European Midday Briefing : Stocks Steady, supported by Asian Recovery

MARKET WRAPS

Stocks:

European stocks traded modestly higher on Tuesday, following Asia's rebound.

Societe Generale said Monday's declines were a healthy correction for European equities and that there was no specific trigger related exclusively to Europe.

Stocks to Watch

Airbus's update on aircraft deliveries in July looks positive, but the main focus for investors remains on whether it can keep delivering amid supply-chain pressures, RBC Capital Markets said.

The outperformance of U.K. banks after their second-quarter results has been more than reversed by macroeconomic fears, Berenberg said after U.K. bank stocks dropped around 11% since the end of July.

U.S. Markets:

Stock futures were pointing to a bounceback.

Earnings reports are expected from Amgen, Caterpillar, Uber Technologies, Rivian Automotive, Airbnb, Marathon Petroleum, and Fortinet.

Stocks to Watch

Nvidia rose 3% in premarket trading after it ended Monday's session down 6.4% following a report that said the company's new chip could be delayed.

Lucid Group reported second-quarter sales that beat estimates and said it received a cash infusion of $1.5 billion from Saudi Arabia's Public Investment Fund. The stock was rising 13% premarket.

Forex:

The dollar rose after better-than-expected U.S. ISM services data eased concerns about potential recession and a possible need for significant interest-rate cuts.

Also helping were comments by Fed official Goolsbee that the central bank won't overreact to one soft jobs print. "All this may not be entirely consistent with the 111 basis points of easing priced into the dollar curve by year-end," ING said.

The dollar's recovery may prove short-lived given expectations for aggressive interest rate cuts, ING said.

The dollar's rate advantage has been trimmed and "there is room for pro-cyclical currencies to readjust higher versus the dollar on the back of more favorable rate differentials."

The Norwegian krone is likely to lead the way in a recovery in risky assets following significant losses in equity markets and a sharp deterioration in global risk appetite on Monday, ING said.

The Swedish krona will probably lag the Norwegian krone due to its lower sensitivity to risk sentiment and speculation of a 50 basis-point interest-rate cut by the Riksbank at the August 20 meeting, ING added.

Bonds:

Citi Research sees no immediate reason to change its forecast of 2.25% for the fourth-quarter level of the 10-year German Bund yield even as it has been reached earlier than it anticipated.

"The Bund rally may be abrupt, but at least it is in the right direction, in our view."

Part of Citi Research's thinking here is that even if the market reassesses the extra cuts it has priced over the remainder of 2024, it will likely, with time, need to add in more for 2025.

Citi Research is comfortable with its flattish view on 10-year Bund yields to year-end.

Energy:

Oil prices regained some ground after sliding in the previous session.

"Investors have been exiting commodities in recent weeks, [as] highlighted in positioning data," ING said. "This souring in speculative appetite comes despite oil fundamentals still looking supportive."

Growing fears of a full-scale war in the Middle East and overnight data showing U.S. service sector activity rebounded in July provided some support to prices.

Reports that production at Libya's Sharara oil field has been completely halted due to protests at the site was also offsetting some of the macro bearishness, according to analysts.

European gas prices bounced back, boosted by concerns over supply disruptions in the Middle East as fears of an Iranian retaliatory attack on Israel grew.

Stronger demand for liquefied natural gas in Asia also supported prices.

Metals:

Gold futures edged up, consolidating after Monday's slump, and ING said bullion should regain its footing given persistent geopolitical tensions and expectations of Fed interest-rate cuts.

Copper ticked lower, having hit its lowest level since March in Monday's broader selloff in global equity markets, driven by growing concerns over the risk of recession in the U.S., ING added.

For the wider metals complex, this has added to demand concerns from China and rising global inventories.

UBS said lithium isn't out of the woods yet after a plunge in prices for the battery metal.

UBS has a FY 2025 lithium-price forecast of $1,000/ton, just below consensus of $1,015/ton.

EMEA HEADLINES

Bayer Posts Net Loss, Dragged by Weaker Crop-Science Performance

Bayer posted a second-quarter net loss that significantly missed consensus expectations after a tough agricultural market hit earnings at its crop-science division.

