European Midday Briefing : Investors Digest China Deflation News

MARKET WRAPS

Stocks:

European stocks edged higher on Wednesday as investors digested overnight news from China that consumer prices fell for the first time in over two years.

"This morning headline CPI inflation in China followed the PPI measure into outright deflation for the first time in 28 months, increasing fears that for all the promises of further stimulus measures, Chinese authorities may be facing limitations in the type of stimulus they can implement when it comes to kick starting domestic demand," CMC Markets said.

"Chinese deflation has been the proverbial elephant in the room when it comes to recent tightening measures from the Federal Reserve, the ECB, and Bank of England."

Stocks to Watch

Abrdn's valuation is fairer than before following its derating on the back of disappointing first-half results, Citi said, cutting its price target from GBP1.95 to GBP1.80, but raising its rating to neutral from sell. Read more .

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European car makers' 2023 earnings prospects look strong for now, but risks are rising for 2024 and 2025 and this warrants a cautious view when picking stocks, Citi said.

It raised its recommendation on Volkswagen and Renault to buy from neutral, cut Stellantis, Porsche and Mercedes to neutral from buy, and lowered its recommendation on BMW to sell from neutral. Read more .

Italy's Bank Windfall Tax

Italy's proposal to tax banks' profits from higher interest rates is a negative signal for Eurozone banks, Berenberg said.

Italy is following in Spain's footsteps and Latvia is considering a similar move, it added.

"A precedent is beginning to be set, which could result in other countries imposing bank taxes or levies to claw back some of the profits generated from higher interest rates. Switzerland, Norway and France are countries where we think such risks are low."

Read Italian Bank Windfall Tax Seems Priced in, But Potential Extension Is a Risk

Read Italian Bank Shares Recover After Government Set Cap on Windfall Tax

U.S. Markets:

Stock futures pointed to slight gains after a pullback in the previous session.

Shares in Lyft bucked the trend, sinking 6% premarket after the ride-hailing company reported results late Tuesday.

Government bond prices were broadly steady. The benchmark 10-year Treasury yield had declined to 4.024% on Tuesday.

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Penn Entertainment was up 11% after saying its Barstool Sportsbook app would be rebranded as ESPN Bet this fall as part of a 10-year agreement with ESPN, owned by Walt Disney.

Rivian Automotive posted better-than-expected second-quarter results and raised its full-year production forecast. The stock rose 1.9%.

WeWork fell 17% premarket after the company issued a going-concern warning, saying co-working clients are canceling their memberships at a faster clip than it expected.

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Forex:

The safe-haven dollar turned lower after stocks rebounded following falls the previous day.

MUFG said currencies have been highly sensitive to levels of risk recently, and expects the dollar to remain supported, given a mostly risk-averse environment.

"In this global backdrop, it is highly likely that the U.S. dollar will remain well supported," MUFG said.

"A worst-case scenario [for risk appetite] would be for a much higher-than-expected CPI print that would likely pressure global equity markets further lower."

Energy:

Oil prices edged higher, adding to the prior day's gains on fears of supply disruptions.

Fears that Ukraine could continue to target ships heading to Russian Black Sea ports have added to oil prices while production cuts from Saudi Arabia have also kept the market supported.

Monday's rally was driven by "Saudi's reaffirmation of commitment to output cut and headlines saying Ukraine might strike Russian facilities if the latter blocked Ukrainian ports," Saxo said.

Metals:

Metals prices were rising in early trading as a sliding dollar helped boost commodities.

Despite the rise in prices, lackluster demand has meant prices for copper are still down over 4% this month. That said, underlying data in China is proving to be a bright spot, according to ANZ.

Despite primary copper imports falling 2.7% on year last month, domestic production was strong, the bank said.

Stockpiles of copper in warehouses have also fallen sharply, down 15% last week, which ANZ said was sharply below the seasonal average.

DOW JONES NEWSPLUS

EMEA HEADLINES

ABN Amro Net Profit, Income Beat Views; Doesn't Expect to Hit 2024 Cost Target

ABN AMRO Bank posted operating income and net profit ahead of expectations for the second quarter of 2023, driven by a higher interest-rate environment and impairment releases, and updated its cost guidance.

