MARKET WRAPS
Stocks:
European stocks were mostly higher on Tuesday, although gains were limited, as lingering fears about coronavirus variants in China and Hurricane Ida offset an easing in concerns about U.S. monetary support.
"After Jerome Powell eased the market's concern about a tapering of support for the economy at Jackson Hole Friday, investors have now gone back to fretting about the Covid recovery," said AJ Bell investment director Russ Mould.
London's FTSE 100 was the only major European benchmark in negative territory, as financial stocks weakened.
"Powell walked a potential tightrope with aplomb, reiterating previous thoughts around a labor market which has to fully recover and the limitations which the Delta variant places on the recovery," said Interactive Investor analyst Richard Hunter.
Shares on the move:
Arkema gained more than 4% after the French chemicals group agreed to buy the performance-adhesives unit of Ashland Global, in a deal valuing the U.S. business at $1.65 billion.
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EssilorLuxottica's shares rose 1.4% on the news it will buy up to two million shares by the end of October to service employee stock programs. But Equita Sim analyst Domenico Ghilotti said the new buyback won't have more than a negligible effect on earnings per share.
Total outlay should be in the vicinity of EUR300 million, Ghilotti said. The buyback is good news in qualitative terms, but won't have much effect in countering EPS dilution, he said.
Data in focus:
The annual rate of inflation in the eurozone accelerated in August, rising at the fastest pace in almost 10 years and staying around the 2% target set by the European Central Bank for the second consecutive month.
Consumer prices rose 3.0% on year in August, the fastest rate of growth since November 2011. Prices rose 2.2% on year in July. The main driver of the on-year increase was energy prices which rose 15.4% on year, higher than the 14.3% increase registered in July.
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The French economy expanded more than initially estimated in the second quarter after stagnating in the first three months of the year.
France's gross domestic product grew by 1.1% from April to June compared with the previous three-month period, according to a second estimate. This was above the 0.9% expansion previously estimated.
The eurozone's second-largest economy is likely to grow faster in the third quarter, and the French government expects GDP to expand by about 6% this year as a whole.
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German jobless claims fell by 53,000 on the month in August after declining by a revised figure of 90,000 in July. Economists polled by The Wall Street Journal had forecast a decline of 30,000.
The adjusted unemployment rate was at 5.5% in August, falling from 5.6% in July. Economists polled by the Journal had forecast the adjusted unemployment rate at 5.7% in July.
U.S. Markets:
Stock futures edged higher Tuesday, suggesting that the S&P 500 is on course for a third consecutive record close, ahead of data on U.S. consumer confidence levels.
The data, due out at 1400 GMT, may offer insights into whether the spread of the Delta variant of coronavirus is weighing on Americans' willingness to spend.
"You have seen people canceling vacations or not going out to restaurants" due to the Delta variant, said Peter Langas, chief portfolio strategist at Bessemer Trust. "There is this concern on the margin that we are seeing people pull back a bit. All of that comes into play in regards to where consumer confidence is going in the short term, " he said.
Forex:
The euro stayed higher against the dollar but showed little reaction after August eurozone inflation data exceeded expectations.
The annual rate of eurozone inflation rose to 3% in August from 2.2% in July, with economists polled by the WSJ expecting a figure of 2.7%. The European Central Bank, which targets 2% inflation, has said it expects price pressures to ease later this year.
Ahead of the inflation report, ING analysts said the ECB's "unreactiveness" to higher inflation and its loose policy stance meant the data was unlikely to have a material impact on the euro.
An absence of notable U.K.-specific drivers means sterling's direction will be determined by external factors this week, ING said.
GBP/USD has tracked a rise in EUR/USD since the start of the week due to a very light U.K. data calendar and no Bank of England speeches, ING analysts said. "A break above 1.3800 this week should, if anything, be driven solely by USD weakness, while EUR/GBP looks likely to keep trading within its recent narrow range for now."
Bonds:
Economic data will be in Tuesday but UniCredit expects the reaction of eurozone government bond yields, especially in breakeven rates, to be contained. Eurozone inflation features among the data due for release.
"Investors seem to have already priced in a strong inflation reading," said UniCredit. Economists polled by The Wall Street Journal forecast an on-year HICP reading of 2.7% for August, compared with 2.2% last month.
Julius Baer finds eurozone noncore government bonds attractive compared with their core European peers, helped by large-scale asset purchases by the European Central Bank, progress in fiscal cohesion and less concern about higher debt ratios.
