European Midday Briefing : Shares on Hold Ahead of U.S. Jobs Report

MARKET WRAPS

Stocks:

European shares were little changed ahead of Friday's key U.S. jobs report, which is expected to show a slowing pace of employment growth alongside historically low joblessness.

Adding fewer jobs would take pressure off the Federal Reserve to raise interest rates further.

"If today's non-farm payrolls report shows a...modest slowdown in the rate of jobs growth, then there is a very real sense that we could see further gains in stock markets, as bets increase that the Federal Reserve may well be done when it comes to further rate hikes," CMC Markets UK said.

"At the very least it could go some way to signalling a pause as the U.S. central bank looks to assess the effects recent rate hikes are having on the U.S. economy."

There were gains for heavyweight mining and oil stocks after Chinese manufacturing PMI data came in stronger than expected.

Read China Caixin PMI Returns to Expansion

Stocks to Watch

BMW carries risk despite many strengths, Citi said, including a lot of exposure to financing and leasing activities and is vulnerable to weaker pricing and sales mix, Read more .

Stellantis has given shareholders a strong underlying performance all year that should continue into the rest of 2023, but union negotiations in the U.S. should give potential investors pause, Bernstein said. Read more .

U.S. Markets:

Stock futures posted minor gains, while government bonds held steady. The benchmark 10-year Treasury yield hovered after closing Thursday at 4.09%.

As well as the jobs report, there's also a gauge of manufacturing activity for August on the docket.

Follow WSJ markets coverage here .

Forex:

Worries about a deteriorating eurozone economy is putting pressure on the euro, Ulrich Leuchtmann, Commerzbank Research said.

"What is relevant for this kind of euro weakness is not the growth outlook for the next quarter or two. This is about the long-term growth outlook."

The post-Covid recovery era has been flatter than that of the U.S. and it's possible Europe "suffered a lasting hit to its average growth speed, " which could be weighing on the euro currently.

ING said U.S. jobs data are expected to show payrolls growth slowing but the unemployment rate staying at 3.5%, enough for the dollar to hold onto its recent gains.

An unemployment rate at this low level supports U.S. consumption and keeps the prospect of the Federal Reserve raising rates further.

"Unless we see some kind of sharp spike higher in unemployment today, we would expect investors to remain comfortable holding their 5.3% yielding dollars into the long U.S. weekend."

This should keep the DXY dollar index towards the top of a 103-104 range, ING said.

Bonds:

Eurozone government bond yields edged higher but remained off recent highs amid mounting evidence the economy is weakening, Commerzbank Research said.

In a speech on Thursday, European Central Bank board member Isabel Schnabel "seems to have abandoned some of her hawkish views," Commerzbank said, adding that Schnabel's description of the weakening economy at the start of her speech is fair, but still noteworthy.

"More important, she is no longer stressing the upside risks to inflation."

Citi Research reiterated its bullish duration view for German Bunds into the year-end, forecasting the 10-year yield to fall to 2.25% in the fourth quarter.

"Our forecast of 2.25% for 10s [10-year Bunds] in 4Q23 is indifferent to the still-too-close-to-call September ECB [decision]," Citi said.

A slightly earlier pause, which the market has taken as more likely after Schnabel's speech on Thursday, "would obviously help," Citi added.

Read Eurozone Government Bond Supply to Accelerate in September

Read Syndicated Bond Deals Expected From Smaller Eurozone Issuers in September

Energy:

Oil prices moved higher and were on course for their first weekly gain since early August on expectations that major OPEC+ members will extend production curbs.

Russia's deputy prime minister said in a televised meeting that Russia had agreed with other OPEC+ members on further cuts to its crude exports, but would announce the details next week.

Analysts broadly expect Saudi Arabia to roll over its 1 million barrel a day supply cut for another month, a move which would likely be followed by Russia extending its export reductions.

Metals:

Base metals rose more than 1% after data showed China's manufacturing sector expanded in August, a positive sign for industrial demand.

However, BMI said it expected prices "to remain relatively static in the coming days as the market awaits the announcement of pivotal monthly U.S. and Chinese economic data."

