MARKET WRAPS

Watch For:

EU-CELAC summit opens; Germany Bundesbank monthly report; Italy CPI; trading updates from Richemont, Galp, Investor AB, TomTom

Opening Call:

Shares may lose ground in Europe on Monday, as Asian stock benchmarks weakened after Beijing released weaker-than-expected growth data in the second quarter; the dollar slightly gained; oil fell on possible profit-taking, while gold declined.

Equities:

European stocks could falter on Monday, likely tracking weakness in Asian markets, after China's economy barely grew in the second quarter from the first.

China's economy grew just 0.8% in the second quarter compared with the first three months of the year, China's National Bureau of Statistics said Monday, less than half the 2.2% quarterly pace recorded in the January-to-March period.

The result reflected weak retail sales, subdued private-sector investment and a reversal in exports -- which propelled growth throughout the pandemic -- but they are suffering now as major central banks ratchet up interest rates.

The figures from China contrast with better economic news in the U.S., which is giving investors hope that the Federal Reserve might be able to pull off what once seemed impossible: containing pricing pressures without tipping the economy into recession.

The U.S. consumer-price index rose in June at the slowest year-over-year pace in more than two years. Inflation in wholesale prices cooled even more. An index measuring the prices fetched in June by warehouses, factories, farms and energy producers rose at its slowest pace since August 2020.

In the week ahead, investors will have an opportunity to consider reports on retail sales and existing-home sales.

Forex:

The dollar is rising a little amid deteriorating risk appetite driven by losses across most regional equity markets.

"We see a short-term USD bounce and medium-term weaker USD," Bank of America said.

Signs of cooling prices fuel bets on a more dovish Fed, even as officials hesitate in calling victory over inflation just yet.

Wells Fargo said sentiment "remains depressed compared to its pre-pandemic position, but it has pretty much picked up."

The CME's FedWatch tool prices 96% odds of a rate increase this month taking the targeted range to 5.25%-5.5%.

The odds remain higher for that rate level lasting until March, when markets price 40% chance of a 25-basis point cut. Next week brings housing data.

Bonds:

Treasurys didn't trade in Asia due to a holiday in Japan.

Treasury yields advanced on Friday, a day after Federal Reserve Board Gov. Christopher Waller said he wasn't swayed by June's benign consumer inflation data, and that he wants the central bank to go ahead with two more 25-basis-point rate hikes this year.

Investors had been hoping the Fed would end its rate-hike series with just one more hike in 2023 after June's producer price index and consumer price data showed inflation easing.

Energy:

Oil futures fell in Asia amid possible profit-booking.

Oil hit an 11-week high on Friday, which prompted a bout of profit-taking, ANZ Research said. Weak refining margins in the U.S. also haven't helped market sentiment, it added.

"Oil benchmarks have been reinvigorated by the ailing U.S. dollar as markets ramp up hopes that the Fed's rate-hike cycle will soon come to an end," said Exinity Group.

"Supply disruptions in Libya and Nigeria, along with lower Russian shipments, have added to crude's latest surge, even allowing oil bulls to shrug off concerns over China's slowing economy for now."

Production at Libya's El Feel, Sharara and 108 oilfields was shut on Thursday in protest against the abduction of a former finance minister, Reuters reported Thursday afternoon, citing comments from a tribal leader.

Metals:

Gold futures edged lower in a likely technical correction after posting their best week since April on Friday.

The precious metal formed a relatively small bearish engulfing candle on the daily chart, which points to a potential retracement of some of its recent gains, said Matt Simpson, market analyst at City Index and https://urldefense.com/v3/__http://FOREX.com__;!!F0Stn7g!Ah0IHuMYlpG6PJn7JInGQMHmGNn4oYnEMcqRgLdS5Lq4M78RJtk_vHo-a_jubl9OOQ5LJGQ42P5tN8sEwCw2Hv9-Q6sTeRxF_4445ZTdxzA$ .

Also, the 4-hour chart shows the rally stalled at June's "volume point of control," and a choppy consolidation has formed, Simpson added.

Gold futures edged higher on Friday to notch a fourth straight session gain, ending nearly 2% higher for the week as recent data showed a slowdown in U.S. inflation.

"Lower inflation used to be, in a sane world, bearish for gold," wrote Brien Lundin, editor of Gold Newsletter. "These days, because falling inflation promotes a more dovish Fed, it's bullish for every asset class, including gold."

