MARKET WRAPS
Watch For:
Germany ZEW indicator of economic sentiment; UK unemployment; trading updates from Legal & General, Sberbank, Pandora
Opening Call:
Shares may open stronger in Europe on Tuesday in the wake of gains in U.S. equities. In Asia, stock benchmarks were mixed; Treasury yields were little changed amid fresh inflation concerns; the dollar was steady; while oil advanced and gold retreated.
Equities:
European stocks could start out in positive territory on Tuesday, tracking overnight gains on Wall Street.
However, investors will have to digest today's raft of news from China, including the central bank cutting its two key policy rates, signaling that the country's benchmark lending rates will fall later this month.
There was also news that China's consumption and investment cooled further in July, while factory production growth decelerated.
Concerns about a possible return of U.S. inflation are still in focus, with rising gas prices adding to concerns in the months ahead.
"From our point of view, the market has started worrying about inflation again," said Independent Advisor Alliance.
"People are worried the very encouraging CPI number last week is another head fake on inflation because of the PPI report that came out relatively strong" the next day, said Baltimore-based Facet.
Real-time inflation forecasting tools are now calling for inflation data to reaccelerate due partly to rising energy costs, according to Glenmede.
It said that with the S&P 500 having surged over the first two quarters of this year and "trading sideways" over the past month, "current market levels and valuations do not appear commensurate with the outstanding risks."
Forex:
The dollar held steady in Asia after the People's Bank of China cut policy rates in a likely effort to support China's ailing economy.
Given mounting worries over China's growth, Treasury yields "defying gravity," and the uptrend in oil prices, emerging-market currencies have been under some pressure, said MUFG Bank, in a research note.
The U.S. retail sales report looms as the next potential catalyst for dollar moves, said Corpay, "with major uncertainties remaining around the durability of consumer spending in the world's largest economy."
It added that Fed minutes, due Wednesday, could show officials unconvinced that inflation is coming down at a sustainable pace.
It said the market seems to be betting Fed Chairman Powell will deliver a more hawkish message at the Jackson Hole meeting later this month.
The dollar has been strong this summer but it is expected to enter a weakening trend toward the year-end, ING said.
High U.S. rates, a surprisingly strong U.S. domestic economy and a soft overseas investment environment have all combined to keep the dollar strong this summer, it said.
"It is hard to see this changing much over the coming months, but by the fourth quarter, we think there will be enough evidence of a U.S. slowdown for the dollar to be embarking on a bearish trend," it said. After some more range-bound trading over this summer, it expects clearer signs of the dollar bear trend to be emerging into the fourth quarter.
Bonds:
Treasury yields were barely changed, as traders reassessed the prospects for U.S. inflation in coming months.
Observers saw reasons to be cautious about July's consumer-price index, which was released last Thursday. Then on Friday, the July producer-price index came in hotter-than-expected.
Now, market participants are turning their attention to the months ahead, with bigger gains possibly in store for gasoline prices.
With no major U.S. economic data out on Monday, investors looked ahead to updates later in the week that include retail sales on Tuesday, the minutes of the Federal Open Market Committee's July 25-26 meeting on Wednesday, and the leading economic indicators report on Thursday.
Fed funds futures traders priced in an 88.5% probability that the Fed will leave interest rates unchanged between 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by the subsequent meeting in November was seen at 35.4%.
The central bank is mostly expected to take its fed-funds rate target back down to around 5% or lower next May.
Energy:
Oil prices rebounded from earlier losses that were sparked by worries over China's economy.
The concern for many traders is that it appears like China, a major oil consumer, might not be able to post growth of more than 5% this year, which could have severe ramifications for global growth expectations, said Oanda.
"If China doesn't get some major stimulus, global growth concerns won't be going away anytime soon. The oil market is likely to remain tight, but if China jitters intensify, Brent crude could still drop a few dollars," it said.
Metals:
Gold slipped in Asia, possibly weighed by higher Treasury yields, which undermine the appeal of the non-interest-bearing precious metal.
The short-term technical outlook remains bearish until a clear bullish reversal pattern emerges, said Fawad Razaqzada, market analyst at City Index and https://urldefense.com/v3/__http://FOREX.com__;!!F0Stn7g!AWhDkdvAm82wF4eW0t85krR1gVtUyWC_ecNtoy9p6IMnj4R4UXRGukrYd7MnKPXqNlQAOSQtjUNixtIvihZ9EpHGhzhbVbL39jwHT7ci0Jc$ , noting gold's recent two-week decline.
