EMEA Morning Briefing : Markets on Edge Ahead of U.S. Jobs Report

MARKET WRAPS

Watch For:

Germany foreign trade; Industrial production index for Germany, France; trading update from SAS

Opening Call:

European stock futures were mixed in muted trade early Friday. Asian stock benchmarks were mostly lower; the dollar and Treasury yields edged lower; while oil futures and gold rose.

Equities:

Stocks may be in for a bumpy ride with focus on today's U.S. August jobs report. It's likely to serve as the stock market's biggest test in weeks, adding some clarity on whether the U.S. economy is headed for a "soft landing" or a downturn.

"Friday has all the makings of an exciting morning, as the market digests the August employment report heading into the September 17-18th FOMC meeting," said Joe Davis, Vanguard's global chief economist.

"We expect headline job growth will be modestly encouraging, but acknowledge supply-driven volatility in the unemployment rate will likely decide the magnitude of September's rate cut."

A weaker jobs market increases the likelihood of a sharper rate cut by the U.S. Federal Reserve this month, said LPL Financial chief economist Jeffrey Roach.

Forex:

The dollar has room to fall even after its outsized depreciation in August, Bank of America said. The first Fed rate cut, expected in September would send 10-year Treasury yields lower, it said.

The lower yields could contribute to the dollar's weakness, as the narrowing yield gap between the U.S. and other countries reduces the dollar's attractiveness, said George Khoury, global head of education and research at CFI.

The nonfarm payrolls data on Friday are expected to be slightly higher, but weaker-than-expected figures could strengthen expectations for deeper rate cuts going forward, further pushing U.S. yields and the dollar down, he added.

Bonds:

Treasury yields on two- and 10-year U.S. government debt closed at their lowest levels in more than a year on Thursday, after private-sector hiring data pointed to further signs of a slowing labor market.

The payroll report could be softer than expected given the slowdown in ADP estimates, said Jeffrey Roach, chief economist for LPL Financial.

"If the payroll report surprises investors and comes in weaker than expected, the likelihood of a 50-basis-point [interest-rate] cut increases at the upcoming Fed meeting."

Energy:

Oil prices were slightly higher amid improved sentiment. The decision by OPEC+ to delay planned output increases by two months eases supply concerns, ANZ Research analysts said.

The decision wasn't surprising, as oil prices have been under tremendous pressure in recent months. Although the postponement lowers the chances of the oil market moving into a surplus in 4Q, it is unlikely to ease concerns about weak demand in 2025, they added.

Metals:

Gold futures rose as a drop in U.S. job openings has reinforced beliefs that the labor market is slowing and increased the chances of an aggressive interest-rate cut in September, said George Pavel, general manager at Capex.com Middle East.

Looking ahead, the key event on the calendar will be Friday's U.S. nonfarm payrolls report. Should figures show a lower-than-expected increase, expectations of a larger rate cut will grow and drive gold up, Pavel said.

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Copper was steady. There is buying by industrial users following heavy selling earlier in the week, but gains are capped by global economic concerns, which are dampening demand for industrial metals, the ANZ Research team said.

A slightly weaker U.S. dollar could help boost investor appetite, but base metals appear to be trending lower, as worries about China's economy worsened after data showed growth in services sector activity slowed in August, they added.

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Iron-ore futures were lower as the outlook for steel demand in China continues to worsen, ING analysts said. Iron-ore is one of the worst-performing commodities so far this year, with prices down about 33% year-to-date, they said.

"Iron-ore is among the most vulnerable to China slowdown risks with China's property market constituting the bulk of steel demand," the analysts said, and expect iron-ore prices to fall further this year amid subdued demand and ample supply.

TODAY'S TOP HEADLINES

Fed's Goolsbee says trending economic data justifies multiple rate cuts, starting soon

The longer-run trend of labor-market and inflation data justify the Federal Reserve easing interest-rate policy soon, and then steadily over the next year, Chicago Fed President Austan Goolsbee said Thursday, in an exclusive interview with MarketWatch.

"The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster" than Fed officials had expected in June, Goolsbee said.

This Week's Jobs Report Is High Stakes. How the Fed Might Be Pressured.

No matter which way Friday's August jobs report lands, it will inform the path of Federal Reserve policy in the coming months. That will have broad implications-for markets, home buyers, and businesses both large and small.