The Dutch lender on Wednesday posted a net profit of 870 million euros ($953.4 million) for the three months ended June 30 compared with the EUR547 million expected by a company-complied consensus and with EUR475 million in the same period the previous year.

TUI Expects Strong Summer as It Swings to 3Q Profit - Update

TUI said it expects a very good summer this year as it recorded strong growth in its activities segment and an overall strong booking performance from its tour operators, and reported it was back in profit for the first time since the start of the pandemic.

The London-listed German travel operator said Wednesday that current summer bookings were 6% higher on year at encouraging price levels, with 86% of capacity for summer already sold, and group-wide bookings at 95% of the levels seen in summer 2019.

One of America's Favorite Generals Leads the Niger Coup

NAIROBI-American military commanders were dismayed last month when a clique of top army officers seized power in Niger, the U.S.'s main ally in the fight against Islamist militants in West Africa.

What stung perhaps most sharply were televised images of one particular man, Brig. Gen. Moussa Salaou Barmou, among the coup plotters.

GLOBAL NEWS

China Slips Into Deflation in Warning Sign for World Economy

HONG KONG-Tepid consumer demand and rising economic concerns in the world's second-largest economy have tipped China into deflationary territory for the first time in two years, adding pressure on Beijing to act more aggressively to avoid a deepening economic malaise.

Instead of experiencing a surge in prices after the lifting of Covid-19 pandemic curbs late last year, China is suffering an unusual bout of falling prices for a range of goods, from commodities such as steel and coal to daily essentials and consumer products such as vegetables and home appliances.

U.S. to Ban Some Investments in China

The U.S. is set to ban private-equity and venture-capital investments in some Chinese technology companies under an executive order the Biden administration will release Wednesday, escalating Washington's efforts to prevent Beijing from developing cutting-edge technology for its military.

The executive order is expected to cover direct investments in three technology sectors: semiconductors, quantum computing and artificial intelligence. It would prohibit investments in some forms of those technologies, while requiring Americans doing business in China to inform the U.S. government about investments in the three high-tech sectors more broadly.

Banks' Problems Aren't Over, According to the Bond Market

Regional bank stocks have been on a tear lately. But what is happening with their bonds should be a wake-up call.

On Monday, ratings firm Moody's Investors Service took action on 27 banks, including downgrading the credit ratings of 10 and putting others under review or giving their ratings a negative outlook. Credit ratings are very important for banks, which fund themselves partly with deposits, but also by selling bonds.

NYSE, Nasdaq Battle for New Listings in Sign of IPO Awakening

The fight between the New York Stock Exchange and Nasdaq to win new stock listings is raging again, in another sign the market for initial public offerings is perking up after a long slumber.

The Nasdaq recently won grocery-delivery company Instacart's listing, set to take place before year-end, according to people familiar with the matter. The exchange also successfully wooed Arm, the big chip designer. NYSE snagged the listings of marketing-automation platform Klaviyo and trendy German shoe manufacturer Birkenstock.

Judge Considers Limits on What Donald Trump Can Reveal About Election Subversion Case

WASHINGTON-The judge overseeing the criminal case against Donald Trump alleging he conspired to undo the 2020 election results set a court hearing for Friday morning to resolve disputes over what information the former president and his legal team can access and potentially publicly expose.

U.S. District Judge Tanya Chutkan's decision is an early sign that she wants to follow a disciplined timetable, which could run counter to the Trump team's tactics that have led to delays in other court proceedings. She scheduled the hearing after a flurry of court filings revealed several disagreements between the Justice Department and Trump's lawyers over how the voluminous evidence in the case should be handled.

New York State to Debut First Cybersecurity Strategy

The state of New York will debut its first cybersecurity strategy, including plans to modernize government networks, provide digital defenses at the county level and regulate critical infrastructure.

The strategy, which Gov. Kathy Hochul is expected to announce today, comes as an array of cyberattacks have battered New York, with the state's Division of Homeland Security and Emergency Services responding to 57 cyber incidents in 2022. These include a monthslong shutdown of municipal systems in Suffolk County, and attacks on schools and healthcare systems across the state.

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08-09-23 0601ET