K. economy, slowing growth and weaker equity markets should leave sterling as an underperformer," ING said.

It added that GBP/USD could retest the 1.1406 lows and EUR/GBP could rise to the top of a 0.8650-0.8720 range.

Read: UK Inflation Easing Is Expected to Be Short-Lived

Bonds:

Citi raised its forecast for the year-end level for 10-year German Bund yields, penciling in a total of 125 basis points of interest-rate rises by the ECB this year before a pause at 2% [for the deposit rate].

"Previously, the terminal rate forecast was 1%, so this requires a revision to our Bund yield forecasts," Citi said.

It expects Bund yields to average 1.80%-1.95% in the coming quarters and exceed 2% by the end of 2023.

Read: Italy's Funding Costs Are Manageable But Caution Is Justified

Energy:

Weaker demand for oil in China, as the economy faces stop-start Covid-19 lockdowns, is outweighing robust crude demand elsewhere in the world and will crimp oil demand growth this year, the IEA said on Wednesday.

Read more here.

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A challenge for the G-7's planned price cap on Russian oil will be getting Asian buyers on board, the Center for Strategic and International Studies said.

India and China enjoy discounted Russian crude and can buy as much as they want if they don't deal directly with sanctioned companies or individuals. In theory, a cap would mean even lower prices, but the CSIS thinks the countries could be wary about joining a cumbersome monitoring and enforcement system.

"They will also chafe at another imposition of Western energy sanctions." Without full cooperation, the price cap would score a partial victory, avoiding market shortages and price spikes but not cutting Russia's oil revenue dramatically.

Metals:

Weak macroeconomic sentiment continued to weigh on metal prices, with investors still looking toward haven assets over risk commodities.

Following Tuesday's CPI print "markets were extremely brutal as the only safe asset was the dollar rallying," Marex said.

It added that general optimism in metals has been lost in both Europe and China.

DOW JONES NEWSPLUS


EMEA HEADLINES

Global Oil Demand Undermined by China Lockdowns, IEA Says

Weaker demand for oil in China, as the economy faces stop-start Covid-19 lockdowns, is outweighing robust crude demand elsewhere in the world and will crimp oil demand growth this year, the International Energy Agency said on Wednesday.

In its closely watched oil market report, the IEA lowered its forecasts for Chinese oil demand by 400,000 barrels a day this year, to 15 million barrels a day, 420,000 barrels a day less than last year. For 2023, the Paris-based agency lowered its China demand forecasts by 300,000 barrels a day, but still expects demand to rise to 16 million barrels a day as Covid-19 pandemic restrictions are relaxed.


UK Inflation Eased Slightly in August on Lower Gasoline Prices

U.K. inflation eased slightly in August on lower gasoline prices, delivering some respite to households as they face an acute cost-of-living-crisis that has prompted the government to implement a cap on energy prices.

The consumer-price index--which measures what people pay for goods and services--increased 9.9% on year in August, easing from 10.1% in July, which marked the highest inflation rate in more than four decades, data from the U.K.'s Office for National Statistics showed Wednesday.


Rio Tinto, Baowu Agree Joint Venture to Develop $2B Australian Iron-Ore Project

Rio Tinto PLC said it has agreed to form a joint venture with China Baowu Steel Group Corp. Ltd. to develop the $2-billion Western Range iron-ore project in Australia's Pilbara region.

The Anglo-Australian mining company and China's state-owned Baowu, its biggest iron-ore customer, also intend to sign a sales agreement for Baowu to buy almost half of the mine's production over a roughly 13-year period. Rio Tinto wants to develop the project to help sustain production of the company's core Pilbara Blend iron-ore product from its existing Paraburdoo mining hub.


Zara Owner Inditex Sees Shares Surge After Strong Start to Third Quarter

Shares of Industria de Diseno Textil SA, the owner of Zara known as Inditex, jumped Wednesday after the Spanish fashion giant posted better-than-expected sales for the fiscal first half, and customers got their hands on autumn and winter collections, signaling a strong start to the third quarter.

At 0745 GMT, Inditex shares were 4.8% higher at EUR23.00.


Google Loses Most of Appeal of EU Android Decision

BRUSSELS-Alphabet Inc.'s Google lost most of its appeal to overturn a $4.33 billion antitrust decision imposed by the European Union for allegedly using its Android operating system to squash competition-but got a roughly $215 million reduction in the fine.

The ruling on Wednesday is a vote of confidence for the European Commission, the bloc's antitrust enforcer, which has been aggressive in targeting big U.S. tech companies over concerns about anticompetitive behavior. The Android case was the biggest of three antitrust fines totaling more than $8 billion that the Commission has levied against Google since 2017-and it focused on mobile phones, one of the company's fastest growth areas.


Ukraine Seeks More Arms, Closer Ties to West After Taking Ground From Russia

KHARKIV, Ukraine-Ukrainian forces looked to maximize gains from a lightning-quick offensive in the country's northeastern Kharkiv region, making a diplomatic push for more weapons and deeper security ties with Western allies.

(MORE TO FOLLOW) Dow Jones Newswires

09-14-22 0538ET