European Midday Briefing : Muted Start for Stocks as Big Data Week Begins

MARKET WRAPS

European stocks struggled to make much headway on Monday as investors prepared for a busy week of key economic data that includes the latest U.S. consumer price index.

Investors are hoping to see that inflation continues to slow as the Federal Reserve continues to consider the timing of its first interest rate cut. A benign inflation report could send relief through markets.

In Europe, key areas of focus include U.K. employment data and the German ZEW index on Tuesday, and U.K. inflation and eurozone GDP data on Wednesday.

Stocks to Watch

RBC Captial Markets upgraded its recommendation on Diageo to sector perform, saying it has the ideal opportunity to reset expectations as the new CFO Nik Jhangiani is joining soon.

Hargreaves Lansdown's offering is expected to become more competitive under private ownership, Citi said, raising its rating from neutral to sell.

U.S. Markets:

Stock futures were little changed as investors prepared for a week of fresh economic data releases and earnings from some major retailers such as Walmart and Home Depot.

The numbers will put American shoppers front and center of the big question Wall Street is wrestling with: Is the economy really headed for a recession?

Stocks to watch:

Activist investor Starboard Value has built a stake in Starbucks and wants it to take steps to boost its stock price, The Wall Street Journal reported.

Walt Disney : The entertainment company unveiled a big expansion of its theme parks worth billions of dollars.

Forex:

The dollar has depreciated only moderately since the weaker-than-expected nonfarm payrolls report, as the currency market is pricing in a risk of a U.S. recession but not excessively, Commerzbank said.

A U.S. recession wouldn't only have a negative effect on the dollar because the Federal Reserve cut interest rates, it added.

"It would also damage the image of U.S. exceptionalism: the idea that the U.S. economy is growing faster than other developed industrialized countries for a deep, structural reason and that capital invested there is therefore more profitable than elsewhere."

Sterling could fall as U.K. employment and inflation data later in the week might come in slightly below expectations, potentially boosting interest-rate cut expectations for the Bank of England, ING sad.

The market is pricing the BOE's rate cut cycle a "little too conservatively" for the rest of the year and EUR/GBP is likely to remain above 0.8500-0.8550, it added.

Bonds:

Short-maturity eurozone government bond yields edged lower on expectations of weak indicators ahead of data releases this week.

"German growth remains a major concern in the eurozone and thus the ZEW survey results on Tuesday will be watched closely," ING said.

Energy:

Oil prices edged higher as markets continued to closely monitor geopolitical risks, with Iran's retaliation against Israel in response to the killing of Hamas's political leader believed to be imminent.

Sentiment was also supported by intense fighting between Russia and Ukraine threatening energy supplies to Europe, the shutdown of a major oil field in Libya, and some encouraging economic data last week easing fears of a recession in the U.S.

Focus this week will be on OPEC and the IEA's monthly reports for insights into the global demand outlook, as well as U.S. CPI data set to be released on Wednesday for more cues on the path on inflation.

OPEC+

Market conditions could compel OPEC+ to keep voluntary production cuts in place until the end of the year, Commonwealth Bank of Australia said.

There is increasing downside risk to demand, with U.S. oil refineries looking to reduce capacity utilization in anticipation of weak demand, and China's lackluster economic recovery, CBA said.

Metals:

Gold futures edged up but were broadly rangebound, with Pepperstone saying the precious metal is set to return to its role as a portfolio hedge against economic fragility and geopolitical tension, rather than a risk asset itself.

Near-term events that might spark some price changes are Wednesday's U.S. Consumer Price Index data print and U.S. retail sales data on Thursday, Pepperstone added.

Should CPI come in hotter-than-expected, this could initially weigh on gold as the dollar will climb, though a lower reading will prompt increased hopes for Federal Reserve rate cut hopes, a boon for gold prices.

Gold Chart

Comex gold futures are set to stage a bullish breakout, based on the daily chart, RHB Research said.

After extending upside movements on Friday to close at $2,473.40/oz, gold futures are poised to break beyond resistance at $2,477.00/oz.

Copper

Copper could fall toward $8,000/ton over 2025-26, Macquarie said.

Muted global growth and a lack of catalysts could lead to "sizable surpluses in 2025 and 2026," capping any potential price rally, though a market deficit is expected by 2028, Macquarie added.

EMEA HEADLINES

Gold Fields to Buy Osisko Mining for $1.6 Billion

Gold Fields is set to buy Osisko Mining for $1.57 billion, giving the South African company full control of the Windfall project in Canada as it seeks to secure supply amid soaring gold prices.

Under the deal Gold fields is offering 4.90 Canadian dollars in cash for each Osisko share held. The price is a 67% premium to the stock's closing price of C$2.94 on Friday.

BT Group Shares Rise After Bharti Deal to Buy 24.5% Stake From Patrick Drahi's Altice

BT Group shares rose, leading the FTSE 100 index risers, after Bharti Global agreed to buy a 24.5% stake in the U.K. telecom group from Patrick Drahi's Altice UK through its wholly owned subsidiary.

In early trading, shares were up 8.75 pence, or 6.7%, at 139.30 pence. Year-to-date, shares have risen 13%.

GLOBAL NEWS

Investors Borrowed Like Crazy During the Rally. Now They're Paying the Price.

They built over months: Big bets on the Japanese yen. Complex cryptocurrency wagers. Investments in hot tech companies.

Common to all the trades were heavy doses of leverage, or borrowed money, which investors used to amplify expected gains. As markets rose through the first half of 2024, the investments generated windfall profits, inspiring copycat traders to get on board and pushing prices higher.

Fed rate-cut fervor is gripping Wall Street again. That could set up markets for another trap.

Wall Street's desire for Federal Reserve interest-rate cuts heated up again this week as extreme volatility shook markets, stoking fears of contagion and recession.

As the dust has begun to settle, another worry has been emerging: Investors positioning for the Fed to take an ax to interest rates could be setting markets up for another trap.

China's Nightmare: A Second Trade War With Trump

SINGAPORE-China was bruised by its trade war with the U.S. under President Donald Trump, but ultimately bounced back. If Trump wins the White House in November, round two will be much tougher.

The Republican nominee has said he would raise tariffs on Chinese imports to 60% or more if he wins this year's presidential election. The economic damage to China would be much steeper than in Trump's first term because the tariffs would be higher and China's economy is much more vulnerable.

Iran Emerges as the Most Aggressive Foreign Threat to U.S. Election

WASHINGTON-In July, U.S. intelligence officials gave a rare briefing to media reporters on foreign threats to the election and warned, as they have in previous cycles, that Russia was the "pre-eminent threat" to the November vote.

Iran, the officials said, posed a lesser threat, aiming to be a chaos agent in the election by exacerbating social tensions.

Ukraine's Russia Incursion Faces Dilemma After Quick Gains

Ukraine's surprise invasion of Russia's Kursk province has quickly gobbled up territory, embarrassing Russian President Vladimir Putin and boosting Ukrainian morale after a year of war largely spent in bloody defensive battles.

The dilemma for Ukraine's leadership is whether the quest for further gains is worth wagering significantly more troops and military equipment that are sorely needed on the eastern front in Ukraine where Kyiv's forces are struggling to contain Russian advances.

Write to [e-mail]

Write to us at [e-mail]

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

08-12-24 0554ET