Markets are uneasy as a U.S. recession looks more likely

Will the U.S. economy be able to beat inflation without going into a recession?

That may be the question investors are asking themselves as more economic data is pointing to a softening economy.

OPEC+ delaying its oil-output increase won't solve 'pervasive' worries over weak demand

The Organization of the Petroleum Exporting Countries and its allies on Thursday decided to postpone an increase in crude-oil production that had been planned for the fourth quarter.

The decision eases worries about a supply surplus, but failed to address bigger concerns surrounding the outlook for demand.

China Detains AstraZeneca Employees Over Alleged Transport of Unapproved Drug

Chinese authorities have detained several employees of British-Swedish drugmaker AstraZeneca on suspicion of bringing an unapproved cancer drug into the country, people familiar with the matter said.

Chinese authorities have recently given closer scrutiny to cases where they believe people have carried unapproved medicines into the country. The latest investigation is being led by police in the southern city of Shenzhen, some of the people said.

Novo Nordisk's Ozempic Shortage Is Worsening. That's Good for Eli Lilly Stock.

The shortage of Ozempic, Novo Nordisk's diabetes drug, is getting worse-and that's good for rival Eli Lilly.

On Monday, Denmark-based Novo Nordisk said the shortage of Ozempic had "deteriorated" and will persist into the fourth quarter in Europe. The drug maker is also struggling with a shortage of Wegovy, its weight-loss equivalent of Ozempic.

EU Aviation Safety Agency Calls for A350 Inspections After Cathay Pacific Engine Trouble

The European Union's aviation safety agency called for inspections to be carried out on Airbus A350 model planes after Hong Kong-based airline Cathay Pacific discovered earlier this week that engine components on some of its planes required replacement.

The bloc's aviation safety agency said in an emergency airworthiness directive on Thursday that it is requiring a "one-off inspection of flexible fuel hose connections inside the engines to check for damage" on Airbus A350-1000 jets powered by Rolls-Royce Trent XWB-97 engines.

7-Eleven Parent Rejects $39 Billion Buyout Offer By Circle K Owner

TOKYO-Seven & i Holdings has rejected an offer by Canada's Alimentation Couche-Tard, saying that the near $39 billion deal undervalued the 7-Eleven convenience store operator.

Seven & i said Friday that the offer "significantly" underestimated the value of the company and its potential. The proposal also lacked consideration of important regulatory issues, including U.S. competition hurdles, it added.

China-Owned Brokerages Plan Merger to Create $228 Billion Entity

Two China-owned financial institutions have agreed to merge, creating an entity with $228.28 billion in assets, as Beijing pushes to strengthen its domestic financial market.

The two companies, Guotai Junan Securities and Haitong Securities, listed on the Hong Kong stock exchange and the Shanghai Exchange, will merge through a share swap, they said late Thursday.

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Expected Major Events for Friday

06:00/GER: Jul Foreign Trade

06:00/FIN: Jul Foreign trade

06:00/GER: Jul Industrial Production Index

06:00/DEN: Jul Industrial production & new orders

06:00/NOR: Jul Industrial Production Index

06:00/ROM: 2Q GDP

06:00/UK: Aug Halifax House Price Index

06:30/HUN: Jul Preliminary Industrial Production

06:45/FRA: Jul Foreign trade

06:45/FRA: Jul Balance of payments

06:45/FRA: Jul Industrial production index

07:00/CZE: Jul Industry, Construction

07:00/CZE: Jul External trade

07:00/AUT: Aug Wholesale Price Index

07:00/SWI: Aug SNB foreign currency reserves

07:00/AUT: Jun Foreign Trade

07:00/SVK: Jul Foreign Trade

07:00/SWI: Aug Consumer Sentiment Index

08:00/ITA: Jul Retail Sales

08:30/UK: 2Q Bank of England external business statistics

09:00/GRE: 2Q Provisional GDP

09:00/GRE: Jul External Trade (provisional data)

09:00/EU: 2Q GDP and Main Aggregates Estimate

09:00/EU: 2Q Employment

09:00/CRO: Jul Foreign Trade

09:00/LUX: 2Q GDP

10:00/IRL: Aug Irish Live Register latest monthly figures

All times in GMT. Powered by Onclusive and Dow Jones.

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

(END) Dow Jones Newswires

09-06-24 0015ET