MARKET WRAPS
Watch For:
EU ECB consumer expectations survey results; Germany CPI; France foreign trade, balance of payments; NIESR's quarterly UK and global forecasts; trading updates from Bayer, Glencore, InterContinental Hotels, abrdn
Opening Call:
Shares are off to a shaky start in Europe on Tuesday as investors wait for economic data. In Asia, stock benchmarks were mixed; Treasury yields mostly softened; the dollar strengthened; while oil advanced and gold fell.
Equities:
European stocks look set to retreat on Tuesday ahead of closely watched U.S. and Chinese data due in the coming days.
Investors await Thursday's U.S. consumer price index, a key data point in determining if the Federal Reserve's campaign of interest-rate increases has further to run.
Inflation has slid toward the Fed's 2% target, but investors are leery that the final mile could prove tricky-encouraging policy makers to keep rates restrictive for months to come. Wage gains are outpacing inflation, and rebounding gas prices could boost headline figures.
"This week's main focus appears to be on this week's inflation numbers from the U.S., which could show that prices edged up in July," CMC Markets said. "However, it's the numbers out of China which may be more instructive if headline CPI follows the PPI numbers into deflation."
There could also be concerns over recently released China trade data, which showed exports fell more than expected in July, dragged by continued weakness in global demand.
Forex:
The dollar gained ground in Asia amid risk-off sentiment, partly driven by mild losses in U.S. stock-index futures.
The greenback could move modestly higher this week, CBA Global Economic & Markets Research said.
The dollar may also garner some support should both U.S. headline and core inflation, which are due out this week, come in stronger than consensus estimates, it added.
Talk of a U.S. recession remains at play. "Despite the odds of a soft landing rising amid resilient economic data, the framework aligns with our base case expectation for a mild recession in early 2024," Wells Fargo said.
Bonds:
Treasury yields were mostly weaker ahead of inflation gauges due this week, which are expected to have accelerated a little in July from June.
Investors think severe recession will be avoided and the Fed won't need to rush cutting rates to jump-start the economy.
Markets are pricing in an 86.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by the subsequent meeting in November is priced at 29.5%.
The central bank is mostly expected to take its fed-funds rate target back down to around 5% or lower next March or May.
"The collective employment data suggests that the economy remains in expansion for now, supported by the Atlanta Fed's Q3 GDP estimate of 3.9% growth," said wealth-management firm SignatureFD.
"Coupled with the Fitch downgrade of the U.S. credit rating, Treasury yields have been moving higher as the prospect for Fed rate cuts continues to be pushed further out into the future, and a lower credit rating demands a higher premium, all else equal."
Energy:
Oil futures rose in Asia, buoyed by Saudi Arabia's production reductions announced late last week.
Futures have climbed notably since late June as OPEC+ supply cuts force deficit conditions in oil markets, said CBA..
Expectations for a supply deficit in the second half of 2023 and fading fears of a recession have helped fuel a bounce by crude, though analysts said jitters over a potential slowdown haven't been fully erased.
"Looking ahead, WTI is testing key 2023 price resistance but has not yet definitively broken out to the upside," Sevens Report Research said.
"And until we get new highs, the outlook for oil will remain neutral as investors continued to weigh bullish, tight physical market dynamics right now against lingering recession worries."
Natural gas was lifted as "temperature outlooks tease scorching heat around the lower 48 through late August," said Victoria Dircksen, commodity analyst at Schneider Electric, in a note.
Metals:
Gold prices were in negative territory. The precious metal has been pulling back in recent months amid continued market worries over the Fed's tightening trajectory.
Zheshang Securities reckoned the metal has likely hit a bottom, sufficiently pricing in most negative risks from potential further Fed rate increases this year.
Moreover, rising uncertainties over the global economy and geopolitical risks should underpin the safe-haven asset's continued attractiveness to investors and buyers, it added.
"Therefore, gold prices are unlikely to suffer any substantial downside from this level," it added.
"Fed rate hikes, to date, do not appear to be having the effect on the economy or the labor market that policy makers have been anticipating," Mizuho Securities said.
