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European Morning Briefing: Stronger Dollar, Oil Gains to Lift Stocks

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07/25/2017 | 04:11 am


Snapshot:
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Stocks to bounce; EUR/USD 1.1653-56; bund yield 0.510%; Brent crude $48.91; gold $1253.47



-U.K. Opens Corruption Probe in Rio Tinto in Guinea



-Telecom Italia CEO Departs Amid Vivendi Tensions



-Daimler Invests in Beijing-Based Self-Driving Startup Momenta



Watch For: Germany Ifo survey, import prices; France business survey; earnings from Akzo Nobel, ASM International, Dassault Systemes, Eurotunnel, Hochtief, Norsk Hydro, Rio Tinto; U.S. earnings from AT&T, DuPont, General Motors, McDonald's




Stocks:
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European stocks should recover some recent losses Tuesday, with DAX futures up 48 points and FTSE 100 futures 36 points higher.



Asian stock markets were mostly higher in early trading Tuesday, with Australia leading the way higher after badly lagging regional peers a day earlier.



Helping sentiment was a stabilization in the dollar with Australia's S&P/ASX 200 also benefiting from a rebound in oil prices. The benchmark was recently up 0.7%.



Elsewhere, the Nikkei was up 0.1%, while other stock indexes were generally little changed, including in China. The injection of liquidity Monday by the central bank had little impact on markets there.



"The general liquidity conditions in onshore China are still tight as the bond yields barely moved after the central bank's massive liquidity injection," said Commerzbank. It added authorities' deleveraging efforts have "raised concerns that the overall monetary-policy stance is biased to the hawkish side" for the rest of this year.



The Dow and the S&P 500 on Monday finished modestly lower, as the market kicked off a busy week of earnings, but the Nasdaq logged another record as technology stocks shook off the broader market's weakness.



The Nasdaq Composite Index closed up 0.4%, boosted by a continued rally in the highflying technology sector. However, the Dow Jones Industrial Average ended the session 0.3% lower, while the S&P 500 index wrappeed up Monday trade off 0.1%.



Moves were mostly cautious as investors await the start of a two-day policy meeting commencing Tuesday of the Federal Reserve and as a barrage of earnings were rolled out. Market participants will look to earnings and the Fed to gauge the health of the market and the pace of expected interest-rate hikes as equities hover around record territory.




Corporate News:
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The U.K.'s Serious Fraud Office said Monday it opened an investigation into suspected corrupt activities by mining giant Rio Tinto in Guinea.



Rio Tinto said in November it had notified authorities in the U.K., U.S. and Australia about its concerns over a $10.5 million payment the company made to a consultant with close ties to Guinean President Alpha Conde while trying to maintain mining rights there in 2011.



The SFO -- Britain's main law-enforcement agency for white-collar crime -- didn't say what investigators were looking into. A call seeking comment wasn't immediately returned.



"Rio Tinto will fully cooperate with the Serious Fraud Office and any other relevant authorities, as it has done since it self-reported in November 2016," a Rio spokesman said.






Telecom Italia on Monday said Chief Executive Flavio Cattaneo has resigned, amid mounting tensions with shareholder Vivendi.



Telecom Italia said Mr. Cattaneo's exit, which will take effect July 28, was related to his meeting the company's financial targets ahead of time and the need for a manager with different skills. But people familiar with the matter said it follows disagreements between Vivendi management and the Italian executive. Mr. Cattaneo didn't respond to an email seeking comment.






Mercedes-Benz parent Daimler is investing in a Chinese self-driving startup, in another instance of a Western auto maker seeking out a Chinese partner to get a foothold in a challenging market.



The automotive giant made its first ever investment in a Chinese startup this week, taking part in a $46 million funding round for Momenta, a Beijing-based firm providing road sensors and high definition mapping software. Daimler declined to comment.




Forex:
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The dollar steadied in Asia as investors looked ahead to U.S. politics and the Fed's meeting this week.



The WSJ Dollar Index, which measures the U.S. currency against 16 others, was slightly higher at 86.58.



"The political landscape in Washington may well preclude any effective advancement of the president's economic agenda for the foreseeable future, leaving the U.S. dollar prone to further weakness," analysts at Scotiabank said in a research note.



Meanwhile, investors continue to question the Fed's path for raising interest rates amid a slowdown in inflation. Markets are pricing in a roughly 48% chance that the Fed raises rates again in 2017, according to fed-funds futures contracts tracked by CME Group.



Greg Gibbs at Amp GFX said that if the U.S. macro outlook doesn't improve, another 5-10% drop in the dollar is quiet possible. Stronger growth momentum abroad may keep the greenback in a downtrend, said Mr. Gibbs, as unhedged equity flows boost other currencies.



At 0350 GMT, USD/JPY was 111.07-08, EUR/USD was 1.1653-56 and GBP/USD was 1.3030-32.




Bonds:
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U.S. government bonds pulled back slightly Monday as investors took some chips off the table following a two-week rally.



The yield on the benchmark 10-year Treasury note settled at 2.253%, compared with 2.232% Friday.



Analysts attributed the modest decline in prices mostly to profit-taking and caution ahead of the Fed meeting and Friday's report on second-quarter U.S. economic growth.



"The market has rallied pretty significantly over the past couple of weeks," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. "We're not surprised to see a bit of consolidation here."




Energy:
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Oil futures added to Monday's gains in Asian trading as fresh pledges from Saudi Arabia and Nigeria to respectively pull back on exports and output raised hopes that market rebalancing is on the way.



On the New York Mercantile Exchange, light, sweet crude futures for delivery in September recently traded up 0.6% at $46.64 a barrel in the Globex electronic session. September Brent crude on London's ICE Futures exchange rose 0.6% to $48.91.



Meanwhile, Nigeria--which has been exempt from this year's OPEC-led production-cut deal--pledged to not top daily production of 1.8 million barrels. The cartel's latest data put the country's output at 1.64 million.



"These factors are very-good signs for the oil markets because at least we know exactly what the upside risks are," said Barnabas Gan, an economist at OCBC.



He added that if Libya, another OPEC nation currently not in the cutback deal, caps its output at 1.25 million barrels a day (some 25% above current production), the scope of Saudi Arabia's export cut will still be sufficient to offset potential production increases from Libya and Nigeria.




Metals:
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London spot-gold prices edged lower in Asian trading after a directionless session in the U.S. as investors await the Fed statement Wednesday.



"While no rate hike is expected, the market is likely to remain subdued leading into the meeting," noted ANZ.



At 0214 GMT, spot gold was down 0.1% at $1,253.47/troy ounce but remained near its best level in a month.





Write to paul.larkins@wsj.com





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07-25-17 0011ET

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