EUROPEAN MIDDAY BRIEFING: Stocks Rise as Investors Shrug off Asia Losses

MARKET WRAPS

Stocks:

European markets rose as investors stayed positive despite downbeat trading in Asia, where indexes were hit by gathering fears around an economic slowdown and debt problems with giant property developer China Evergrande Group.

Growth across a range of Chinese economic indicators pulled back sharply in August, as a new outbreak of the Covid-19 Delta variant and tighter government regulations on the property market hit consumer spending and the housing sector.

Investors were also worried that problems at Evergrande, one of China's largest residential developers, could upend the country's real-estate sector, which makes up a large part of economic spending and household wealth.

"Evergrande has brought forward that there are so many vulnerabilities in the China system and it's hard to know where the Chinese government steps in," said Seema Shah, chief strategist at Principal Global Investors. "There is that just weighing on confidence.

Elsewhere, the Bank of England is likely to leave monetary policy unchanged next week despite a stronger labor market and higher inflation, said RBC Capital Markets.

The Canadian bank adjusted its BOE call after the August meeting and is now forecasting two interest rate rises in 2022, encompassing a 15 basis-point increase to 0.25% at the May 2022 meeting and a further 25 basis-point increase to 0.5% at the November 2022 meeting.

"That change was prompted by the rapid improvement in the labour market, " analysts said. While the Monetary Policy Committee were still relatively confident that goods price inflation would prove temporary as mismatches between supply and demand issues ironed themselves out, it was less certain the same was true of the labor market, RBC said.

Shares on the move:

Shares of Lagardère surged 20% after media conglomerate Vivendi struck a deal to increase its stake in the French group, a move that opens the door to a full takeover.

Shares of Ryanair Holdings rose 4% after the airliner raised its five-year growth forecast to 225 million passengers by March 2026. Shares of other airlines also gained, with EasyJet up 3.3% and Wizz Air Holdings up 2.9%.

Data in focus:

Oxford Economics' eurozone recovery tracker posted a modest improvement over the past two weeks, rising to 86.3, a new pandemic high.

"Despite a markedly slower pace compared to the second quarter, the gains show the recovery remains on solid footing and point to robust growth in 3Q," Oxford Economics' economist Tomas Dvorak said.

The eurozone economy remains well below its pre-pandemic size, and with most of the easy gains from reopening nearly exhausted, economic recovery moves into a slower and tougher phase, the economist said.

Dvorak said consumer spending will continue driving the recovery. Mobility has enjoyed a strong summer and remains solid, while supply-chain bottlenecks continue weighing on the industrial sector, keeping it under pre-pandemic activity levels, Dvorak said.

U.S. Markets:

Stock futures wavered ahead of retail sales.

U.S. retail sales, due at 8:30 a.m. ET, are expected to fall in August. Supply-chain issues are hindering auto production and crimping sales, while resurgent Covid-19 is denting consumer confidence and possibly purchases at stores, restaurants and online.

Investors will also get fresh figures on the number of Americans who applied for first-time unemployment benefits in the week ended Sept. 11. Filings for jobless benefits reached a pandemic low at the start of September, but economists surveyed by The Wall Street Journal expect claims could tick higher in the most recent data.

"Markets, particularly in the U.S., are cherry-picking news headlines and tier-two data to fit the narrative of flip- flopping daily sentiment, " said Jeffrey Halley, an analyst at broker Oanda.

Halley said he expects to see Wall Street's Wednesday surge reversed if U.S. retail sales print lower than -0.8%, but investors could equally ignore those data and focus on the Philadelphia Fed manufacturing survey or initial jobless claims.

"Hopefully, next week's cast of ...central bank policy decisions, starting with the Federal Reserve, delivers more thematic clarity," Halley added.

Forex:

U.S. retail sales for August are expected to be weak, with the consensus in a WSJ poll calling for a 0.8% on-month decline, which could cause the dollar to fall, UniCredit said. The impact will likely be limited, however, as major currencies remain stuck in tight ranges.

UniCredit expects a 1.0% monthly fall in retail sales which it says in theory could "prove sharply USD negative" but in practice the dollar might not fall too far.

Aggressive EUR/USD buying is unlikely given the euro has failed to rise above $1.1850 in recent days, while the DXY dollar index is "flipping around 92.50," it said.