"Given the downside risk to the economy stemming from the coronavirus, we project that the ECB will buy more government debt of eurozone member states than will be issued to finance the national deficits," said fixed-income analyst Dario Messi and Markus Allenspach, head of fixed income research.
A consequent relative scarcity of bonds will keep investors seeking investment opportunities in riskier segments of the market.
Commodities:
Oil prices were largely flat in Europe ahead of Wednesday's OPEC meeting, with no change in output policy expects, said DNB Markets. "The market expects no change in output policy for the group, meaning that OPEC+ will continue to increase its production by 400,000 barrels a day on a monthly basis," DNB Markets' Helge Martinsen said.
Metals prices jumped as the London Metals Exchange reopened following a U.K. holiday and prices caught up with gains made in Shanghai. Supply risks were lifting the metals, said Commerzbank, pointing to reports of looming strikes at Chilean copper mines.
Meanwhile, aluminum prices were also firmer as production of the energy-intensive metal is set to be curtailed in China's Guangxi province in order to curb emissions. "There seems to be no end to the bad news on the supply side," said Commerzbank.
EMEA HEADLINES
Eurozone Inflation Accelerates Further in August
The annual rate of inflation in the eurozone accelerated in August, rising at the fastest pace in almost 10 years and staying around the 2% target set by the European Central Bank for the second consecutive month.
Consumer prices rose 3.0% on year in August, the fastest rate of growth since November 2011, according to a first estimate released Tuesday by Eurostat, the European Union's statistics agency. Prices rose 2.2% on year in July.
Australian Billionaire Offers Premium to BHP Bid for Noront Resources
SYDNEY-Wyloo Metals, owned by Australian billionaire Andrew Forrest, proposed to pay a premium for Noront Resources Ltd. over an existing takeover offer made by BHP Group Ltd.
Wyloo said it would pay Noront shareholders 70 Canadian cents (US$0.555) a share for their interest in the mining company, a 27% premium to the C$0.55 offered by BHP last month. Investors who don't want to sell their stake could remain as shareholders under a new leadership team that would include Dr. Forrest as chairman, Wyloo said.
Vivendi to Sell Further 2.9% Stake in Universal Music Group to Pershing Square
Vivendi SE said Tuesday that Pershing Square Holdings Ltd. has agreed to buy an additional 2.9% stake in Universal Music Group for a price of $1.15 billion.
The French media group said the purchase price is based on an enterprise value of $35 billion for UMG's full share capital.
Arkema to Buy Ashland Adhesives Business for $1.65 Bln
Arkema has agreed to acquire the performance-adhesives unit of Ashland Global Holdings Inc., the French specialty-chemicals company said Tuesday.
The deal values the business at $1.65 billion, around 15 times estimated earnings before interest, taxes, depreciation and amortization this year, adjusted for related tax benefits, Arkema said. The acquisition will be fully funded by cash, the company said.
Prosus to Buy Indian Payments Platform BillDesk for $4.7 Bln
Prosus N.V. said Tuesday that it has agreed to acquire Indian payments platform BillDesk from IndiaIdeas.com Ltd.
The Dutch internet conglomerate, a subsidiary of South Africa's Naspers Ltd., said it will pay 345 billion rupees ($4.70 billion) for BillDesk.
German Jobless Claims Fell More Than Expected in August
German jobless claims fell considerably more than expected in August, the Federal Employment Agency said Tuesday.
Jobless claims fell by 53,000 on the month after declining by a revised figure of 90,000 in July. Economists polled by The Wall Street Journal had forecast a decline of 30,000.
Lufthansa CEO Says Company Is Preparing for a Long, Cold Winter
Deutsche Lufthansa AG has said that after a comparatively good summer, it is preparing for weaker business in the winter amid increasing numbers of Covid-19 cases.
"We are preparing for another long, cold winter for us as an airline, prompted of course by the fourth wave [of the coronavirus pandemic]," Chief Executive Carsten Spohr told journalists on Monday evening.
GlaxoSmithKline, SK Bioscience Begin Phase 3 Trial of Covid-19 Vaccine
GlaxoSmithKline PLC said Tuesday that it and South Korean company SK Bioscience Co Ltd. have started a Phase 3 trial of their Covid-19 vaccine combination.
(MORE TO FOLLOW) Dow Jones Newswires
08-31-21 0612ET