DOW JONES NEWSPLUS

EMEA HEADLINES

Salzgitter Suspends Guidance After Aurubis Cuts Earnings Forecast

Salzgitter said Friday that it has suspended its earnings guidance for 2023 on the back of an outlook downgrade from Aurubis, in which it holds a 29.99% stake.

The German steel producer said its financial results are significantly affected by the performance of Aurubis, a Hamburg-based metal supplier that said it will not meet its earnings guidance for the year.

SAS Swings to Forecast-Beating Net Profit on Higher Demand

SAS said Friday it swung to a bigger-than-expected net profit in its fiscal third quarter as higher demand drove a sharp rise in revenue.

"We are approaching the winter season and I am pleased by the positive trend in our ticket sales throughout the third quarter," Chief Executive Anko van der Werff said.

Where to Find a Deal on Mercedes and BMW

It is hard to find a good deal on a German car these days. Most German car stocks, on the other hand, are selling for cents on the dollar.

There are solid reasons for the discrepancy: weakening consumer sentiment, trouble in China, and the ever-mounting cost of catching up with Tesla in electric vehicles. Yet people will always want premium brands, not least in China. There may be more gas left in the tank, particularly for BMW and Mercedes-Benz, than many investors seem to think.

UAW Accuses GM, Stellantis of Unfair Labor Practices

The United Auto Workers union has accused General Motors and Jeep-maker Stellantis of not bargaining in good faith, two weeks before the labor contracts with Detroit automakers are set to expire.

UAW President Shawn Fain said Thursday that the union has filed a complaint with the National Labor Relations Board citing unfair labor practices by the two automakers.

GLOBAL NEWS

Hiring Cooled This Summer. Here's What to Focus On in August's Jobs Report.

Friday's jobs report is expected to show a slowing pace of employment growth alongside historically low joblessness. Adding fewer jobs would take pressure off the Federal Reserve to raise interest rates further.

China Central Bank to Cut FX Reserves Ratio

China's central bank said Friday that it would lower the amount of foreign-exchange deposits banks will have to hold, a move seen as a bid to shore up the yuan.

The People's Bank of China said it would cut the foreign-exchange reserve ratio to 4% from 6%, in order to improve financial institutions' capability to utilize foreign-exchange funds. The central bank said the cut will take effect on Sept. 15.

China Caixin PMI Returns to Expansion

A private gauge of China's factory activity swung to expansion in August, thanks to improved supply and market demand.

The China Caixin manufacturing purchasing managers index rose to 51.0 in August from 49.2 in July, according to data released Friday by Caixin Media Co. and S&P Global.

Hong Kong Trading Session Canceled Due to Typhoon

Hong Kong's trading session was canceled due to a typhoon alert issued by the government, which is at signal No. 8.

"All trading sessions today (Friday) in the securities and derivatives markets, including after-hours trading session, have been canceled," Hong Kong Exchanges & Clearing said at noon after canceling the morning session.

U.S. Sanctions Russian Company Over Alleged Support for North Korean Weapons Programs

The U.S. has imposed sanctions aimed at a Russian company's alleged support for North Korean development of weapons of mass destruction and ballistic missiles, part of a coordinated move with South Korea and Japan.

The U.S. Treasury Department said Thursday that it added three names to its sanctions list: Moscow-based company Intellekt, Russian national Sergey Mikhaylovich Kozlov and Russia-based North Korean national Jon Jin Yong. Intellekt is linked to Kozlov, Treasury said.

Palestinians Press Saudis for Israeli Concessions in Normalization Deal

Palestinian leaders want Israel to relinquish control over small parts of the West Bank and tear down some illegal Israeli communities there as part of any U.S.-brokered deal establishing diplomatic ties between Israel and Saudi Arabia, said Saudi and Palestinian officials-far short of demands they have publicly made in the past.

The relatively modest Palestinian demands offer another sign that the West Bank leadership is willing to cooperate with White House efforts to broker a landmark Middle East deal.

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

(END) Dow Jones Newswires

09-01-23 0527ET