MARKET WRAPS
Watch For:
Germany August Bundesbank monthly report; UK July aluminum production report
Opening Call:
European stock futures point to a lower open Monday amid a gloomy mood as investors weigh soaring energy prices and slowing growth. In Asia, stock benchmarks were largely lower, though indexes in Hong Kong and Shanghai were higher after the PBOC cut its benchmark loan prime rates as expected. The dollar and Treasury yields rose; while oil and gold fell.
Equities:
European stocks are poised to start the week lower, as investors look ahead to the Fed's annual economic symposium in Jackson Hole, Wyo.
"I think everybody is just waiting for Jackson Hole, so I think there will be a lot of speculation over what Powell is going to say for the next five days," said Brad Conger, deputy chief investment officer at Pennsylvania-based Hirtle Callaghan & Co.
U.S. stocks fell Friday as investors assessed a jump in Treasury yields and the prospect of the Fed potentially sticking with its aggressive monetary policy tightening as it battles high inflation.
After the U.S. stock market's "tremendous" rally recently and with the "central bank tightening that's in the pipeline," it's an opportune time to trim back on equities, according to Keith Lerner, co-chief investment officer of Truist Advisory Services.
"Valuations are pretty elevated after the rebound," Lerner said.
Meanwhile, inflation in Europe, including in Germany, is a reminder that "global central banks' work is not done yet," according to Lerner. He cited the sharp rise in Germany's producer prices, reported Friday, as influencing U.S. investors' concerns over high inflation and rising rates.
Forex:
The dollar strengthened against most Asian currencies early Monday amid risk-off sentiment spurred by losses in regional equity markets and U.S. stock futures.
There appears to be some de-risking playing out ahead of Jackson Hole later this week, alongside a slew of U.S. economic data releases, said Yeap Jun Rong, market strategist at IG.
--
The U.S. dollar is back on the upswing and headed toward the year-to-date highs seen in mid-July following a period of relative dormancy over the past month as investors pulled back on expectations of an imminent U.S. recession.
The greenback sliced through key technical levels against three of its major counterparts -- the euro, sterling and yen -- "like a hot knife in butter," suggesting the dollar has enough momentum to keep going even higher, said Marc Chandler, managing director and chief market strategist at Bannockburn Global Forex.
Much of what drives the dollar depends on what's going on in the rest of the world. In this case, the eurozone is at risk of a recession, Russia's economy has contracted sharply, U.K. inflation is atop 10%, China's central bank has unexpectedly cut interest rates amid signs of slowing growth and Pacific Rim nations including Japan are on edge about a possible war over Taiwan.
"In the ugly contest, the U.S. is the least ugly," considering signs that the world's largest economy can keep expanding in the third quarter, Chandler said.
"The fundamental reason for the dollar's uptrend resuming is that our rivals and competitors are hurting more than we are."
Bonds:
Treasury yields rose, after the 10- and 30-year maturities closed higher on Friday for a third straight week, as traders assessed how high Fed officials might take interest rates to combat persistent inflation.
An absence of major economic data releases on Friday had investors focused on remarks made by Richmond Fed President Thomas Barkin, who became the latest Fed official to weigh in on the likely path forward for central-bank policy.
Barkin said that the central bank will do what it takes to return inflation back to its target, even if that means risking a recession. The regional Fed bank president also said that the path of getting inflation under control does not require a steep decline in economic activity, Reuters reported.
Energy:
Oil futures fell in Asia amid fears of a global economic slowdown caused by Fed rate increases.
The number of U.S. oil rigs, an early indicator of future supply, was unchanged at 601 last week, according to Baker Hughes, as energy companies gradually increased production to prepandemic levels, Phillip Securities said.
--
Gasoline prices have been falling for weeks, but diesel and natural-gas prices remain much higher than a year ago -- raising costs for the U.S.'s fuel-intensive agricultural industry and leading to expectations that food prices will remain high.
While the average price per gallon of regular gasoline has dropped by nearly 22% in the past two months, diesel prices have seen a slower decline, according to GasBuddy data.
Diesel engines power roughly 75% of U.S. farm equipment, transport 90% of farm products, and pump about 20% of agriculture's irrigation water, according to Diesel Technology Forum.