"After 525-550 basis points of rate hikes since March of last year, policy should already be dampening economic activity, especially after the regional bank failures between March and May," it said.
---
Copper prices fell slightly amid broader risk-off sentiment and doubts over China's demand recovery.
Although supply tightness continues to plague base-metal markets, this has been briefly overshadowed by the risk-off tone across markets, ANZ said.
"A spluttering recovery in Chile copper output is likely behind the recent tightness," ANZ said. Revenue from copper shipments in July slumped 13% on month, despite higher prices for the metal, ANZ added.
---
Iron-ore futures were higher in China trade on rising demand from steel mills.
"Steel mills are quite profitable, and slag output rebounded slightly last week," Donghai Futures said.
However, given the government's curbs on steel production, the mid-term top of iron-ore demand may have emerged, it said.
TODAY'S TOP HEADLINES
China's Exports Fell More Than Expected in July
China's exports fell more than expected in July, dragged by continued weakness in global demand, official data showed Tuesday.
Outbound shipments dropped 14.5% from a year earlier in July, compared with the 12.4% decline in June, the General Administration of Customs said. The result was worse than the 12.0% fall expected by economists in a Wall Street Journal poll.
Surprise Stock Market Rally Bulldozes Bearish Hedge Funds
Betting against U.S. stocks has gone poorly for Wall Street speculators.
July's gains left hedge funds closing out so-called short positions and cutting risk at the fastest pace in years, according to data from Goldman Sachs' prime brokerage unit, which caters to hedge funds. The cumulative dollar amount of short covering by hedge funds in June and July combined was the largest over a two-month period since 2016.
Rising Oil Prices Are Bad News for Drivers-and the Fed
Booming oil prices last year powered U.S. inflation to 40-year highs. That trend was reversing in 2023-until now.
Benchmark crude prices are up 21% over the past six weeks, driving up the cost of American workers' commutes, freight haulers' trips to and from warehouses and the production of everything from plastics and fertilizers to clothing.
Bacardi's Russia Business Grows as Other Booze Makers Leave Country
Shortly after the invasion of Ukraine, Bacardi said it had paused exports to Russia. Since then, the liquor company has sent millions of dollars of products to the country and has been advertising for new employees.
Continuing to bring in brands such as Grey Goose vodka, Martini vermouth and its namesake Bacardi rum helped the family-owned company report a rise in sales and profit in Russia for last year at the same time many of the world's biggest booze brands have beaten a costly retreat from the country.
Satire a Casualty as Arab Nations Clamp Down on Free Speech
LONDON-Isam Uraiqat spent years testing the line in the Middle East between satire and insult.
Now the founder of the region's best-known satirical news site seems to have found it.
Anheuser-Busch Selling Shock Top, Blue Point to Cannabis Company Tilray
Anheuser-Busch InBev is selling eight beer and beverage brands, including Shock Top and Blue Point, to the cannabis company Tilray Brands for an undisclosed amount.
The cannabis company's acquisition also includes brands such as Breckenridge Brewery, Redhook Brewery and HiBall Energy, among others. The transaction includes breweries and brewpubs associated with these brands, as well as current employees.
Adobe's Figma Acquisition Faces In-Depth EU Investigation
The European Union's antitrust enforcer has opened an in-depth investigation into Adobe's proposed $20 billion acquisition of collaborative-design-platform Figma due to concerns the deal might reduce competition, it said Monday.
The EU's executive body, the European Commission, said a preliminary investigation indicated the transaction might reduce competition in the global markets for interactive product design software and digital asset creation tools.
Violence Between Israeli Settlers and Palestinians Pits Netanyahu Allies Against Security Agencies
TEL AVIV-When a Jewish shepherd took his flock to graze near the Palestinian village of Burqa in the occupied West Bank on Friday, violence followed. A 19-year-old Palestinian was shot dead, and an Israeli settler accused of killing him was hospitalized with a head wound after being hit with a rock.
What came next showed how polarized Israel has become as tensions spiral between Israelis and Palestinians.
Amazon to Meet With FTC Officials Ahead of Expected Antitrust Complaint
(MORE TO FOLLOW) Dow Jones Newswires
08-08-23 0016ET
