EMEA Morning Briefing: Stocks to Open Higher to Start the Month

MARKET WRAPS

Watch For:

European Parliament Committee on Economic and Monetary Affairs exchange of views with Greek Finance Minister Christos Staikouras; Germany retail trade; Eurozone Manufacturing PMI; EU unemployment.

Opening Call:

Stocks to rise to start the month. Dollar weakens. US 10-year Treasury yields rise. Oil, gold, and metals edge lower.

Equities:

European stocks are set to start the month higher Wednesday, buoyed by continued investor optimism even amid uncertainty surrounding the Delta variant of the coronavirus.

In the days and weeks ahead, investors will be monitoring rising coronavirus cases and hospitalizations due to the highly contagious Delta variant. Money managers say the variant presents a potential headwind for stocks, particularly if consumer spending retreats or if new restrictions that could weigh on the economic recovery are imposed.

Fresh data from The Conference Board Tuesday showed that consumer confidence in the U.S. deteriorated in August, retreating to its lowest level since February.

"You have seen people canceling vacations or not going out to restaurants" due to the Delta variant, said Mr. Langas. "There is this concern on the margin that we are seeing people pull back a bit. All of that comes into play in regards to where consumer confidence is going in the short term."

Later this week, investors will be parsing the latest jobs report to better understand the state of the labor-market recovery. A survey compiled by The Wall Street Journal shows that economists expect employers in August to have added 720,000 jobs. Nonfarm payrolls rose by a seasonally adjusted 943,000 in July, marking the best gain in 11 months.

In the U.S., all three major indexes logged strong advances for August, though the month had few dramatic trading days. The S&P 500 finished the month up 2.9%, marking its largest monthly rise since April. That helped the benchmark index notch a seventh consecutive month of gains-its longest winning streak since January 2018, when the index rose for 10 straight months.

In Asia, early Wednesday, a private gauge of China's manufacturing fell to its lowest level in a year-and-a-half in August, as lockdowns to contain Covid-19 outbreaks shut factories.

The Caixin China purchasing managers index dropped to 49.2 in August from 50.3 in July, Caixin Media Co. and researcher Markit said Wednesday. Index levels below 50 indicate contraction in activity.

"The recent uptick in Covid-19 cases and subsequent restrictions had impacted production, dampened demand, and led to greater difficulties sourcing inputs," Caixin said in a statement.

Caixin PMI's subindex for new export orders declined for the first time since February, albeit modestly. Exports have been a key engine of China's economic rebound from the initial waves of the pandemic in 2020.

Forex:

The U.S. dollar weakened 0.1% against the euro and strengthens a bit against the yen. The WSJ Dollar Index fell nearly 0.1%, but it's up 0.4% for August despite a recent slide according to Dow Jones Market Data, notching its best month since June. The WSJ Dollar Index was also up about 3.3% from its 52-week low reached Jan. 6, Dow Jones Market Data said.

Bitcoin's recent price action suggests the cryptocurrency is set to undergo a downward correction, Oanda said. "There have been many signs recently that the cryptocurrency is preparing for a correction, with the technicals all seem to be pointing the same way," Oanda analyst Craig Erlam said.

Those signs include Bitcoin's rallies fading quicker, momentum indicators displaying divergences and the cryptocurrency's failure to continue rising above three-month high of $50,000 it reached last week, he said.

That doesn't mean Bitcoin's "best days are behind it" and that it has reached its peak but a "decent correction" lower could follow, he said. Bitcoin climbs 0.1% to $47,729, according to CoinDesk.

Bonds:

The 10-year Treasury yield has its highest monthly increase since March, rising 0.064 percentage point in August to 1.303%, with Tuesday's increase breaking a two-day losing streak.

Some analysts have been intrigued by the yield decrease after Chair Powell made it clear last week that tapering is around the corner. Still, the benchmark is off its March peak of 1.749%, amid mixed economic data that could cause the Fed to keep stimulus in place.

Friday's jobs report is widely expected to show strong hiring, but much less than July's 943K, with some analysts bracing for a significant, market-jolting miss.

Energy:

Oil fell slightly in early Asian trade, amid expectations that supply disruptions in the U.S. Gulf stemming from Hurricane Ida could be short-lived.

Rystad Energy estimates that up to 120,000 barrels a day of U.S. onshore oil production has been halted, but reckons a quick restart of crude production could be possible.

"With Ida being downgraded to Category 1 shortly after landfall, the likelihood of prolonged upstream disruptions in the area has diminished, " the energy consultancy said.

Metals:

Gold edged lower in morning Asian trading as Treasury yields rise and the ICE USD Index strengthens, both undermining the attractiveness of the precious metal.

Inflationary pressures aren't easing, which is why global bond yields are rising, thereby removing some demand for gold, Oanda said.