Diesel supplies have been tight, partly due to a lack of Russian oil, said Patrick De Haan, head of petroleum analysis at GasBuddy, adding that Russian oil is heavier and yields more heavy products like diesel.
Metals:
Gold prices edged lower ahead of the Jackson Hole symposium.
Fed Chair Powell's comments at Jackson Hole may be a key avenue for the Fed to push back against the notable easing in financial conditions sparked by his past comments, which had caused markets to price in rate cuts immediately following the rate-increase cycle, said TD Securities.
As market expectations for rate cuts subside, speculative appetite in precious metals should dry up even further, TD said.
--
Chinese iron-ore futures advanced, likely boosted by China's rate cuts early Monday.
Today's cuts in the one- and five-year loan prime rates continue the PBOC's efforts to support the faltering Chinese economy, said Sheana Yue, China economist at Capital Economics.
The PBOC is likely to lower rates further in coming months, but policy makers still seem reluctant to engineer a sharp pick-up in credit growth, Yue added.
TODAY'S TOP HEADLINES
China Cuts Benchmark Loan Prime Rate to Boost Faltering Economy
China cut its benchmark loan prime rate on Monday, a move that will provide more support for the slowing economy after the central bank lowered two other key policy rates last week.
China's one-year loan prime rate, which is offered to banks' best clients, was lowered to 3.65% from 3.7%, while the five-year LPR was cut to 4.3% from 4.45%, the People's Bank of China said in a monthly release.
More Stocks Are Taking Part in Bounceback Rally
A swath of stocks has participated in the market's recent rebound, typically an encouraging sign of a rally's durability.
Yet few investors are willing to call a market bottom, especially after such a punishing year.
Pandemic Bolsters China's Position as the World's Manufacturer
For all the talk in Western capitals of reducing reliance on Chinese factories, China has in the past two years consolidated its position as the world's dominant supplier of manufactured goods.
Though some of China's gains in global markets may unwind as the effects of the pandemic fade, the trend nonetheless highlights just how hard it is to unplug from the world's largest factory floor. Such "decoupling," as it is known in policy circles, is especially challenging as Chinese factories extend their reach into higher-end products like chips and smartphones and new technologies such as electric cars and green energy.
Ukraine's Zelensky Warns of Russian Escalation as Putin Ally's Daughter Is Killed
Russian officials opened an investigation into a car bombing outside Moscow this weekend that killed the daughter of a prominent, far-right Russian ideologue who has long called for Russia to seize Ukraine. There was no claim of responsibility, and a Ukrainian official denied that Kyiv played any role.
Russia's Investigative Committee said it had launched a probe into the bombing, which killed Daria Dugina in what it described as a preplanned hit. The agency said the Toyota Land Cruiser she was driving exploded Saturday night at around 9 p.m. local time as the likely result of a bomb placed inside.
Droughts Hurt World's Largest Economies
Severe droughts across the Northern Hemisphere-stretching from the farms of California to waterways in Europe and China-are further snarling supply chains and driving up the prices of food and energy, adding pressure to a global trade system already under stress.
Parts of China are experiencing their longest sustained heat wave since record-keeping began in 1961, according to China's National Climate Center, leading to manufacturing shutdowns owing to lack of hydropower. The drought affecting Spain, Portugal, France and Italy is on track to be the worst in 500 years, according to Andrea Toreti, a climate scientist at the European Commission's Joint Research Center.
Amazon Among Bidders for Signify Health
Amazon.com Inc. is among the bidders for healthcare company Signify Health Inc., joining other heavy hitters vying in an auction for the home-health-services provider, according to people familiar with the matter.
Signify is for sale in an auction that could value it at more than $8 billion, the people said. Bids are due around Labor Day, according to the people, but it is always possible an eager bidder could strike a deal before then.
Amazon Adds Revenue Streams as Holiday Season Approaches
Amazon.com Inc. is adding revenue streams ahead of the holiday season to help it counter inflationary pressures and other rising costs and as it recalibrates following a pandemic boom.
The company is passing on some costs to the sellers that use its e-commerce platform and plans to hold a second deals event for Prime members after having completed its annual Prime Day shopping extravaganza in July.
Chinese Property Developers Rise After PBOC Signals Support
(MORE TO FOLLOW) Dow Jones Newswires
08-22-22 0025ET
