European Midday Briefing : Investors Cautious Ahead of Key U.S., China Inflation Data

MARKET WRAPS

Stocks:

European stocks traded lower on Monday as investors stayed wary ahead of the release of inflation data from the U.S. and China this week.

"Investors will be closely watching the inflation figures from both the United States and China this week, as they pose significant tests for the market," IG said.

In Germany, a larger-than-expected drop in industrial output added to the likelihood of a slowdown in the eurozone economy ahead.

Read German Industrial Production Weakened More Than Expected in June

Stocks to Watch

The big move higher in U.K. interest rates continues to have a dampening effect on the housing market, with a fourth straight month of annual house price declines, AJ Bell said, citing Halifax data.

"House builder Taylor Wimpey was among the top fallers on the FTSE 100 this morning. The sector faces a very different environment today after years of strong property prices, cheap mortgages and state support for first-time buyers," AJ Bell said.

BOE Rates

The U.K.'s high level of inflation and the risk of this persisting in the medium term lowers the chances of early interest-rate cuts from the Bank of England, Barclays said.

"Historically, the gap between the last hike and the first cut has been around six months," it said.

"The BOE monetary policy committee is now focusing less on the terminal level of rates given that policy is now described as 'restrictive' and more on keeping the stance 'sufficiently restrictive for sufficiently long'."

U.S. Markets:

Stock futures traded higher as Wall Street comes off a losing week and turns its attention to inflation and how the data will influence the Federal Reserve's path on interest rates.

Another measure of inflation, the producer price index, is due Friday, alongside consumer-confidence data.

Yields on government bonds rose modestly. The yield on the benchmark 10-year Treasury note advanced, after settling at 4.060% Friday.

Stocks to Watch

Berkshire Hathaway swung to a second-quarter profit of $35.9 billion, boosted by its insurance division and strong gains in its massive investment portfolio. Its Class B shares rose 1.5% premarket.

Nikola sank 26% on Friday after its chief executive stepped down and it posted a drop in second-quarter sales. Nikola looked set to regain some ground Monday, with the stock trading up 6.8% premarket.

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Forex:

The dollar recovered from falls on Friday following the non-farm payrolls data, but gains will be limited as investors look ahead to key inflation data for July on Thursday, MUFG said.

"Last month's price action highlights that the dollar would be vulnerable to another selloff if the CPI report is weak on Thursday."

If the data again show a much slower pace of core inflation it would reinforce expectations that the Fed could be in a position to stop raising interest rates, MUFG said.

Bonds:

Eurozone government-bond yields edged higher as inflation concerns returned after investors reacted positively to the U.S. non-farm payrolls data, prompting relief across markets and sending yields lower, Commerzbank said.

Recent rises in eurozone-breakeven rates--which measure expected inflation--reflect "expectations of inflation settling on persistently higher levels on the back of second-round effects," it said.

Energy:

Oil prices hovered close to their highest level since mid-April as investors weighed the impact of a Ukrainian attack on a Russian-flagged oil tanker.

Over the weekend, a Ukrainian naval drone damaged an oil tanker that had been sanctioned by the U.S. for working with the Russian military while Ukrainian officials said that Russian Black Sea ports should be considered subject to "military threat."

The attacks could threaten a new risk to Black Sea commodity flows and boost shipping insurance rates in the region.

Metals:

Base metals were mixed, while gold prices fell in early trade, with worries over demand keeping prices low, though tight supply is likely providing a floor to prices.

Marex said metals have had a messy start to August with a third of the sharp gains made in July erased last week on poor demand signals from China.

Goldman Sachs also highlighted that stocks for goods like copper are low. Goldman said that the latest weekly data showed onshore social and bonded stocks at just 150,000 metric tons, which would represent just four days of inventory cover.

DOW JONES NEWSPLUS

EMEA HEADLINES

German Industrial Production Weakened More Than Expected in June

Germany's industrial production fell more than expected in June, suggesting weak demand and adding to the likelihood of a slowdown in the eurozone economy ahead.

Output declined 1.5% compared with the previous month, seasonally and on a calendar-adjusted basis, missing economists' forecasts of a 0.5% fall, according to data set out Monday by German statistics office Destatis.

