EMEA Morning Briefing: Stocks to Lack Impetus as Growth Doubts Remain

MARKET WRAPS

Watch For:

Eurozone long term interest rates; Germany CPI, current account; France, Italy industrial production; U.K. monthly GDP estimates, trade, index of services; Eurogroup meeting of eurozone finance ministers, ECOFIN meeting; no major earnings scheduled

Opening Call:

European shares could struggle for momentum on Friday after Wall Street wobbled lower. In Asia, stocks managed to stem their recent slide, the dollar was under pressure, Treasury yields and oil edged higher and gold was flat.

Equities:

European equities are unlikely to make much headway on Friday following a weaker finish on Wall Street, as concerns continue to loom over growth and Covid-19.

All three major U.S. indexes sank, closing near their session lows, after erasing gains notched earlier in the day. The S&P 500 and the Dow both fell for a fourth consecutive session, their longest losing streak since mid-June.

Some investors and analysts said they wouldn't be surprised if stocks retreated in the weeks or months ahead, with many noting that the S&P 500 hasn't suffered a 5% pullback since October. Still, many add that they see few alternatives outside of stocks.

"We have been among the voices saying...we are overdue for a correction, " said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. But, she added, "What choices do investors have? Is there an alternative to equities when rates are so low and [forecasts show] the economy is still growing?"

HSBC Asset Management said European stocks should rise modestly in the near term as the European Central Bank's policies remain accommodative even after it said it will slow pandemic bond purchases.

With the ECB in no rush to significantly tighten monetary policy, the eurozone's economic recovery will continue amid high levels of vaccinations, substantial savings piles and the release of EU recovery funds, HSBC Asset Management strategist Joe Little said.

"This supports our positive view on the region's equity markets which benefit from exposure to cyclical and value factors, although strong year-to-date performance may cap the upside potential in the near-term."

Forex:

The dollar continued its modest retreat in Asia, with Thursday's jobless claims data--which hit a fresh pandemic low-- weighing on the buck.

"The print did little to change market expectations," Hector Demarco at Cambridge Global Payments said, because it's overshadowed by the 7.5 million people who stopped receiving supplementary federal unemployment benefits.

"Markets remain unsure as to whether the termination of added payouts on September 6 will help boost employment in the upcoming months--supporting a Federal Reserve decision to reduce monetary stimulus--or remove a critical source of demand, limiting growth and keeping monetary stimulus flowing."

Demarco said that September nonfarm payrolls could prove disappointing with coronavirus infections remaining elevated and long hiring cycles delaying the return to work.

EUR/USD edged higher, adding to Thursday's post-ECB gains. However, Evercore ISI said the euro is unlikely to rise considerably after the ECB announced it will moderately slow pandemic bond purchases.

Bonds:

Treasury yields edged slightly higher, having fallen on Thursday, even as the Fed's Michelle Bowman said the central bank was close to announcing the start of tapering.

"If the data comes in as I expect that it will, that it will likely be appropriate for us to begin the process of scaling back our asset purchases this year," Bowman said, during a virtual discussion with the American Bankers Association.

Following the European Central Bank's announcement to moderately slow the pace of its PEPP, HSBC said the decision was merely a confirmation of what had already happened.

"The purchase pace has already declined through the summer towards levels similar to the start of the year," HSBC economists said in a note. "And it isn't really a full taper because even after PEPP ends, asset purchases will continue--indefinitely--under the regular APP.

The Asset Purchase Program purchases are currently EUR20 billion per month and the ECB is likely to double that next March when the PEPP ends, the economists said.

Nordea said the ECB's decision was no big surprise. However, the move leaves yields with some further room on the upside during the autumn. Looking forward, Nordea expects the ECB to decide on ending the net purchases under PEPP at its meeting in December, when at the same time it could decide to boost the APP.

Energy:

Oil futures were higher in Asia, recovering some of Thursday's losses sparked by reports that China plans a release from its crude-oil reserve to ease commodity price inflation.

There is a chance that the announcement by China was "backward looking" - meaning that the secretive nation may have already released oil from its petroleum reserve - so there may not be any "new" oil on the market, said Phil Flynn, senior market analyst at The Price Futures Group.

ANZ said demand worries are also likely to persist, with U.S airlines warning of a travel slowdown. "United, Southwest and other airlines said a surge in Covid-19 cases is likely to hamper their recovery, with customer bookings slowing recently."

Macquarie has lifted its price forecasts for Brent crude by 18% to $72.00 in the fourth quarter and by 9% to $62.75 in 2022. That brings the bank's forecasts closer to the forward curve, and is grounded in expectations that oil demand will continue to recover.

Macquarie expects demand will pick up to just below 102 million bbl/day in 2022, fuelled by the return of leisure air travel, petrochemical demand and the return of gasoline and diesel consumption close to pre-pandemic levels globally.

Metals:

Gold eased back below the key $1,800 mark it had reclaimed on Thursday, as investors continued to weigh disappointing weekly U.S. jobless claims and news that the European Central Bank will slow asset purchases.

