MARKET WRAPS
Stocks:
European equities looked on course to stem recent losses, as energy stocks rallied following a bounce in oil prices, but investors remained cautious with the U.S. jobs report in view.
The nonfarm payrolls data, due at 1230 GMT, could leave investors in a "no-win situation" as a stronger-than-expected print would mean the Federal Reserve continues aggressive policy tightening while a weak number would fuel recessionary concerns, Interactive Investor analyst Richard Hunter wrote.
"Another positive payroll number today would in all probability rubber stamp the possibility of a 75bps rate hike when the Fed next meets later this month," wrote Michael Hewson, Chief Market Analyst at CMC Markets UK.
Stocks to Watch:
Siemens shares remain fundamentally undervalued and attractive despite the pressure they face from Europe's current geopolitical and energy crisis, Berenberg said.
Non-operational challenges, including the EUR2.7 billion Russia-related impairment, have cast a shadow over the technology company, Berenberg said. With its shares down 35% year to date, Berenberg said it expects Siemens to accelerate its share buyback program which, combined with its holding in Siemens Healthineers, ought to cap downside risks.
"We have high confidence in management's ability to navigate challenges, but a softer macro adds some risk to the all-important volume assumptions. Siemens is the most mispriced stock in our coverage."
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Economic Insight:
The fall in Germany's exports in July signals the eurozone's largest economy started the third quarter on a weak footing, ING said. "Trade is no longer a growth driver but has become a drag on German growth."
Global frictions on supply chains, geopolitical risks and rising production and energy costs are behind this new trend, which is unlikely to change significantly in the short-term, ING added.
"There is some relief in supply chains and transportation costs. However, at the same time, low water levels, high energy prices and the possible fundamental change in supply chains and production processes on the back of geopolitical uncertainty will be clear obstacles to growth."
U.S. Markets:
Stock futures inched higher while the yield on the 2-year Treasury, which is particularly sensitive to expectations on Fed interest rates, was steady at 3.50%.
"All eyes today will be on the labor market report, which is likely to suggest that conditions remain too tight for the Fed's comfort," said Emily Nicol, an economist at Daiwa Capital Markets Europe.
Semiconductor stocks were rising cautiously after chip maker Broadcom said it expected "solid demand" to continue in its fiscal fourth quarter. Chief Executive Hock Tan told analysts that "infrastructure spending is still very much holding."
Broadcom shares rose 2.2% in premarket trading Friday to $502.90 after the company said it expected fourth-quarter revenue of $8.9 billion, higher than analysts' expectations of $8.77 billion.
Read more here.
Forex:
The euro recovered some ground after news that Russia should resume gas flows through the Nord Stream pipeline to Europe at 20% capacity on Saturday, but the currency's gains are modest and may not last, ING said.
It's a "quite limited positive reaction by the euro, which likely denotes how markets remain very cautious to price out the risks of a complete cutoff in gas supplies in the coming months," ING said.
With the potential for another round of dollar appreciation on the jobs report, EUR/USD could retest the 0.9900 level before markets close for the weekend, ING added.
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Bank of England officials may signal that a larger 75 basis points interest rate hike is in the cards in speeches next week, but that won't provide much support to sterling, MUFG Bank said.
It may help stem pound selling and provide the potential for some recovery, but that would be temporary, MUFG added. "Forced aggressive hiking into a weak economy to protect against FX-related inflation risks is not a favorable mix."
BOE member Catherine Mann speaks on Monday while BOE Governor Andrew Bailey and chief economist Huw Pill testify in parliament to the Treasury Select Committee on Wednesday.
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The dollar was slightly lower in early European trading but could rise if the nonfarm payrolls report is stronger than expected, Swissquote Bank said.
Activity on Fed funds futures gives around 75% chance for a 75 basis points interest rate hike at the Fed's September 20-21 meeting. "We could see this probability spike higher in case of strong NFP data--which would mean higher yields, a further advance in the dollar, and some more negative pressure on stock valuations," Swissquote said.
If the data meet expectations or are softer-than-forecast, the dollar could fall along with yields and equities could rise.
Fed's Aggressive Stance Pushes Yen to 24-Year Low Against Dollar
Bonds:
Bond yields could exceed June levels, which were previously seen as their peak, AXA Investment Managers said, which sees both the Fed and the ECB likely raising rates by 75 basis points in September.
