European Midday Briefing : Stocks Notch Cautious Gains as Fed Minutes Awaited

MARKET WRAPS

Stocks:

European stocks mostly edged higher on Wednesday as traders awaited further insight on Federal Reserve policy and despite a fresh batch of disappointing Chinese data.

Wall Street is betting the Fed will pause its interest-rate increases in September, and traders will be scouring the minutes from the Fed's July 25-26 meeting for clues on the central bank's next move.

"Recent commentary from several FOMC policymakers would appear to suggest growing splits between those who think that a lengthy pause is appropriate now, and those who want further tightening," CMC Markets UK said.

"It will be interesting to see whether these come to the fore in the minutes given how they are already manifesting themselves in recent commentary."

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Bayer is facing a host of challenges and its shares don't look cheap, Berenberg said, as it downgraded the stock to hold from buy. Read more .

U.S. Markets:

Futures pointed to slim gains for stocks as investors awaited new insight into how policy makers are viewing the outlook for inflation and interest rates, with the Fed minutes.

Elsewhere, the benchmark 10-year Treasury yield slipped early Wednesday, after notching its highest end-of-day level since October.

Major U.S. retailers Target and TJX will publish results later Wednesday. These follow strong earnings on Tuesday from Home Depot, which said cost inflation was easing.

Follow WSJ markets coverage here .

Forex:

An expected prolonged period of high U.K. policy rates versus the eurozone is expected to weigh on the euro versus sterling, TickMill Group said.

Money-market pricing suggests the Bank of England's bank rate will rise to 6% and remain at that level until June 2024, while the European Central Bank's deposit rate is expected to peak around 3.75% before starting to decline, trailing behind the U.K., TickMill added.

"This prolonged period of higher interest rates in the U.K. could exert downward pressure on the EUR/GBP exchange rate."

Market participants will closely monitor interest-rate differentials and central bank policies between the U.K. and the eurozone, as these will likely influence EUR/GBP, it said.

Sterling rose after data showed U.K. annual CPI inflation slowed to 6.8% in July from 7.9% in June but was still high enough to suggest the BOE will raise interest rates further. Core inflation remained at a high 6.9%.

"Today's data has added to the expectations the BOE is likely to raise interest rates further in response," XTB said.

Read U.K. Inflation Slows in July, but Still a Worry

Read Chasing USD Weakness Is a Poor Risk-Reward Strategy, JPM Says

Bonds:

Over the past few months, institutional asset managers have pared back their demand for duration, although they remain somewhat bullish, Deutsche Bank said.

"The positioning pullback came as a period of very strong and steady inflows into long-term government bond funds earlier this year started to reverse more recently," Deutsche Bank said.

Its 10-year fair value model shows that after adjusting for various factors that drive the level of yields, the positioning variable has contributed between -10 basis points and +20 basis points to yields over the past year.

"Currently, bullish asset manager positions are estimated to be depressing 10y yields by about 5bps."

Energy:

Crude oil prices were steady, with worries over Chinese demand outweighing supply tightness concerns.

"Concerns that China's faltering economy will weigh on demand offset tight supply in the oil market," ANZ said, adding markets were in a "risk-off" mood.

This is despite tight supply with oil inventories in Cushing falling to their lowest level since April, according to ANZ.

"Asian refineries are also snapping up all available U.S. cargoes of oil. Rongsheng Petrochemical secured millions of barrels from the spot market last week," ANZ said.

Metals:

Base metals and gold were little changed, as the prospect of further rate hikes from the Fed and weak demand in China bites.

Weak economic data from China has added pressure to metals, with retail and industrial production figures disappointing, ING nopted.

And stronger-than-expected retail sales in the U.S. has raised doubts over whether the Fed is really done with its tightening cycle, ING said.

"Any further data suggesting the Fed still has more work to do will likely put pressure on gold prices."

DOW JONES NEWSPLUS

EMEA HEADLINES

Eurozone Industrial Output Books Surprise June Growth

The eurozone's industrial output increased unexpectedly in June, despite sluggish production in the bloc's largest economies.

Total production rose 0.5% in June compared with the previous month, data from European Union statistics body Eurostat showed Wednesday. This defied an expected monthly decline of 0.6%, per economists polled by The Wall Street Journal. Compared with the same month a year ago, production was down 1.2% in June, better than the expected 4.2% slump.

