European Midday Briefing : Stocks Hit by Chinese Data Blow

MARKET WRAPS

Stocks:

European stocks were weaker again on Tuesday, tracking Asian markets lower on fading optimism over Beijing's recent supportive measures for the Chinese economy.

This followed some disappointing economic data, with a private gauge of China's service activities falling to its lowest level in eight months, signaling that the service sector's growth may have lost steam. Read more.

"Measures to support the economy have been limited and targeted so far and there's little to suggest that approach is going to change in the foreseeable future," OANDA said.

Stocks to Watch

Credit Agricole is expected to lag behind the profit growth rate of other eurozone peers within Goldman Sachs's coverage, as it downgraded the rating on the French bank to sell from neutral and cut the target price to EUR11.5 from EUR12.6. Read more .

U.S. Markets:

Stock futures declined moderately, while Treasury bonds slipped, with the benchmark 10-year Treasury yield edged up.

Economic updates set for release on Tuesday include July factory orders.

Follow WSJ markets coverage here .

Forex:

The dollar hit a three-month high against a basket of currencies as markets turn risk averse, with equities falling after a private gauge of China's service activities fell to its lowest in eight months.

"U.S. markets reopen today after the Labor Day holiday and the dollar remains broadly firm, as reflected by the dollar index (DXY) trading back above 104," UniCredit Research said, adding that investors are likely to stay mostly sidelined ahead of next week's European Central Bank decision.

DZ Bank Research said Tuesday's data calendar gives little hope for new direction for the euro.

In the next few days, market attention will turn more intensively to upcoming central bank meetings, particularly the ECB's, with money markets pricing an almost 72% probability of unchanged policy rates and 28% for a 25 basis point rate rise.

Read GBP/USD Struggling to Bounce Off 1.260 Level

Bonds:

Italian and Portuguese government bonds still look expensive to fundamentals even as Italian BTP spreads widened over the past two trading sessions on weak growth and deficit data, Citi said.

This "highlights eurozone government bonds' vulnerability for when economic fundamentals catch up with expectations of weakness ahead."

Spread tightness versus fundamentals "suggests persistent medium-term risk of further widening in the medium-term even if a near-term retracement is possible," Citi said.

Read Net Eurozone Government-Bond Issuance Is Set to Rise in September

Energy:

Oil futures were mixed as weak Chinese data counteracted expectations of tight supplies.

A private reading of China's services PMI showed activity slowing in August, another negative sign about China's struggling economy, which has been a significant drag on oil prices in recent months.

Still, a one million barrel a day supply cut from Saudi Arabia has helped push the market into a deficit, Goldman Sachs said.

It now expects Riyadh to extend the cuts for another month this week rather than partially unwinding them, as it had previously expected.

Metals:

Base metals and gold prices were lower with a strong dollar and worries about more interest-rate hikes from the Federal Reserve spooking markets.

"The macro mood is mixed," Peak Trading Research said, pointing to a "stubbornly strong" dollar.

Bond markets are pricing a roughly 40% chance of additional rate hikes in 2023, Peak said, adding that "next week's CPI inflation data will shift those odds and move our commodity markets via the dollar and overall risk vibe."

DOW JONES NEWSPLUS

EMEA HEADLINES

UK Retail Sales Rose in August, Buoyed by Improving Consumer Confidence, BRC Says

Retail sales in the U.K. increased in August, supported by improved costumer confidence, according to the latest sales-monitor report from the British Retail Consortium published on Tuesday.

Total retail sales for the four weeks to Aug. 26 increased by 4.1% compared with the prior month, above the three-month average growth of 3.6%, the report said. In August last year, retail sales rose 1.0%.

Russia-Led Theatrics Take Center Stage at U.N.

UNITED NATIONS-Rock star Roger Waters was in Switzerland when he heard from his friend Randy Credico, a comedian and radio personality who rose to prominence during special counsel Robert Mueller's investigation of Russian interference in the 2016 election.

Credico told Waters, a Pink Floyd co-founder, that Russia was eager to have him speak at the U.N. Security Council, the premier venue for diplomats and-increasingly-entertainers.

Western Officials Plan to Warn U.A.E. Over Trade With Russia

U.S., U.K. and European Union officials plan to jointly press the United Arab Emirates this week to halt shipments of goods to Russia that could help Moscow in its war against Ukraine, according to U.S. and European officials.

Officials from Washington and European capitals are visiting the U.A.E. from Monday as part of a collective global push to keep computer chips, electronic components and other so-called dual-use products, which have both civilian and military applications, out of Russian hands.

Italy Seeks to Leave China's Belt and Road Initiative-Without Angering Beijing

ROME-Italy is preparing to cancel its controversial membership in China's Belt and Road infrastructure initiative, engaging in an elaborate diplomatic dance to avoid angering Beijing and triggering retaliation against Italian businesses.

Italian Foreign Minister Antonio Tajani held talks in Beijing on Sunday and Monday to facilitate as smooth an exit as possible from the initiative while laying the groundwork for alternative economic deals with China.

Iran Slows Buildup of Near-Weapons-Grade Nuclear Fuel

Iran significantly slowed the pace at which it is accumulating near-weapons-grade enriched uranium in recent months, the United Nations' atomic agency reported on Monday, a move that could ease tensions with the U.S. and help open the way to broader negotiations over its nuclear program.

According to a confidential International Atomic Energy Agency report, Iran added 7.5 kilograms-about 16.5 pounds-of 60% enriched uranium in the three months to August, far less than the 51.8 kilograms it added in the previous six months.

GLOBAL NEWS

China Caixin Services PMI Fell in August

A private gauge of China's service activities fell to its lowest level in eight months, signaling that the service sector's growth may have lost steam.

The Caixin China services purchasing managers index slid to 51.8 in August from 54.1 in July, Caixin Media Co. and S&P Global said Tuesday.

RBA Stands Pat for a Third Month; Option to Hike Further Still on Table

SYDNEY-The Reserve Bank of Australia left its official cash rate unchanged for the third month in a row on Tuesday, but remained cautious about the outlook, saying that further interest-rate increases remain a possibility as inflation remains too high.

The official cash rate was left at 4.1%, as widely expected by economists. The RBA has been on hold since July, with many economists saying now that the tightening cycle, which unleashed 400 basis points of increases in just over a year, is at an end.

China's Country Garden Makes Overdue Dollar-Bond Payments, Narrowly Avoiding Default

Embattled Chinese property giant Country Garden Holdings made two overdue bond-coupon payments shortly before the end of a 30-day grace period, averting an international debt default that many investors saw as inevitable.

The 31-year-old developer on Tuesday made interest payments totaling $22.5 million on U.S. dollar bonds with a combined face value of $1 billion, according to a person familiar with the matter. The coupon payments were originally due in early August.

North Korea's Kim Jong Un Expected to Meet Putin in Russia

WASHINGTON-North Korean leader Kim Jong Un is expected to travel to Russia soon to meet with President Vladimir Putin, U.S. officials said Monday, the latest sign that negotiations are accelerating over ammunition Moscow is seeking for its war in Ukraine.

The trip would be unusual for the North Korean leader, who rarely travels abroad. Moscow and Pyongyang have grown closer amid economic sanctions and diplomatic pressure from the U.S. and its allies.

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

(END) Dow Jones Newswires

09-05-23 0540ET