Gold shouldn't be struggling to recapture the $1,850/oz level, given Fed Chair Powell's dovish tapering message, weaker China PMI data and falling U.S. consumer confidence, Oanda added.

Copper and aluminum fell in early Asian trade as China's National Food and Strategic Reserves Administration releases additional supply from state reserves into the market today, ING said.

The bank said 30,000 tons of copper and 70,000 tons of aluminum are being offered, and this additional supply is likely to weigh on prices in the short term.

The three-month LME copper contract fell 0.4% to $9,486.5.0/ton while the three-month LME aluminum contract declined 0.3% to $2,709.0/ton.

TODAY'S TOP HEADLINES

China's Caixin Manufacturing Gauge Shows Contraction in August

A private gauge of China's manufacturing fell to its lowest level in a year-and-a-half in August, as lockdowns to contain Covid-19 outbreaks shut factories.

The Caixin China purchasing managers index dropped to 49.2 in August from 50.3 in July, Caixin Media Co. and researcher Markit said Wednesday. Index levels below 50 indicate contraction in activity.

CIOs Say PC Shipments Are Delayed by Months

Chief information officers say they face increased delays in the fulfillment of orders for new personal computers, with waiting times extending from weeks to months in some cases.

Two major PC makers, HP Inc. and Dell Technologies Inc., said last week that demand for computers outpaced their ability to satisfy customer orders. Shortages of semiconductors and a range of supply chain problems related to the Covid-19 pandemic, port backlogs and the weather all have held back sales.

Social Security Costs Expected to Exceed Total Income in 2021 as Covid-19 Takes Financial Toll

WASHINGTON-The severe economic downturn caused by the Covid-19 pandemic last year weighed on the financial health of Social Security, but not nearly as much as many forecasters originally feared, according to new projections of the program's finances.

Trustees for the Social Security trust fund in an annual report released Tuesday said the program is expected to pay benefits that exceed its income in 2021, the same as it anticipated last year at the outset of the pandemic.

White House to Unveil Steps Aimed at Easing Housing Supply Shortage

WASHINGTON-The Biden administration is poised to unveil a series of steps aimed at addressing the U.S. shortage of entry-level homes and rental properties, according to people familiar with the matter, moves designed to boost their financing and construction over the coming years.

The changes would draw upon the administrative authority of government regulators such as the Federal Housing Finance Agency as Congress weighs broader policy changes tied to the debate over revamping U.S. infrastructure, according to a draft plan reviewed Tuesday by The Wall Street Journal. Details could change before the White House releases its final version. FHFA oversees Fannie Mae and Freddie Mac, the two mortgage giants that back about half of the $11 trillion mortgage market.

Europe's Tourist Hotspots Stay Open to Americans, for Now

Many European countries are in no hurry to close the door to American tourists, despite a new European Union recommendation to national authorities to halt nonessential travel from the U.S.

The EU's recommendations for travel rules aren't binding on the bloc's 27 member countries, and major tourist destinations Spain and Greece said on Tuesday they would stay open for American visitors for the coming weeks at least. Others including France and Italy said they have no immediate plans to change their rules for travel from the U.S.

Australian Economy Grew Solidly in Second Quarter Before Lockdowns Hit

SYDNEY-Australia's economy grew solidly in the second quarter, but the expansion has since been put into sharp reverse by pandemic lockdowns in major cities.

The economy grew 0.7% in the second quarter from the first quarter and by 9.6% from a year earlier, the Australian Bureau of Statistics said Wednesday. Economists had expected growth of 0.4% in the quarter and an expansion of 9.2% from a year earlier.

BOJ Deputy Gov. Hopes Standby Funds Will Help Recovery From Pandemic

Bank of Japan Deputy Gov. Masazumi Wakatabe said it is important to unleash corporate and household savings to help Japan's economic recovery from the coronavirus pandemic.

"Key to recovery in the overall economy gaining more strength is developments in 'standby' funds, which are saved for future use, in each of the household and corporate sectors," Mr. Wakatabe said in a speech Wednesday.

In Israel, Being Fully Vaccinated Now Means Three Shots

TEL AVIV-Israel is upping the vaccine ante, pressing citizens to get Covid-19 booster shots and saying those who don't will face restrictions on traveling, dining out and other activities.

Holders of Israel's vaccine passports must get a third dose of the Pfizer-BioNTech vaccine within six months of their second dose, or lose the so-called green pass that allows them more freedom.

Europe Hits Covid-19 Milestone With 70% of Adults Vaccinated

The European Union said it has hit its target of fully vaccinating 70% of adults against Covid-19 by the end of summer-albeit with wide variations between different countries-showing how the bloc's vaccination campaign has gathered momentum after a slow start earlier in the year.

But the World Health Organization has warned the pace of vaccinations in the continent now appears to be faltering, and that data show big differences in vaccine coverage between different countries, leaving parts of Europe at risk of fresh outbreaks and new restrictions to step the spread of the highly infectious Delta variant of the virus.

