European Midday Briefing : Investors Play Waiting Game Ahead of Key Data

MARKET WRAPS

European stocks were treading water Tuesday, ahead of key U.S. data which will put inflation firmly in the headlines again.

Data on Tuesday and Wednesday is expected to show that price growth remained relatively tame in July, keeping alive expectations that the Federal Reserve might cut interest rates in September.

"We are generally optimistic that data will fall in line with consensus expectations and continue to endorse market pricing for 100 basis points of Fed [interest rate] cuts by year-end," ING said.

Stocks to Watch

It is clear that European carmakers ' price and volume assumptions for fully electric vehicles were too optimistic, and hence they should now cut investments, Citi said.

It flagged slowing growth in battery-electric vehicle penetration, which is down 1.9% in July on year in Europe's largest economies and BEV sales declined 13% in July on year.

There are plenty of reasons to turn positive on Hannover Rueck , Berenberg said, adding the reinsurer's stock has underperformed peers', its valuation is near a two-year trough and its earnings momentum is set to continue.

It raised its rating to buy from hold and upped its target price to 260 euros from 235 euros.

Stellantis faces challenges, but it still has upside, RBC Capital Markets said.

RBC has predicted softer margins in the second half than previously expected, and forecast 2025 earnings well below the consensus, leading to a new price target of 18.00 euros--down from 24.00 euros, but higher than Wall Street's current valuation.

U.S. Markets:

Stock futures and bond yields were a touch firmer as investors await cues from this week's key economic data.

Shares of companies seen benefiting from AI demand continue to recover from last week's selloff.

Nvidia and Super Micro both gained about 2% premarket.

Home Depot is due to report its earnings later Tuesday.

Forex:

The euro is unlikely to be derailed by the latest ZEW survey, which could show German economic sentiment fell sharply in August, ING said, as weak eurozone growth is mostly priced in and sticky expected inflation is preventing a large downward repricing in ECB rate forecasts.

EUR/USD could rise above 1.10 going into a likely 50 basis points interest-rate cut by the Federal Reserve in September, ING said.

The dollar was steady as investors looked ahead to key U.S. economic data for clues on the Fed's interest-rate policy.

ING said the U.S. producer price index data at 1230 GMT will be a key test for the foreign-exchange market.

However, the consumer price index data on Wednesday will undoubtedly generate higher forex volatility.

"We are generally optimistic that data will fall in line with consensus expectations and continue to endorse market pricing for 100 basis points of Fed [interest rate] cuts by year-end."

ING said the dollar faces an orderly decline over the coming weeks.

Sterling hit a one-week high against the dollar and the euro after data showed the U.K. unemployment rate unexpectedly fell in the three months to June.

The fall to 4.2%, below the 4.5% expected by economists in a WSJ survey could cause concern that a retightening labor market could trigger a resurgence in pay growth and make it harder for the Bank of England to achieve its inflation target, Abrdn said.

ING said it is unlikely to strengthen much further.

The fall in EUR/GBP might be limited as the exchange rate was already trading generally on the cheap side relative to its interest rate differential, ING said.

Bonds:

This week's major U.S. data releases provide a potentially new gauge to capital markets about Fed interest-rate expectations, Metzler said.

Lazard Asset Management said the time has come for investors to actively increase duration or interest-rate risks, adding the tide has changed and bonds should receive a tailwind from falling central bank interest rates.

Energy:

Oil prices were weaker as demand concerns, following OPEC's forecast cuts, outweighed fears of growing tensions in the Middle East.

Macquarie said oil might see a correction in the fourth quarter , partly due to accelerating U.S. supply growth and the partial return of OPEC+ barrels, noting that futures were showing a decrease in speculative net length investment holds, with the liquidation of long positions exceeding the increase in shorts.

Metals:

Gold futures were flat ahead of the release of this week's U.S. price Inflation data which should provide clues on the Fed's pathway towards interest-rate cuts.

The Fed's rating cut cycle will attract strategic investment in gold, and should prove to be a catalyst for long-term investors, ANZ Research said.

Central bank purchases and physical demand also continue to provide a strong base for gold, as will political and economic uncertainty, ANZ said, and any price pullback will attract more investment demand, protecting the downside.

Axis Securities said spot gold prices were hovering near the record high of $2,483/oz but a breakout and weekly close above this level "will be a bullish signal, potentially driving prices towards $2,550/oz."

EMEA HEADLINES

Henkel Profit Rises on Growth at Both Business Units

Henkel said first-half net profit soared after a strong performance, driven by growth at both of its business units.

The German chemical and consumer-goods company said it made 1.03 billion euros ($1.13 billion) in net profit for the period compared with 564 million euros a year ago. Sales fell 1% to 10.81 billion euros, in line with preliminary figures released last month, and grew 2.9% organically.

Brenntag Lowers Guidance Due to Industrial Chemical Price Pressure

Brenntag lowered its full-year guidance following sustained pressure on industrial chemical prices, and reported lower earnings and revenue for the second quarter.

The German chemicals distributor said Tuesday that it now expects operating earnings before interest, taxes and amortization for 2024 to be in the range between 1.10 billion and 1.20 billion euros ($1.20 billion - $1.31 billion).

Israel Puts Military on High Alert as U.S. Sends Assets to Middle East

Israel put its military on high alert and the Pentagon said it is sending a guided-missile submarine to the region and speeding up the arrival of a second aircraft carrier, amid heightened concerns about a possible Iranian and Hezbollah response to the killing of militant leaders in Tehran and Beirut.

Israel set the high-alert level for its military for the first time this month after observing preparations by Iran and Hezbollah to carry out attacks, a person familiar with the matter said. Israel doesn't know whether attacks are imminent and is proceeding cautiously, the person said.

GLOBAL NEWS

Market Volatility Is Back. Will It Last?

Volatility is back in the stock market after a roughly 18-month slumber.

Turbulence has mounted since mid-July, culminating last week with the S&P 500 logging both its best and worst days since 2022. Traders have wound down some investments that thrived in calm conditions and pulled back from bets that the sideways action would persist.

Wall Street's Trash Contains Buried Treasure

Rebound relationships are best avoided, but maybe not in the stock market.

In a paper that starts out by stating that "no one enjoys getting dumped, " two investing quants reveal some surprising, and potentially lucrative, traits of companies that have really let themselves go. With about half of the money invested in American stocks now sitting in index funds, and many active managers holding portfolios that resemble them-just try beating the market these days without "Magnificent 7" stocks such as Nvidia or Microsoft-index castoffs have a hard time meeting someone new.

China's Oil-Demand Growth Slowdown Weighs on Global Outlook, IEA Says

Global oil-demand growth is still forecast to slow to under a million barrels a day this year and next, with a continued slowdown in Chinese consumption weighing on the outlook, the International Energy Agency said.

The Paris-based organization estimates that global demand will grow by 970,000 barrels a day this year and by 953,000 barrels a day the next-marginally lower than previous estimates of 974,000 and 979,000 barrels a day. Total demand is expected to average at 103.1 million and 104 million barrels a day this year and next, respectively.

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

(END) Dow Jones Newswires

08-13-24 0531ET