European Midday Briefing : Traders Hold Their Breath for U.S. Inflation Data

MARKET WRAPS

European stocks were firmer Wednesday, tracking Asian gains after yesterday's weaker-than-expected producer price index figures lifted markets, boosting hopes the Fed will start to cut interest rates in September.

Today's Consumer Price Index, due at 1230 GMT, is the inflation measure that really counts, and could cement that sentiment, although many economists believe that the Fed will cut in September and now the only question remaining is the number of cuts this year.

In the U.K. July's surprisingly sharp decline in the annual inflation rate has seen swap market-implied odds of a rate cut next month rise from to 47% from 35% this morning, according to Monex Europe.

"All in all, we think a September rate cut remains an underpriced scenario, though markets are increasingly aligning with our view," it added.

However Pantheon Macroeconomics said the services inflation component made it unlikely the BOE will cut rates next month.

Stocks to Watch

Southern European lenders are still the place to be for bank investors KBW said, raising its rating on Italy's BPER Banca to outperform on its surprise dividend payout increase and confirming UniCredit as its top pick.

"Whilst these banks are generally seen as highly geared to the level of interest rates, we continue to believe that net interest income dynamics remain attractive."

The cloudy outlook for Europe's industrial chemical companies is largely priced in, JPMorgan said.

Earnings pressure for the sector from any near-term macro downturn might not be as bad as past downturns--as a U.S. and global recession risk is at least partly priced in--given that the industry has already seen recessionary trends over the past two years with volumes on median average basis and materially below prepandemic levels.

U.S. Markets:

U.S. stock futures were rising ahead of today's key data.

In the meantime, eyes will be on any further developments on the Israel-Hamas conflict.

Cisco Systems will report earnings after markets close.

Forex:

The dollar could rise as U.S. inflation remains elevated and this should prevent the Fed from cutting interest rates aggressively, Commerzbank said, adding that the current 3% annual inflation rate is still too high.

If the figure is higher than expected, the Fed probably won't cut rates by 50 basis points in September as the market expects, it said.

Inflation is expected to remain at 3.0% in July, according to a WSJ survey of economists.

Sterling fell after U.K. inflation data came in lower than expected.

"Though overall price pressures remain higher than the [Bank of England's] comfort level, the general direction of travel is still trending downwards, an encouraging sign for the Bank's rate-setters," Raymond James Investment Services said.

ING said it could weaken further, and "A return above 0.8600 in EUR/GBP looks warranted."

There is a chance the BOE won't put great emphasis on the inflation decline given it was driven by a correction in volatile hotel prices, it said.

However, until policymakers comment on this and tame any enthusiasm for larger monetary policy easing, markets may price in more rate cuts, also given external pressure from the rise in Fed rate-cut expectations, it added.

Bonds

Gilt yields fell after a slowdown in U.K. core inflation raised expectations of more interest rate cuts from the Bank of England.

The data is unlikely to result in a rate cut in September, but it might cause markets to price in more rate reductions in 2025, Mizuho said.

Energy:

Oil prices rebounded amid reports that U.S. crude stocks fell for the seventh consecutive week and weaker-than-expected producer-price index data boosted hopes of a September rate cut.

According to reports ahead of official inventory data, U.S. crude stocks fell by 5.2 million barrels last week.

Prices also continue to be supported by a higher geopolitical risk premium, but further gains are capped by persistent concerns over softening demand in China.

Metals:

Gold futures were trading sideways as investors positioned themselves ahead of today's crucial data.

With markets seeing overreaction and volatility, the Fed will ease rates sooner, or faster than expected, and underlying geopolitical tensions aren't going away--all this is supportive of another push higher in gold, MKS Pamp said.

Copper

Wage negotiations at the Escondida copper mine run by BHP Group in Chile ended without agreement, triggering a walkout on Tuesday at an operation that accounts for roughly 5% of global mined copper supply.

EMEA HEADLINES

UBS Profit Beats Expectations as Credit Suisse Savings Accelerate

UBS Group reported a second-quarter net profit that doubled analysts' estimates and raised its year-end target for savings from its integration of former rival Credit Suisse.

The Zurich-based banking group said Wednesday that net profit was $1.14 billion compared with $27.33 billion for the same period last year, when it booked a $29 billion accounting gain on its takeover of Credit Suisse.

Thyssenkrupp Cuts Outlook After Swinging to Net Loss

Thyssenkrupp cut its profit forecast for the third time this year after it swung to a third-quarter net loss amid continued market weakness and lower sales.

The German industrial company said Wednesday that it expects a net loss in the mid-to-high three-digit million euro range for the year ending September.

Hapag-Lloyd to Increasingly Focus on Growth, Service Quality

Hapag-Lloyd said it will increasingly focus on growth and service quality for the remainder of the year after recording strong demand and increased freight rates in the first half.

The German shipping company last month raised guidance after demand for container transport continued to rise, with strong earnings momentum.

RWE's Earnings Decline as Expected But Wind, Solar Units Power It Past Forecasts

RWE's first-half earnings beat expectations but fell overall as a record period for its wind and solar businesses failed to offset declines in other segments.

The German energy company said Wednesday that favorable weather and new facilities boosted its wind and solar segments. But its other power-generation segment-which includes natural gas, coal, hydropower and biomass-dragged earnings as expected.

Carlsberg Raises Guidance, but Revenue and Profit Miss Expectations

Carlsberg raised its full-year guidance, citing a solid performance to date, but posted first-half revenue and profit that missed consensus expectations.

The Copenhagen-based brewer said Tuesday that it now expects organic growth in operating profit of between 4% and 6% for 2024. It had previously forecast 1%-5% growth.

GLOBAL NEWS

U.S. Efforts to Calm Mideast Fighting Face Critical Week

The U.S. is sending top officials to the Middle East as it presses for a fresh round of talks between Israel and Hamas this week in a last-ditch bid to reach a cease-fire deal that President Biden says is "getting harder."

Negotiations have stalled on efforts to bring calm to Gaza and free hostages in the enclave more than 10 months into the war. The U.S., Egypt and Qatar last week called on the parties to resume talks in a summit Thursday, promising to present their own proposal for bridging the remaining gaps if necessary, as the region braces for a possible Iranian attack and further escalation.

Russia Withdraws Some Forces From Ukraine in Response to Kursk Invasion

SUMY, Ukraine-Russia is withdrawing some of its military forces from Ukraine to respond to a Ukrainian offensive into Russian territory, U.S. officials said, the first sign that Kyiv's incursion is forcing Moscow to rejigger its invasion force.

The officials said the U.S. is still seeking to determine the significance of Russia's move and didn't say how many troops the U.S. assesses Russia is shifting. But the new U.S. assessment bolsters claims by Ukrainian officials who said last week's surprise invasion of Kursk province had drawn Russian forces away from Ukraine, where Moscow's advantage in manpower and equipment is allowing them to grind forward in several places.

Japanese Leader Fumio Kishida to Step Down

TOKYO-Japan is set to get a new leader this fall after Prime Minister Fumio Kishida said Wednesday he wouldn't seek to stay in office.

Kishida, 67, has bolstered relations with the U.S. and South Korea during his three years in office, and under his leadership Japan is nearly doubling its military spending to counter the growing threat from China. But at home, his popularity was hit by a political-funds scandal involving ruling-party heavyweights and relatively high inflation.

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

(END) Dow Jones Newswires

08-14-24 0534ET