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Copper fell in possible position adjustment ahead of this morning's release of Chinese economic data, including second-quarter GDP.

Investors will probably remain cautious regarding China, as further stimulus would be needed to reverse slowing commodity demand, TD Securities said.

From this perspective, copper prices could be vulnerable to the downside once again as worsening demand signals remain the most important factor for industrial metals in the short term, TD added.

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Chinese iron-ore prices dropped, retreating from last week's gains as output from steel mills weakened.

That signals softer demand for iron ore, one of two key raw materials used in steelmaking.

Baocheng Futures noted that Chinese mills' average daily output of hot metals has been falling recently, weighing on consumption of iron ore.


TODAY'S TOP HEADLINES

China's Economy Barely Grows as Recovery Fades

SINGAPORE-China's economy barely grew in the second quarter from the first and youth unemployment hit a record high in June, providing evidence of a fading recovery that risks leaving the global economy underpowered this year as recession stalks the U.S. and Europe.

The sluggish pace of growth in 2023 is piling pressure on Beijing to reignite an expansion that is in danger of fizzling out as consumers refrain from spending and exports slump. A drawn-out real estate crunch and shaky local-government finances are compounding the the gloom. More than a fifth of Chinese age 16 to 24 are out of work.


China PBOC Adds Liquidity at Unchanged Policy Rates

China's central bank on Monday injected liquidity into the nation's financial system via its monetary instruments at unchanged interest rates, signaling a hold on benchmark lending rates this month after June's cuts.

The People's Bank of China injected 103 billion yuan ($14.42 billion) of liquidity via the one-year medium-term lending facility at an interest rate of 2.65%. It also provided CNY33 billion of funds through seven-day reverse repurchase agreements at an interest rate of 1.90%.


Markets Appear Convinced the Fed Can Pull Off a Soft Landing

Wall Street is more convinced than ever that inflation is subsiding.

That's giving investors hope that the Federal Reserve might be able to pull off what once seemed impossible: containing pricing pressures without tipping the economy into recession.


What Markets Are Saying About the Fight Against Inflation

New signs of cooling inflation sparked market gains last week. But is the pain from inflation-and the Federal Reserve's interest-rate-raising campaign to fight it-really over?

Here is what market gauges are showing:


A Buoyant Global Economy Is Starting to Sag

The global economy's brief run of good luck may be ending.

Manufacturing activity is weakening across the world. Europe slid into a mild recession earlier this year. China's much-anticipated rebound from Covid-19 lockdowns is sputtering. Many emerging markets continue to struggle with heavy debt burdens and high interest rates.


Economists Are Cutting Back Their Recession Expectations

Economists are dialing back recession risks.

Easing inflation, a still-strong labor market and economic resilience led business and academic economists polled by The Wall Street Journal to lower the probability of a recession in the next 12 months to 54% from 61% in the prior two surveys.


Changing Places: Europeans Grow More Assertive on Ukraine as Washington Shows Caution

VILNIUS, Lithuania-Last week's NATO summit revealed a major realignment within the U.S.-led trans-Atlantic alliance.

European nations, once seen as less steadfast in their support for Kyiv and more vulnerable to Russian pressure, are determined to help Ukraine win an unambiguous victory. At the same time, the Biden administration, which orchestrated a unified Western response to Russian President Vladimir Putin's invasion last year, is increasingly cautious-constrained by domestic politics and a fear of direct confrontation with Moscow.


Russia Pulls Back From Humanitarian Cooperation at U.N.

Russia is poised to end its cooperation at the United Nations in key humanitarian areas as the Kremlin faces a difficult fight in Ukraine and is eager to shore up support at home amid recent domestic instability, Western officials said.

In recent weeks, Russia has pushed for the removal of a U.N. peacekeeping mission from Mali, blocked a critical U.N. aid supply line for Syria, and is now threatening to end an agreement that allowed Ukraine to resume its Black Sea grain exports, officials say.


H&M Now Wants to Sell You Makeup, Sofas and Crocs

H&M Hennes & Mauritz is moving further beyond its eponymous clothing label, doubling down on beauty products, housewares and selling products from other brands to draw in more shoppers.

The retailer is opening stand-alone beauty and home stores even as it continues to close its namesake clothing shops. Meanwhile, it is expanding the handful of other chains it owns including upmarket brand Cos and street-fashion label Weekday. It is also selling more third-party brands, including Adidas and New Balance sneakers, in its stores and online.


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07-17-23 0016ET