The German pharmaceutical and agricultural company said Tuesday that it posted a net loss of 34 million euros ($37.2 million) in the quarter compared with a loss of EUR1.89 billion in the same quarter of the previous year, when it booked impairments and charges related to its agricultural business. The company said an unfavorable product mix contributed to the result, which fell significantly short of the EUR70 million net profit expected by analysts.

Saudi Aramco to Return $31 Billion to Shareholders, Government After Profit Beat

Saudi Aramco said its second-quarter net profit beat market estimates, and that it plans to pay $31.05 billion in dividends to the Saudi government and its shareholders.

Saudi Arabia's national oil company on Tuesday posted a quarterly net profit of $29.07 billion, down from the $30.83 billion it reported for the same period last year.

German Manufacturing Orders Rise for First Time in 2024

German manufacturing orders climbed for the first time in six months in June, driven by a revival in orders in the car industry, marking a sign of hope for the beleaguered industrial sector.

Orders were 3.9% higher than the prior month, German statistics office Destatis said Tuesday, rebounding after they fell 1.7% in May. That was better than a small 0.5% rise expected by a consensus of economists polled by The Wall Street Journal.

Zalando Finance Chief to Step Down Amid Management Reshuffle

Zalando said its chief financial officer will step down next year as the company undertakes a management reshuffle.

The German online fashion retailer said Tuesday that CFO Sandra Dembeck decided not to renew her contract, which ends on Feb. 28, in order to pursue a new career opportunity. The company didn't say who would replace Dembeck.

Mideast Braces for More Violence Amid Warnings of Iranian Attack

The Middle East braced for another round of violence Monday, after U.S. Secretary of State Antony Blinken said on a call Sunday with Group of Seven foreign ministers that Iran could attack Israel within 24 to 48 hours, according to two diplomats briefed on the call.

Blinken didn't say what form an attack could take. U.S. officials have been working with their international partners to try to contain tensions in the Middle East amid warnings by Iran and pro-Iranian militias that they will attack Israel following the assassinations last week of Hamas's political leader, Ismail Haniyeh, in Tehran and senior Hezbollah leader Fuad Shukr in Beirut.

GLOBAL NEWS

Market Selloff Upends Fed Rate-Cut Calculus

Monday's market rout increases both the risks of recession and a more harrowing financial-market accident. But for Federal Reserve officials who laid the groundwork last week to cut rates by a quarter-percentage point at their meeting next month, the outlook would likely need to deteriorate further in the coming weeks to compel a bigger response.

Fed officials don't meet again until Sept. 17-18. There, they could debate whether to kick off their widely anticipated sequence of rate cuts with a larger reduction of a half-percentage point, or 50 basis points, if last month's weak-across-the-board employment report is indicative of a new, worrisome trend.

Fed's Daly Isn't Worried About the Jobs Report-or an Impending Recession

San Francisco Federal Reserve President Mary Daly isn't overly concerned about the July jobs report-and certainly not about an impending recession.

A "policy adjustment" is still coming sooner rather than later, she said on Monday, and there's no cause for alarm.

U.S. Faces New Challenges as Potential Iran Attack on Israel Nears

WASHINGTON-The Biden administration is working to blunt a potential Iranian attack on Israel, but it faces an array of fresh challenges as it seeks to replicate the success it had in April when a multinational coalition helped Israel intercept a barrage of Iranian missiles and drones.

U.S. officials said they have since the weekend started seeing Iran moving missile launchers and conducting military drills, which could indicate Tehran is preparing for an attack in the coming days. Iran has signaled it plans to retaliate against Israel for the killing of a senior Hamas leader in Tehran.

Cracks in Economy Pose Risk to Harris's Momentum

WASHINGTON-Recent economic turbulence threatens to reinforce voters' view that the American economy is shaky, giving former President Donald Trump's campaign a chance to shift onto stronger ground in his race against Vice President Kamala Harris.

"TRUMP CASH vs. KAMALA CRASH!" Trump wrote in all caps Monday on his Truth Social platform, as he seized on the turbulence that triggered investor panic in the U.S. "Voters have a choice - Trump prosperity, or the Kamala crash & great depression of 2024."

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

(END) Dow Jones Newswires

08-06-24 0522ET