U.K. Retail Prices Fell in August But Higher Prices on Horizon

U.K. retail prices fell on year in August though there are indications that rising costs are starting to filter through into product prices, according to the latest report by Nielsen IQ and the British Retail Consortium released Wednesday.

Prices at U.K. stores dropped 0.8% on year between Aug. 2 and Aug. 6, the report found. The rate of deflation on a yearly basis has slowed somewhat when compared with July, when prices declined 1.2% on year.

Private-Equity Firm CVC Capital Partners Returning to Australia

SYDNEY-U.K. private-equity firm CVC Capital Partners will return to Australia after a nine-year absence, rebuilding its presence in what it called one of the most active private-equity markets in Asia-Pacific.

CVC, which has US$115 billion in assets under management and 24 offices globally, said it would open a Sydney office under Brett Sutton. Mr. Sutton, who founded Affinity Partners' Australian operations in 2004, has joined CVC as chair of Australia to oversee the expansion.

Walmart to Offer Grocery Deliveries in Parts of New York City

Walmart Inc. plans to make grocery delivery available to shoppers in parts of New York City, a market that the world's biggest retailer has struggled to crack over the years.

Starting late Tuesday, Walmart groceries will be available for delivery in parts of Brooklyn, Queens and the Bronx through Instacart Inc., a company that charges a fee to send gig workers to purchase items at stores and deliver them.

Southwest Pilots Sue Airline, Claiming Lack of Bargaining in Covid-19 Response

Southwest Airlines Co.'s pilots have sued the airline, alleging that the carrier has been making unilateral changes to working conditions, including no longer paying them during quarantines following Covid-19 exposure.

In a complaint filed Monday in the U.S. District Court for the Northern District of Texas, the Southwest Airlines Pilots Association alleged that the airline acted unilaterally rather than bargaining with the union when the pandemic began to affect travel demand in the spring of 2020. The company has said it doesn't agree that it needed to negotiate with the union over measures it implemented in response to the pandemic.

Canadian National Voting Trust for Kansas City Southern Deal Denied by Regulator

Canadian National Railway Co.'s $30 billion bid to buy Kansas City Southern ran into a major obstacle Tuesday, with regulators ruling the Canadian railroad won't be permitted to complete a deal using a temporary voting trust that was a crucial part of the offer.

The Surface Transportation Board, a five-member panel that must bless mergers of freight railroads, said Tuesday in a filing posted to its website that Canadian National hadn't demonstrated that its use of a voting trust would be consistent with the public interest.

Koch VC Arm Leads $85 Million Round in Self-Driving Truck Startup

Koch Industries Inc., through its venture division, led an $85 million financing of an autonomous truck startup that focuses on operating along fixed routes. The Series B round demonstrates the future role such technology could play as corporations look to automate various steps in what has become a clogged supply chain.

The startup, Palo Alto, Calif.-based Gatik Inc., already has signed agreements with companies like Walmart Inc. to run its trucks on set routes between distribution centers and retail locations. Gatik has more than 20 trucks operating commercially, almost all of them with a driver in the cab.

Write to sarka.halas@wsj.com

Expected Major Events for Wednesday

00:01/IRL: Aug Ireland Manufacturing PMI

06:00/NOR: Jun Labour force survey SA, incl unemployment

06:00/GER: Jul Retail Trade

06:00/NOR: 2Q Balance of Payments

06:00/UK: Aug Nationwide House Price Index

07:00/TUR: 2Q GDP

07:00/HUN: 2Q GDP

07:00/NED: Aug Netherlands Manufacturing PMI

07:00/POL: Aug Poland Manufacturing PMI

07:00/TUR: Aug Turkey Manufacturing PMI

07:15/SPN: Aug Spain Manufacturing PMI

07:30/CZE: Aug Czech Republic Manufacturing PMI

07:30/SWI: Aug procure.ch Purchasing Managers' Index

07:45/ITA: Aug Italy Manufacturing PMI

07:50/FRA: Aug France Manufacturing PMI

07:55/GER: Aug Germany Manufacturing PMI

08:00/GER: Aug Brandenburg CPI

08:00/ITA: Jul Unemployment

08:00/EU: Aug Eurozone Manufacturing PMI

08:00/GRE: Aug Greece Manufacturing PMI

08:30/UK: Aug CIPS / Markit Manufacturing PMI

09:00/CYP: Jun Retail trade

09:00/CYP: 2Q GDP

09:00/EU: Jul Unemployment

09:00/CRO: Jul Industrial Production Volume Index

09:00/DEN: Aug Danish PMI

10:00/IRL: Aug Monthly Unemployment

16:59/AUT: Aug Unemployment figures

All times in GMT. Powered by Kantar Media and Dow Jones.

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


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  09-01-21 0013ET
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