Siemens Energy Sees EUR4.5 Bln Loss on Wind-Turbine Unit Charges - Update

Siemens Energy expects its net loss to widen significantly in fiscal 2023 as mounting challenges at its troubled wind-turbine business will lead to costs of 2.2 billion euros ($2.42 billion).

The German energy company on Monday said that its net loss should be around EUR4.5 billion in the fiscal year, from previous expectations that it would exceed the prior year's level of EUR712 million by up to a low triple-digit million amount.

Ukraine's Ammunition Chief Battles to Boost Production

KYIV, Ukraine-Like any good boss, Oleksandr Kamyshin keeps on top of production numbers for the factories he oversees. But for Kamyshin, Ukraine's minister of strategic industries, it is a matter of life and death: The figures that land on his desk every morning show ammunition output at dozens of Ukrainian factories.

The availability of artillery shells could prove decisive in the next phase of the war with Russia, and the 39-year-old is in charge of boosting Ukraine's production. Western stocks have been run down by nearly 18 months of fighting, and the U.S. and its allies are struggling to increase production.

Russia and China Sent Large Naval Patrol Near Alaska

A combined Russian and Chinese naval force patrolled near the coast of Alaska last week in what U.S. experts said appeared to be the largest such flotilla to approach American shores.

Eleven Russian and Chinese ships steamed close to the Aleutian Islands, according to U.S. officials. The ships, which never entered U.S. territorial waters and have since left, were shadowed by four U.S. destroyers and P-8 Poseidon aircraft.

GLOBAL NEWS

Investors Bet That High Rates Will Linger

The yield on the benchmark 10-year U.S. Treasury note has surged close to its highest level in more than a decade, lifted by new bets that a strong economy could support years of higher interest rates.

The 10-year yield settled Friday at 4.060%, according to Tradeweb, slipping after a mixed monthly jobs report. But that was still up from 3.968% a week earlier and within touching distance of its 14-year high of 4.231% from October.

Earnings have beaten Wall Street estimates by more than usual in 2nd quarter, but 3rd quarter isn't looking great

Online retail giant https://urldefense.com/v3/__http://Amazon.com__;!!F0Stn7g!DXg7CI3yQGxkTeVoAPeGwrwaetkpb4RFiJMWp2E3azvlQC-0rl8UHAtQWOSwK_e9zyWm7caoc5N3ZVhERyDGxW-dfEN-mhu5KrogBtYz69o$ Inc.'s AMZN second-quarter results and third-quarter forecast sales last week were a bet that more consumers would start buying more things, but Wall Street's expectations for the third quarter overall have only grown dimmer.

With most of the 500 companies that make up the S&P 500 Index SPX already through the second-quarter earnings reporting season, slightly more than normal have reported per-share profit that beat Wall Street's estimates, according to FactSet.

Violations of the Constitution Aren't Crimes, Trump Lawyer Says

WASHINGTON-Even if Donald Trump violated the Constitution when he pressured former Vice President Mike Pence not to certify the results of the 2020 election, that doesn't make it a crime, Trump's lawyer said Sunday.

"A technical violation of the Constitution is not a violation of criminal law," John Lauro, a lawyer for Trump, told NBC News. He also argued that Trump's expression of concerns about election irregularities was protected speech under the First Amendment.

Jack Smith Is Known to Take On Tough Cases. But He Doesn't Always Win.

Jack Smith, the special counsel who brought historic, back-to-back indictments of a former president, has developed a reputation as an aggressive prosecutor known for trying high-stakes, politically explosive cases.

But he hasn't always prevailed.

Deadline for Niger Coup Leaders to Back Down Passes Without Intervention

A deadline set by other West African countries for coup leaders in Niger to back down and liberate the nation's elected president passed on Sunday without regional militaries launching the armed intervention they had threatened.

Eleven leaders from the Economic Community of West African States at an emergency summit last weekend said they would consider using force to return Nigerien President Mohamed Bazoum to power.

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

(END) Dow Jones Newswires

08-07-23 0610ET