European Midday Briefing : Stocks Slide Ahead of U.S. Jobs Report

MARKET WRAPS

European shares extended their retreat on Friday after weak U.S. economic data and doubts about the outlook for technology companies prompted a selloff on Wall Street.

Chip stocks in Europe fell sharply on weak sentiment for the industry and after Intel posted disappointing quarterly sales on Thursday, as it struggles to gain a foothold in the market for AI chips.

On the data front, investors are transfixed, once again, by the latest U.S. jobs report due at 1230 GMT.

"Especially after Jerome Powell emphasized on Wednesday that the labor market is now more in the Fed's focus," Commerzbank said.

Stocks to Watch

Societe Generale's continued French retail weakness and lack of visibility on its recovery prompted Citi to cut its rating to neutral from buy and lowers its target price to EUR26.

U.S. Markets:

It's Jobs Friday. Economists forecast that employers added 185,000 jobs in July-down from 206,000 in June-and that the unemployment rate held at 4.1%.

While the jobs report is often a big deal, this month's nonfarm payrolls could taken on outsize significance, given fresh jitters about U.S. economic resilience.

U.S. index futures were selling off, after recent data has piqued fears about the health of the world's largest economy.

At the same time, disappointing results from Amazon and Intel are heaping pressure on tech stocks.

Benchmark Treasury yields fell further below 4% early Friday.

Forex:

The dollar fell as investors looked ahead to the nonfarm payrolls.

Commerzbank said we got a small taste of the effect of the Fed's focus shifting more to employment on Thursday with a further contraction in manufacturing activity and employment in July.

Sterling's losses could be limited, as the BOE will likely only cut rates gradually, Commerzbank said.

"Unless there is a surprisingly sharp fall in inflation in the coming months (and there is little sign of this at present), the BOE is likely to be cautious about cutting rates."

The BOE could cut rates once more this year but further cuts will be gradual, which should support sterling, it added.

Bonds:

"Eurozone government bond spreads have had a second week of widening but might find some comfort ahead from a decline in issuance from next week and seasonal pattern of spread tightening in the first half of August," Citi said.

Encouraged by the Fed, the BOE's interest-rate cut and evident from the market reaction to eurozone inflation data, the mood is showing signs of an abrupt switch from fears of inflation stickiness to concerns that central banks might already be behind the curve, it added.

Societe Generale said the current sharp rally in global bonds and the increased pricing of interest-rate cuts show that investors are nervous about a more meaningful slowdown, although the reaction could be overdone.

It remains neutral on duration and continues to favor yield-curve steepener trades.

Today's U.S. payrolls report shouldn't stand in the way of the constructive Treasury sentiment that has been spreading throughout the week, with most indicators pointing to a weakening trend, Commerzbank said.

Energy:

Oil prices were rising after slipping in the previous session as traders weigh geopolitical risks and demand concerns.

Commodities came under pressure following weaker-than-expected U.S. manufacturing activity data on Thursday, which only added to worries over the demand outlook in China.

Still, fears that a wider conflict in the Middle East could disrupt supplies are leading traders to take the view that prices will rise, according to ANZ.

"More than 300,000 Brent call option contracts were bought, the highest volume since April."

Investec said OPEC+ member states might decide to delay the phase-out of voluntary output curbs if demand continues to be soft.

Metals:

Gold futures were just below a record high.

The market is positioning itself long gold ahead of U.S. nonfarm payroll data later Friday, Pepperstone said.

The market has ramped up expectations of the Fed easing monetary policy to the point that debate is now around whether the Fed frontloads interest-rate cuts in September or maintains a slow and steady approach to easing.

A weak payrolls report--particularly if the unemployment rate ticks up to 4.2% or above--will see U.S. swaps pricing move even closer to a 50 basis point cut in September, in turn taking Treasury yields lower and gold up to a new all-time high, Pepperstone added.

EMEA HEADLINES

BNP Paribas in Exclusive Talks for $5.52 Billion Deal for AXA's Investment-Management Arm

BNP Paribas entered into exclusive talks to buy the investment-management arm of insurer AXA and reach a long-term partnership for 5.1 billion euros ($5.52 billion), in a deal that would create a European asset-management giant.

The proposed transaction would bulk up BNP Paribas's investment-management operations and mark AXA's exit from asset management.

British Airways Owner IAG Shares Rise After First Dividend Since Pandemic

Shares in International Consolidated Airlines Group rose after the British Airways owner said it would pay its first dividend since the pandemic and reported earnings that beat analysts' expectations.

At 0702 GMT shares traded 2.75% higher to 164.40 pence, leading the FTSE 100.

Volvo Car Sales Rose Over 6% on Year in July

Volvo Car said the popularity of its fully-electric cars in Europe helped drive a global sales increase of 6.1% on year in July.

The Swedish automaker, which is majority owned by China's Zhejiang Geely Holding Group, sold 57,447 cars in July, up from 54,165 in the same month last year, it said Friday.

Engie Raises Outlook on 1H Net Profit

Engie swung to net profit in the first half and raised its full-year outlook as the market environment returns to normal.

The French utility company on Friday posted a net profit of 1.94 billion euros ($2.09 billion) from a net loss of EUR847 million in the same period the prior year. Revenue fell to EUR37.52 billion from EUR47.03 billion.

GLOBAL NEWS

The Stock Market Is Probably Getting a Rate Cut. Now Comes the Hard Part.

The stock market is likely getting its interest rate cut soon. The problem now is that everyone had already expected that outcome.

Wednesday, the Federal Reserve kept the federal funds rate unchanged, but Chairman Jerome Powell commented that the central bank is moving closer to cutting rates. The rate of inflation has moved closer to the Fed's 2% goal, giving the Fed the cover to stop hiking.

What 100 Years of Rate Cuts Says Happens Next

The Federal Reserve appears to be gearing up for a September rate cut. A century worth of rate-cut history shows it's good news for the stocks-as long as the economy stays strong.

The Fed, which concluded its July meeting on Wednesday, opted not to cut its benchmark federal-funds rate this month, but added hints the rate could move at central bank's next regular gathering on September 17-18.

French Manufacturing Regains Some Ground But Further Pitfalls Lie Ahead

France's manufacturers booked a modest recovery at the end of the second quarter, but not enough to reverse a continued slump in a sector that is dragging growth in the eurozone's second-largest economy.

Output rose 0.8% on month among the country's goods-producing industries in June, regaining some of the heavy decline recorded in May, official figures showed Friday. That was a little better than economists had expected, according to a poll compiled by The Wall Street Journal, but not enough to stop a decrease in output over the second quarter as a whole.

U.K. Retail Footfall Declined in July as Consumers Shifted Spending to Travel, Leisure

U.K. retail footfall levels slipped in July, when consumers shifted their spending to holidays and leisure activities from shopping, according to a study.

The number of visits to stores-comprising high-street shops, retail parks and shopping centers-for the four weeks ended July 27 fell 3.3% from the same period a year earlier, accelerating from a 2.3% decline in June, according to data from British Retail Consortium and Sensormatic Solutions IQ published Friday.

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

(END) Dow Jones Newswires

08-02-24 0534ET