Bonds:

Eurozone government bond yields are moving higher in early trade as the market faces up to around EUR20 billion in bond issuance from Spain, France and Austria, but the market is still in a search of direction, UniCredit analysts said.

"The bond market continues to be caught between a rise in inflation globally, with investors uncertain whether this is a temporary phenomenon or something more persistent, and concerns about global growth due to the spread of the Delta variant," UniCredit said.

The 10-year Bund yield was trading 1.5 basis points higher at -0.303%, while yield increases are smaller in bonds of peripheral countries, such as Italy, Spain and Portugal, according to Tradeweb.

U.S. Treasurys could gain if retail sales data show another drop in spending, said UniCredit.

After a move higher in global inflation expectations drove Treasury yields higher and bond prices lower Wednesday, another fall in retail sales driven partly by the spread of the Delta variant could trigger some risk-off sentiment and lift Treasury bond prices, analysts at the bank said.

Gains could be even higher if the data undershoots expectations.

Pictet Asset Management said it remains neutral on U.S. Treasurys, saying that 10-year U.S. yields appear too low at current levels of around 1.30%.

The current market levels are a good 40 basis points below what Pictet AM's own models suggest as a long-term fair value. That said, the asset manager said it doesn't foresee a disruptive rise in yields.

Commodities:

Oil prices held steady a day after rallying to their highest level since mid-July on a larger-than-expected drawdown in U.S. crude oil stocks. U.S. crude inventories fell by 6.4 million barrels last week to 417.4 million barrels.

Stockpiles are being drawn down while refiners in the Gulf of Mexico continue to recover from Hurricane Ida.

"Hurricane Ida is limiting any material increase in supply from the U.S.," said Helge Andre Martinsen at DNB Markets.

"Demand is reviving in China, while easing restrictions in other countries are keeping oil demand prospects strong," he said.

Gold was slightly lower as investors weigh the rise in Treasury yields, which is sapping appetite for the precious metal, ANZ said.

"Subdued inflation expectations have been a headwind, with our gold valuation model still suggesting it is undervalued, driven by expectations that the spike in inflation will transitory," it said.

Oanda thinks support for gold remains at $1,780.00. If it breaches that level then Oanda expects deeper losses to $ 1,750.00.

Base metals prices slipped after China says it has new plans to release metals from state reserves. Three-month copper on the LME fell 1.7% to $9,442 a metric ton while aluminum dropped 0.8% to $2,867 a ton and nickel slumped 2.7% to $ 19,400 a ton.

Unhappy about high prices for the metals on which its economy depends, China has auctioned off some of its metals stockpiles in an attempt to cool the market.

China's National Development and Reform Commission said Thursday that it planned to continue releasing stocks of copper, aluminum, and zinc in order to bring prices down. "Currently, copper, aluminum, and zinc prices are still high," a Chinese official said, according to Reuters.

EMEA HEADLINES

Lagardere Shares Surge After Vivendi Paves Way for Full Takeover

Shares in French media group Lagardere SA surged Thursday after Vivendi SE struck a deal to increase its stake in the company, a move that opens the door to a full takeover.

At 0800 GMT, Lagardere shares traded 21% higher at EUR23.60.

Ryanair Raises Five-Year Passenger Growth Forecast to 50%

Ryanair Holdings PLC on Thursday raised its five-year growth forecast to 225 million passengers by March 2026.

The Irish airline said it expects to deliver traffic growth of 50% from the pre-pandemic figure of 149 million passengers a year. This is up from the previous target of 33% and 200 million passengers a year by March 2026.

Eurozone Exports Rose on Month in July

Eurozone exports rose in July after six consecutive falls, signaling that international goods trading was on a weak footing despite the easing of most coronavirus-related restrictions.

The European Union's statistics agency said Thursday that the currency area's exports rose by 1.0% in July from June, while imports increased 0.3%, both adjusted for seasonal variations. The seasonally adjusted trade surplus was 13.4 billion euros ($15.8 billion) compared with EUR11.9 billion in June.

EU New Car Sales Declined Noticeably in August

Passenger-car registrations in the European Union fell strongly in August, as EU markets showed a weak performance during the summer amid a semiconductor shortage.

New car registrations--a reflection of sales--declined 19% on year to 622,993 vehicles in August, the European Automobile Manufacturers Association said Thursday. The EU's major markets--Spain, France, Italy and Germany--all reported strong decreases.

