European Midday Briefing : Core Inflation Eases as Expected

MARKET WRAPS

Stocks:

European stocks made modest gains on Thursday after data showed the eurozone core inflation print eased back slightly in August, while investors looked ahead to the Federal Reserve's preferred measure of inflation, which is expected to confirm prices continued to climb in July.

Meantime, the accounts of the European Central Bank's July meeting, due for release at 1130 GMT, should give some clarity on the internal debate about the prospect of a further interest rate rise.

While an argument can be made for another 25 basis-point hike, "it would be better for the ECB to wait for a bit more data and pause in September, " Jefferies said.

"If our view of economic data weakening going forward is correct, then a September pause should pave the path for an end of ECB current rate hiking cycle."

Economic Insight

Turkey will likely have to hike interest rates by another five points to 30% at September's meeting, as domestic demand keeps running high, Capital Economics said. Read more .

U.S. Markets:

Index futures edged up as August nears a close as recent weak economic data has led investors to trim bets the Fed will raise interest rates again next month.

Treasury yields wavered with the 10-year note yield essentially flat at around 4.1%.

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Forex:

EUR/USD has been highly volatile this week as central banks' next steps remain dependent on the latest economic data, which are being closely scrutinized by markets, Commerzbank Research said.

"As the two major central banks...are nearing the end of their interest-rate hiking cycle and are making their further actions data-dependent, uncertainty about what they will do next is particularly high," Commerzbank Research said.

Weaker-than-expected U.S. job openings, sentiment indicators and ADP data weakened the dollar, while stubbornly high German inflation figures for August lifted the euro "because they feed expectations that the ECB...could raise the key rate again in September."

Danske Bank Research expects the euro to weaken further--despite its gains in recent days--and it aims to take advantage of any rallies to sell the currency.

"We maintain our bearish strategic stance on EUR/USD and would look to sell tactical rallies over the coming weeks," Danske Bank said.

Bonds:

Eurozone government bond yields moved higher in early European trade, with inflation data for the bloc and hawkish ECB talk set to weigh on the markets, Commerzbank Research said.

Belgium's fragile fundamentals could trigger a rating change but valuations of Belgian government bonds, or OLOs, suggest they are shielded from a potential impact, Citi said. Fitch, which rates Belgium at "AA-" with a negative outlook, will review Belgium on Friday.

"However, this should have limited implications for OLOs, which are already trading cheap on a regression versus the fundamentals that could trigger any change in rating," Citi said.

Energy:

Brent inched down after data showed Chinese factory activity contracted for a fifth consecutive month in August, but the far larger than expected drawdown in U.S. crude stocks was putting a floor under oil's declines. As were expectations that Saudi Arabia will roll over its 1 million barrel a day supply cuts for another month.

"There are clearly still some broader demand concerns and returning this supply to the market could see Brent back below [$80 a barrel]-something the Saudis would prefer not to see," ING said.

Metals:

Base metals were mixed with gold flat, as recent U.S. data has lessened the likelihood of another Fed rate hike this year, weakening the dollar, Peak Trading Research said.

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Inflation Comes in Higher Than Expected in August

The eurozone's inflation rate in August came in higher than expected, remaining at the same level as July, a sign the European Central Bank may be on course to press ahead with a further interest-rate hike in September.

The euro area's consumer price index rose 5.3% in August on year, preliminary data from the European Union's statistics agency Eurostat showed Thursday, higher than the 5.1% that economists expected, according to a poll by The Wall Street Journal.

UBS Posts Record $29 Billion Profit on Credit Suisse Deal

UBS booked a record $29 billion net profit last quarter after it integrated Credit Suisse into its books. But the gargantuan gain comes with an equally large challenge to meld the banking giants.

On Thursday, UBS provided a clearer picture of its future form, saying it will keep Credit Suisse's large domestic arm in Switzerland rather than spin it off. It also showed strong inflows from rich clients, a sign that the world's wealthy haven't been turned off by the deal.

Pernod Ricard Shares Fall After Mixed FY 2023 Results

Shares in Pernod Ricard dropped Thursday after some of its fiscal 2023 figures came in shy of consensus expectations.

At GMT 0728, shares fell 4% to EUR186.70.

Germany's Jobless Rate Held Steady in August

Germany's jobless rate was stable in August, at a relatively low rate, reflecting continued resilience in the labor market, despite signals of a stuttering economy.

The German adjusted unemployment rate stood at 5.7% in August, the same as in June and July, data from the Federal Employment Agency showed Thursday. Economists polled by The Wall Street Journal also expected the rate to stay at the same level.

Impala Platinum FY 2023 Hurt by Lower Rand PGM Pricing, Production, Sales

Impala Platinum Holdings reported a fall in profits for the fiscal year on lower revenue due to a drop in rand platinum group metal pricing, lower refined production and sales and after booking a number of impairments in its accounts.

The precious-metals mining company said Thursday that basic earnings for the year ended June 30 was 4.91 billion South African rand ($262.9 million) compared with ZAR32.05 billion and guidance of between ZAR4 billion and ZAR6 billion provided on Aug. 15.

Microsoft to Unbundle Teams Software in Europe

BRUSSELS-Microsoft says it will change the way it sells its Teams videoconferencing service to business customers in Europe in a push to address concerns raised in a European Union antitrust investigation.

The software giant said Thursday that it plans to offer business customers the chance to buy a lower-priced version of its productivity suites that doesn't include the videoconferencing app. New customers would still have the option of purchasing Teams separately if they want the service.

GLOBAL NEWS

China's Economy Shows Fresh Signs of Weakness in Factories, Consumer Spending

SINGAPORE-Gauges of activity in China's economy showed signs of weakness in August, heaping extra pressure on policy makers to revive crumbling growth as consumers keep a tight leash on spending and factories are hit by sinking exports.

Closely watched business surveys showed China's economic troubles are continuing in the latter half of the year, after growth slowed to a crawl in the second quarter. That weakness means China can't be counted on to boost a global economy that has been dogged by persistent inflation and feeble growth, particularly in Europe.

North Korea Conducts Tactical Nuclear-Strike Drill Amid U.S.-South Korean Military Exercises

SEOUL-Kim Jong Un reviewed North Korea's war plans aimed at overwhelming a U.S. and South Korean invasion, as Pyongyang flashes more military might in opposition of Washington-Seoul combined exercises.

On Wednesday, the U.S. and South Korea had staged combined air drills that involved an American B-1B strategic bomber. The 11-day combined exercises ending Thursday have angered North Korea, which views the annual drills as rehearsals for war.

Japan Looks to Boost Defense Budget by 13% and Add New Missiles

TOKYO-Japan's Defense Ministry on Thursday asked for a $53 billion budget for next fiscal year, a 13% increase, adding antimissile systems and boosting maintenance for a military that long skimped on basic functions.

In yen terms, the Yen7.74 trillion budget request is a record, reflecting rising tensions between the U.S. and China. Prime Minister Fumio Kishida has pledged to lift the defense budget to 2% of Japan's gross domestic product by fiscal 2027, after many years in which the figure, calculated slightly differently, was around 1%.

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

(END) Dow Jones Newswires

08-31-23 0539ET