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European Morning Briefing: Stocks to Bounce, Dollar Gains as Tensions Ease

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08/30/2017 | 04:08 am


Snapshot:
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Stock futures gain; USD/JPY 109.73-74; bund yield 0.343%; Brent crude $51.93; gold $1318.82



-21st Century Fox Pulls Plug on Fox News in the U.K.



Watch For: Eurozone business climate; Germany, Spain provisional inflation; U.K. consumer credit; Italy PPI; U.S. revised 2Q GDP; Angela Merkel meets Jean-Claude Juncker in Berlin; earnings from Carrefour, RTL Group; Petrofac trading update




Stocks:
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European stocks are poised for a partial recovery Wednesday, with DAX futures up 50 points and FTSE 100 futures 28 points higher.



Asia-Pacific stocks rebounded Wednesday after selling off a day earlier, as equities in the U.S. recovered as well.



The return to risk assets came despite a stern response from U.S. President Donald Trump. His insistence that all options are on table "should have escalated the risk-off" sentiment seen Tuesday, said Bart Wakabayashi, Tokyo branch manager at State Street.



Instead, investors seemed to shrug off the geopolitical tension.



Japanese stocks helped lead the way, aided by a near-1% gain in the dollar versus the yen since the end of stock trading Tuesday. The Nikkei was recently up 0.6%, helped by exporters. While Hong Kong's Hang Seng climbed 0.96% and Taiwan's Taiex rose 0.5%, gains were more muted elsewhere.



U.S. economic data showing that growth remains steady and consumer sentiment is upbeat also helped fuel rebounds for stocks in Asia, said Masashi Murata, currency strategist at Brown Brothers Harriman.



"The fundamentals remain unchanged so the bounce back has been easier," he added.



U.S. stocks closed higher on Tuesday, with major indexes recovering from early losses. The Dow Jones Industrial Average rose 0.3%, the S&P 500 added 0.1%, and the Nasdaq Composite Index ended up 0.3%. The move higher was powered by industrial names.




Corporate News:
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Rupert Murdoch's 21st Century Fox said Tuesday that it stopped broadcasting its Fox News Channel in the U.K., amid the media conglomerate's $15 billion bid to buy the 61% of Sky that Fox doesn't already own.



Fox said it was a business decision to withdraw Fox News, which in the U.S. is popular with conservative viewers and recently retained its No. 1 cable-news ranking despite a sexual-harassment scandal that has roiled the unit, and its parent company.



"Fox News is focused on the U.S. market and designed for a U.S. audience and, accordingly, it averages only a few thousand viewers across the day in the U.K.," a spokesman said. "We have concluded that it is not in our commercial interest to continue providing Fox News in the U.K." A Sky spokesman said the move was Fox's decision.




Forex:
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Late Tuesday's dollar rebound was maintained early in the Asia session and it may continue into Friday's jobs report.



Westpac's forex strategist Sean Callow said market expectations of a dovish Federal Reserve possibly being overdone are helping to support the greenback. Meanwhile, if the dollar's gains continue, IG's Chris Weston has recommended buying the dollar versus the Swiss franc.



Brown Brothers Harriman's Mr. Murata expects dollar-yen to reach the 110-level in the morning session as Japanese importers buy the buck along with speculators building long dollar positions.



At 0350 GMT, USD/JPY was 109.73-74, EUR/USD was 1.1982-85 and GBP/USD was 1.2933-35.




Bonds:
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Yields on long-term Japanese government bonds were are higher a day after threats from North Korea pushed investors into safe assets.



The 10-year yield was at 0.005% Wednesday compared with 0.000% on Tuesday. The selloff included longer-dated Japanese debt too. Yields were up by one basis point in the superlong sector with 20-year, 30-year, and 40-year JGBs at 0.550%, 0.835% and 1.045% respectively.



The yield on the 10-year U.S. Treasury note fell to its lowest level of the year Tuesday, settling at 2.134% compared with 2.159% on Monday.




Energy:
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Oil futures fell slightly in early Asian trading as investors don't appear to be paying attention to weekly industry-group data regarding U.S. inventories.



Instead, the focus remains squarely on Tropical Storm Harvey. API's reading included a bigger drop in crude stockpiles than is expected in the government's report due later Wednesday, while gasoline surprisingly rose. All else equal, that would be bullish for oil and bearish for gas.



Instead, October Nymex futures were down 0.2% at $46.35/barrel while Brent eased 0.1% lower to $51.93, extending Tuesday's modest declines. September gasoline futures gained another 2.4% to $1.8268/gallon.



The largest refinery in the U.S. at Port Arthur, Texas, said late Tuesday it has reduced its production rate to 40% capacity, as refineries up and down the Texas coast battle the effects of Tropical Storm Harvey, which first hit the state Friday as a hurricane.



Motiva, owned by Saudi Arabia state oil giant Saudi Aramco, can produce some 603,000 barrels a day, so that would mean about 350,000 barrels a day have been taken offline. The move brings the total amount of refining capacity offline to around 2.4 million barrels a day, well over 15% of total U.S. refining capacity. The shutdowns and rate reductions are causing fuel prices to rise, especially in the Gulf region.




Metals:
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Gold futures maintained their near 11-month highs in Asia, trading flat at $1,318.82.





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08-30-17 0008ET

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