Commerzbank said if the ECB opts for a 75bp rise next week, the probability of which is almost 75%, it will be its first increase of this magnitude.
"The ECB has never hiked by more than 50bp and the last Bundesbank hike by 75bp dates back to 1992 ."
While uncertainty is high, Commerzbank looks for a 75bp hike in September, followed by 50bp in October and 25bp each in December and February.
Societe Generale said as core inflation in the eurozone is set to remain above current levels for another year or so, the ECB is more likely to be overly hawkish than not enough. But the risk of hawkishness is lower growth and higher unemployment.
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Read: Eurozone Sovereigns Might Opt Against Syndicated Issues Next Week
Energy:
Oil prices rose more than 2% following days of losses, as traders awaited next week's OPEC+ meeting, with an output cut likely to be discussed after ministers from a number of member nations, including Saudi Arabia, raised that possibility.
Still, the group may choose to wait until a later meeting before taking the step, ING said.
"We expect the group to leave output targets unchanged. Their own numbers show a lighter-than-expected market. And they would probably also want some more clarity on Iranian supply before making any big changes to output policy," ING added.
European natural-gas prices fell almost 7% as fears of a winter supply crunch abated and despite concerns that Russia may not resume flows through the Nord Stream pipeline following a period of maintenance.
Metals:
Metals markets wavered in early European trading, with the focus on U.S. payrolls, as investors look for signals on which way the economy is trending.
Copper and gold futures were around 0.3% higher, while zinc dropped 1.2%.
"Markets are pretty complicated at the moment with investors not being quite able to decide whether the newsflow was bad or good yesterday for risk assets," Deutsche Bank Research said.
DOW JONES NEWSPLUS
EMEA HEADLINES
Shell, Exxon Mobil Sell California Oil and Gas Producer to German Asset Manager
Exxon Mobil Corp. and Shell PLC are selling their stakes in one of California's largest oil and gas producers to German asset manager IKAV Capital Partners GmbH.
Aera Energy LLC, a joint venture of the oil giants, accounts for nearly a quarter of the state's production, according to its website.
Germany Trade Surplus Narrowed in July on Declining Exports
Germany's trade surplus narrowed in July as exports fell at a greater pace than imports.
Germany's trade surplus--the balance of exports and imports of goods--was euros ($5.37 billion) in calendar and seasonally-adjusted terms in July, narrowing from a EUR6.2 billion surplus in June, according to data from German statistics office Destatis released Friday.
Europe Weighs Price Cap to Bring Down Electricity Prices
BRUSSELS-The European Commission is preparing a proposal to deal with skyrocketing electricity prices by curbing consumer demand and capping prices paid for non-gas sources of power generation.
The recommendations were prepared ahead of an emergency meeting of energy ministers on Sept. 9. They are part of an effort to exert more control over the electricity market after the war in Ukraine, outages at French nuclear reactors and an exceptionally hot and dry summer have sent power prices to record highs.
The U.K., a Maritime Insurance Hub, Commits to Cap Price of Russian Oil
WASHINGTON-The British Treasury chief said the U.K. was committed to a U.S.-led effort to put a cap on the price of Russian oil as a top Russian official said the country would refuse to sell oil at a capped price.
In an interview at the British Embassy in Washington, Chancellor of the Exchequer Nadhim Zahawi said he was confident the price cap plan would succeed. Finance ministers from the Group of Seven wealthy nations are expected to virtually meet on Friday and endorse an outline for capping the price of Russian oil, The Wall Street Journal previously reported.
Ukraine Says Russia Is Using Cargo Ships to Ferry Weapons to the Black Sea
ISTANBUL-A Russian shipping line with ties to the country's Defense Ministry has been ferrying weapons and supplies through the Bosporus to ports on the Black Sea in support of Moscow's war effort, according to Ukrainian officials who have urged Turkey to block their access.
Kyiv has asked Turkish authorities to take action against at least four cargo ships that it says are transporting military equipment from a Russian base in Syria through straits controlled by Turkey, the only way into the Black Sea from the Mediterranean.
GLOBAL NEWS
Fed's Aggressive Stance Pushes Yen to 24-Year Low Against Dollar
(MORE TO FOLLOW) Dow Jones Newswires
09-02-22 0543ET