As such, the next downside target for gold is at $1,900/oz, the next "round handle" where there is also the 200-day moving average, the analyst added.
The focus this week will be on U.S. retail sales data due on Tuesday, followed by the minutes of the Federal Open Market Committee's July meeting on Wednesday afternoon.
---
Copper prices were lower, as China's weak economic data and property giant Country Garden's debt problems weighed on the commodity.
Copper is used widely in the manufacturing sector and building construction.
Chinese data showed that consumption and industrial activity cooled further in July.
"Copper edged lower as signs of stress in China's property market continued to hang over the market," ANZ said.
---
Iron-ore futures were higher as short-term demand remained resilient.
China data released earlier today were in focus, which showed that consumption and investment cooled further in July while industrial production growth slowed.
In terms of supply and demand, analysts expected slag output to remain high in the near term amid resilient demand, ITG Futures said.
TODAY'S TOP HEADLINES
China's Consumption, Investment Cooled Further in July
China's consumption and investment cooled further in July while factory production growth decelerated, official data showed Tuesday.
China's retail sales, a key metric for the country's consumption, rose 2.5% from a year earlier in July, down from a 3.1% year-over-year increase in June, said the National Bureau of Statistics.
China's Central Bank Cuts Two Key Policy Rates
China's central bank on Tuesday cut two key policy rates, signaling that the country's benchmark lending rates will fall later this month.
The People's Bank of China injected 401 billion yuan ($55.24 billion) of liquidity via the one-year medium-term lending facility at an interest rate of 2.50%, down from the previous 2.65%. It also provided CNY204 billion of funds through seven-day reverse repurchase agreements at an interest rate of 1.90%, down from 1.80% previously.
Japan's Economy Grows at 6% Pace in Second Quarter
TOKYO-Japan's economy expanded at a much faster pace than expected in the April-June quarter thanks to robust exports, outpacing growth in the U.S. and China.
Japan's real gross domestic product increased 1.5% in the three months to June from the previous quarter, compared with 0.9% growth in the January-March period.
Americans are feeling more optimistic about the economy, Fed says. Here's why.
American consumers are feeling less gloomy about the U.S. economy.
People's expectations of rising inflation fell in the near-, medium- and long-term, according to the Federal Reserve Bank of New York's July Survey of Consumer Expectations released Monday.
UBS to Pay $1.44 Billion to Settle Financial Crisis-Era Mortgage Case
UBS will pay $1.44 billion to settle U.S. Justice Department allegations that it defrauded investors who bought bonds backed by mortgages before the financial crisis, marking the end to a decadelong string of prosecutions against Wall Street's biggest players.
The case is the last among more than a dozen DOJ prosecutions against banks and other financial institutions over securities backed by subprime loans, the agency said. Including the UBS case, the DOJ said it reached more than $36 billion in all via settlements with banks including Bank of America, Citigroup and HSBC. Credit Suisse, now owned by UBS, paid $5.3 billion in 2016.
Ukraine Inches Forward in Southeastern Counteroffensive
Ukraine's military registered an advance in the southeast and a successful raid over the Dnipro River in the south that snagged a high-level Russian officer, a boost to its slow-moving counteroffensive.
Ukrainian forces seized at least part of the village of Urozhaine in recent days, according to Russian-installed officials. Kyiv hasn't acknowledged the advance but on Sunday said an attempt by Russian forces to reclaim lost positions in the area of Urozhaine had failed.
Niger Coup Leaders Threaten to Charge Ousted President With Treason
Niger's new military junta suggested Monday that it would prosecute ousted President Mohamed Bazoum for high treason and endangering the West African country's security.
In a statement published on state media, the junta said it also had sufficient evidence to charge unnamed "local and foreign accomplices" of Bazoum, an elected, pro-Western leader who has been held prisoner in his residence since being toppled in a bloodless uprising by his presidential guard on July 26.
Amazon's Leader on Alexa, Echo and Other Devices Plans to Leave
(MORE TO FOLLOW) Dow Jones Newswires
08-15-23 0016ET