Airbus, Air New Zealand to Jointly Study Hydrogen Aircraft Feasibility

Airbus SE and Air New Zealand Ltd. have agreed to jointly research the feasibility of operating a hydrogen-fueled aircraft by the end of this decade.

Airbus, which has been exploring three hydrogen-powered aircraft concepts, said the joint study would help it understand the practical challenges of putting an aircraft powered by a renewable energy source into service. Air New Zealand would assess the possible impact that a hydrogen aircraft would have on its network, operations and infrastructure.

Veolia Launches EUR2.5 Bln Capital Increase to Fund Suez Acquisition

Veolia Environnement SA is launching a capital increase of 2.5 billion euros ($2.95 billion) to partly fund its takeover of Suez SA.

The French resource-management company said Thursday that the raise would provide a lifeline to acquire a 70.1% stake in Suez, valued at around EUR9 billion. Veolia already owns a 29.9% stake in the company.

DP World Invests GBP300 Mln in London Logistics Hub

DP World said Thursday that it will invest 300 million pounds ($415.3 million) on a fourth berth at its London Gateway logistics hub to increase its supply-chain resilience and create more capacity.

The supply-chain solutions company said that the total sum builds on the GBP2 billion investment made in Britain over the last decade.

U.S. to Share Nuclear Submarine Technology With Australia in New Pact

WASHINGTON-The U.S., the United Kingdom and Australia are creating a new security partnership in the Indo-Pacific, building on the longstanding alliance between the three to share intelligence, deepen cooperation and help Australia to build nuclear-powered submarine capabilities as China's influence grows.

The new agreement, announced Wednesday by leaders of the three countries, was described by administration officials as a way to line up common interests in the Asia Pacific.

U.K. Prime Minister Boris Johnson Shifts Dominic Raab Aside in Cabinet Reorganization

LONDON-British Prime Minister Boris Johnson Wednesday shuffled a number of top ministerial jobs in a bid to enforce discipline within Conservative Party ranks and move on from the Covid-19 crisis.

The most high-profile change was Foreign Secretary Dominic Raab, who was moved aside to head the justice ministry while also being given the title of deputy prime minister.

Triago's Matthew Swain Sees Bumper Crop of Family-Owned Company Deals

Placement and advisory firm Triago in Paris has promoted Matthew Swain to managing partner and co-leader of Americas operations with Victor Quiroga, founding partner, based in New York. The moves are part of a personnel push that also included hiring Valerie Auffray as a partner in London. Triago advises fund sponsors and investors on fundraising as well as on secondary deals and direct investments. WSJ Pro Private Equity spoke to Mr. Swain about what is shaping up to be one of the busiest years in the firm's history. Responses have been edited for clarity.

WSJ Pro: How have you seen the rebound in deal and fundraising activity this year affect your business?

GLOBAL NEWS

Jobless Claims Likely Remained Near Pandemic Low Last Week

Jobless claims likely held near a pandemic low last week, as layoffs ease despite a rise in coronavirus cases tied to the Delta variant.

Economists expect a Labor Department report on Thursday to show initial unemployment claims rose slightly to 320,000 last week from a pandemic low of 310,000 a week earlier. Delayed filings following Hurricane Ida, which hit Louisiana at the end of August, could have contributed to a small increase last week, some economists say.

U.S. Retail Sales Likely Took a Hit From Delta Variant

Product shortages and the Delta variant are preventing many Americans from spending at retailers, restraining the economic recovery.

U.S. retail sales likely fell for the second straight month in August, according to economists surveyed by The Wall Street Journal. The Commerce Department will release official figures at 8:30 a.m. ET Thursday.

Rising Shipping Costs Are Companies' Latest Inflation Riddle

Transportation costs-typically a fraction of a finished product's price-are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor.

The fabric and crafts retailer Jo-Ann Stores LLC said it has spent 10 times more than its historical cost in some cases to move products from one point to another.

Elizabeth Warren Calls On Fed Banks to Bar Leaders From Stock Trading

Sen. Elizabeth Warren (D., Mass.) is calling on regional Federal Reserve Banks to set rules that would prevent their leaders from trading individual stocks, following recent disclosures that the chiefs of the Boston and Dallas banks actively traded stocks and other investments last year.

"The controversy over asset trading by high-level Fed personnel highlights why it is necessary to ban ownership and trading of individual stocks by senior officials who are supposed to serve the public interest," Ms. Warren wrote in letters addressed to the leaders of the 12 regional Fed banks.