Carlsberg 1H Adjusted Earnings Beat Forecasts Driven by Higher Volumes

Carlsberg on Wednesday posted forecast-beating first-half adjusted earnings after continued volume growth was driven by Asia and its premium brand portfolio.

The Copenhagen-based brewer said strong revenue growth was partly offset by cost inflation and higher sales and marketing investments, while adverse foreign exchange movements also weighed.

Aviva Expects to Exceed Mid-Term Targets After 1H Operating Profit Slight Beat - Update

Aviva beat its guidance and analyst expectations as it reported higher operating profit for the first half of 2023 on growth across its divisions and said it expects to exceed its mid-term financial targets.

The British insurer and asset manager on Wednesday posted an operating profit for the six months ended June 30 of 715 million pounds ($908.5 million), slightly ahead of company-complied consensus expectations of GBP701 million and its recently-issued guidance of around GBP700 million. This compares with restated GBP661 million reported for the same period the previous year.

Russia's Central Bank Can't Stop Ruble Trouble

Russia's currency crisis might not follow the classic emerging-market template: Rather than a sharp depreciation stemmed by painful interest-rate rises, we are more likely to see a slow but inexorable decline.

The Bank of Russia raised borrowing costs from 8.5% to 12% Tuesday in an attempt to stop a slide in the ruble. A day earlier, $1 briefly bought as much as 102 rubles, prompting rate setters to call an emergency meeting. The exchange rate depreciated again Tuesday after the expectation of an interest-rate increase triggered only a fleeting recovery.

Vital Natural Gas Is Being Stashed in Caverns Beneath War-Torn Ukraine

A daredevil trade is in vogue among commodity merchants: Stashing natural gas in caverns beneath the surface of war-torn Ukraine.

The wager could reap hundreds of millions of dollars collectively for traders such as Trafigura Group, Vitol and Gunvor Group, people familiar with the matter said. Others looking to cash in include oil-and-gas giants such as Shell and utilities such as Switzerland's Axpo.

Race to Control Electric-Vehicle Supply Chains Leads to Africa

JOHANNESBURG-Pressure to create supply chains for electric-vehicle batteries that bypass China is prompting Western miners to do something they have long avoided: process their metals in Africa.

China dominates both the production and processing of critical minerals such as cobalt and lithium that are key to the energy transition. That has led to growing concerns among Western governments, including in Washington, about their dependence on Beijing.

GLOBAL NEWS

China Stocks Hit as Selloff, House Prices, and Yuan Add to Economic Pain

Chinese stocks were sliding on Wednesday as a fresh batch of bad news weighed on sentiment.

Official data showed new home prices in China's major 70 cities fell in July, and the yuan held around a nine-month low against the dollar.

This bull market isn't finished yet, but stocks could lose up to 10% from here

Stock-market strategist Hayes Martin has good and bad news for stock market bulls.

First the bad: The decline that began in late July/early August will eventually take between 8% and 13% off the market averages, Martin says. (The S&P 500 is underwater in August already.) The good news, he adds, is that the coming decline will not spell the end of the bull market and the start of a new bear market.

The S&P 500 is flashing a warning that U.S. stocks are likely headed lower after breaking below its 50-day moving average

The S&P 500 on Tuesday closed below its 50-day moving average for the first time since March. It could portend more losses for the index, technical analysts said, suggesting that the summertime stock-market selloff isn't over yet.

After trending lower all session, the index SPX closed down 51.86 points, or 1.2%, to 4,437.86 on Tuesday, its lowest closing level since July 11, according to FactSet data.

Fed's Kashkari says he's not ready to say Fed's done with rate hikes

Minneapolis Federal Reserve President Neel Kashkari said Tuesday that he is not ready to declare victory in the battle over high inflation.

"Inflation is coming down. We have made progress and good progress. I feel good about that. It's still too high," Kashkari said, during a discussion during the APi Group's Global Controllers Conference.

What's Next for Trump After Being Charged With Racketeering in Georgia

Donald Trump was indicted in Georgia on charges of racketeering and a dozen other offenses. The indictment painted a picture of a sweeping criminal enterprise to undo Joe Biden's 2020 victory in the state.

Here's what to watch as the case goes on:

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08-16-23 0541ET