Gold may still be "highly vulnerable" if there is another bout of dollar strength, Oanda said, which has pegged support at $1782.50.

Aluminum has extended its run of gains, helped by ongoing Chinese production disruptions.

ANZ estimates over 1 million tons of supply has been disrupted in China this year, contributing to the global aluminum market likely recording a 750,000-ton deficit in 2021. Political unrest in bauxite-exporting Guinea is also exacerbating supply concerns, it said.

Chinese iron-ore futures were lower, as the focus returned to potentially weaker demand from steel makers.

ANZ expects demand for steel and iron ore to be weighed in the fourth quarter, citing "a rapid slowdown in construction activities" brought about by Beijing's tightening measures on the property sector. It said there are concerns about disruptions at steel mills, many of which are undergoing unplanned maintenance.

TODAY'S TOP HEADLINES

Biden, China's Xi Jinping Hold First Call in Months

WASHINGTON-President Biden reached out to Chinese President Xi Jinping, seeking to address economic and other issues in the two countries' global competition, following several recent high-level meetings which U.S. officials described as unproductive.

The call, which occurred Thursday night in Washington, was the second time the leaders have spoken since Mr. Biden took office and in the seven months since then, already tense relations have worsened. The U.S. has accused China of human rights violations, imposed sanctions and warned businesses about operating in Hong Kong. The two countries have continued to trade barbs rather than cooperate on combating the Covid-19 pandemic.

Two Regional Fed Chiefs to Sell Stocks to Avoid Appearance of Conflict of Interest

The leaders of the Boston and Dallas Federal Reserve Banks said they would sell off individual stocks they own, invest the proceeds in diversified indexed funds or cash savings and cease trading in individual securities.

The Thursday announcement comes after the Federal Reserve Bank of Dallas this week disclosed that its president, Robert Kaplan, bought and sold millions of dollars in stocks and other investments in 2020. A disclosure from the Boston Fed showed that its president, Eric Rosengren, also was an active trader last year, albeit at a smaller scale.

Fed's Bowman expects tapering of bond purchases to begin this year

Federal Reserve Gov. Michelle Bowman on Thursday said the labor market was "very close" to the hurdle needed for the central bank to start slowing its bond purchases, a process that should be able to start this year.

"If the data comes in as I expect that it will, that it will likely be appropriate for us to begin the process of scaling back our asset purchases this year," Bowman said, during a virtual discussion with the American Bankers Association.

Shell Weighs Mandating Covid-19 Vaccines for Workers

Royal Dutch Shell PLC is considering requiring that workers in select locations, including the Gulf of Mexico, receive Covid-19 vaccines, according to a company document.

The oil major considered the pros and cons of mandating vaccinations in the document, which was shared with Shell's executive committee earlier this month, though no decision has been taken, a person familiar with the matter said. The company's current policy is to strongly encourage vaccination but not require it, according to the document, which was viewed by The Wall Street Journal.

Russia, Belarus Agree on Economic Integration Pacts

MOSCOW-Russian President Vladimir Putin and his Belarusian counterpart, Alexander Lukashenko, signaled plans to deepen ties between Russia and Belarus, a major step forward in the Kremlin's long-held goal of exerting greater influence over its smaller neighbor.

The two presidents said Thursday that they met in Moscow to agree upon a series of more than two dozen agreements, including the free movement of goods and people, that will bind Belarus more tightly to Russia.

Write to paul.larkins@dowjones.com

Expected Major Events for Friday

04:30/NED: Jul Manufacturing output

04:30/NED: Jul International trade

05:00/FIN: Jul Industrial Production

05:00/FIN: Jul Balance of Payments

06:00/DEN: Aug CPI

06:00/NOR: Aug CPI

06:00/NOR: Aug PPI

06:00/ROM: Aug CPI

06:00/UK: Jul Index of production

06:00/UK: Jul UK trade

06:00/UK: Jul Index of services

06:00/GER: Aug CPI

06:00/UK: Jul Monthly GDP estimates

06:45/FRA: Jul Industrial production index

07:00/CZE: Aug CPI

07:00/SVK: Jul Industrial Production

07:00/SVK: Jul Construction production

07:00/CZE: Jul Import & export price indices

07:00/TUR: Jul Employment / Unemployment

07:00/SPN: Jul Industrial Production

07:00/AUT: Jul Production Index

08:00/BUL: Jul Industrial Production

08:00/ITA: Jul Industrial Production

08:00/EU: Aug Long term interest rates statistics

09:00/MLT: Jul Industrial Production Index

09:00/GRE: Jul Industrial Production Index

09:00/GRE: Aug CPI

09:00/LUX: Jul Industrial Production

10:00/IRL: Jul Industrial Production and Turnover

10:00/POR: Aug CPI

11:30/UK: Aug NIESR Monthly GDP Tracker

15:59/UKR: Aug CPI

15:59/UKR: Aug PPI

16:59/SPN: Jul Budget deficit

16:59/GER: Jul Balance of Payments

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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  09-10-21 0033ET
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