FTC Moves Toward Stricter Antitrust Scrutiny of Vertical Mergers

WASHINGTON-A divided Federal Trade Commission on Wednesday withdrew guidelines adopted just last year on how the government reviews so-called vertical mergers of companies that don't directly compete with one another, the latest signal the agency is looking to escalate antitrust scrutiny of deal making.

FTC Chairwoman Lina Khan, during a virtual public meeting, said she was concerned that the recent Trump-era guidelines gave too much credit to business efficiencies and other potential upsides of vertical mergers while not fully recognizing the harms that some of those deals could create in the marketplace.

Covid-19 Pandemic Aid Kept Millions of Americans Out of Poverty in 2020

The sweeping financial assistance Congress provided to Americans earlier in the Covid-19 pandemic kept millions from sliding into poverty during the worst economic fallout from the crisis, new census figures show.

The U.S. poverty rate rose in 2020 after five years of annual declines, according to data released by the Census Bureau this week. But the broader Supplemental Poverty Measure, which factors in some expenses and accounts for a wider range of income-including hundreds of billions of dollars in pandemic aid-dropped to a record low 9.1%, marking the first time that yardstick has fallen below the official poverty rate.

Evergrande's Woes Fuel Selloff in Chinese Property Shares

A selloff in Chinese property stocks intensified Thursday, as concern mounted about the effects of an official campaign to rein in the sector that has already sparked turmoil at China Evergrande Group.

The Lippo Select HK & Mainland Property Index dropped 4.9%, closing at its lowest level in more than four years, FactSet data showed. The drawdown in property shares helped pull Hong Kong's flagship Hang Seng Index down about 1.5% to 24667.85, the benchmark's lowest closing value of 2021.

Taiwan Plans to Bulk Up Military Budget to Contend with Chinese Pressure

PINGTUNG, Taiwan-Taiwan plans to significantly increase military spending in the next five years, according to a draft bill that calls for new outlays on weapons systems that would better equip the island to repel an attack by China.

The proposal, unveiled by Taiwan's cabinet on Thursday, calls for the allocation of the equivalent of about $8.7 billion, over the next five years to fund the acquisition of homegrown precision missiles, high-performance naval ships and weapons systems for existing warships.

France Says It Has Killed Islamic State Leader Responsible for Deaths of U.S. Soldiers

France said Thursday it had killed Adnan Abu Walid al-Sahrawi, the Islamic State leader who led the killing of four U.S. servicemen in Niger in 2017 and was the architect of one of the terrorist outfit's most successful franchises following the group's loss of its Middle East territories.

"This is another major success in our fight against terrorist groups in the Sahel," French President Emmanuel Macron said, referring to the vast semiarid region south of the Sahara that has become home to some of the world's most deadly jihadist cells. He didn't provide details on when or where precisely al-Sahrawi had died.

Afghan Refugees on U.S. Military Bases Wait to Begin Their New Lives in America

RAMSTEIN AIR BASE, Germany-In between the threat of Taliban violence and the promise of American freedom lies this large military installation, which has become a conduit between two worlds for thousands of Afghans.

Many of the Afghans arriving here say they were both hopeful and shellshocked from split-second decisions to leave home, probably forever, and head to the U.S. They are being met by U.S. military personnel, whose missions were transformed overnight from fighting on the front lines to embracing evacuees fleeing the end of nearly 20 years of war.

Parents Seek Out Covid-19 Vaccine Trials for Their Children Ahead of Official Authorization

Rachael DiFransico's 14-month-old daughter Sybil chewed on a plastic toy at a doctor's office in the Cleveland suburbs while waiting one recent day to enroll in a study testing whether a Covid-19 vaccine works safely in children.

"This trial is our best shot at getting the vaccine as quickly as possible," said Ms. DiFransico, who said she wanted Sybil to be able to spend more time with other children and extended family. "We want some semblance of normalcy for her."

U.S. to Share Nuclear Submarine Technology With Australia in New Pact

WASHINGTON-The U.S., the United Kingdom and Australia are creating a new security partnership in the Indo-Pacific, building on the longstanding alliance between the three to share intelligence, deepen cooperation and help Australia to build nuclear-powered submarine capabilities as China's influence grows.

The new agreement, announced Wednesday by leaders of the three countries, was described by administration officials as a way to line up common interests in the Asia Pacific.

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