European Midday Briefing: Encouraging China Data Boosts Mood in Europe

MARKET WRAPS

Stocks:

European stocks made solid gains on Friday with some encouraging economic data from China supporting the overall positive mood.

The Chinese data showed improvement in consumer spending and factory output in August as well as a further decline in unemployment, tentative evidence that the slowdown in the world's second-biggest economy that is holding back global growth might be easing.

"There's a growing sense of optimism among a cohort of investors who believe that Beijing's recent initiatives to stimulate the economy and stabilize financial markets are showing signs of success, following the sharp sell-off in August that witnessed record foreign fund outflows from onshore China stocks," SPI Asset Management said.

Stocks to Watch

Chemical companies likely face a few awkward months as signs of a recovery in the sector take time to emerge, Berenberg said, adding that while auto demand has been strong, there were hints of caution toward the sector as pandemic-era backlogs are depleted. Read more .

U.S. Markets:

Stock futures mostly rose, pointing to another day of gains, while Treasury bond yields held steady.

Shares of Arm rose further in offhours trading, last up 7% after jumping 25% in its stock-market debut on Thursday.

Data watch: The Michigan consumer sentiment index for September is due out after the opening bell.

Follow WSJ markets coverage here .

Forex:

Exness said the eurozone's subdued economic outlook could push the euro lower still.

"The euro has been declining since its peak in July, weighed by the deteriorating economy in the euro area while its U.S. equivalent maintained a solid posture," Exness said.

Strong U.S. economic data could also fan prospects of another U.S. interest-rate increase this year, weighing further on the euro against the dollar, it said.

Read EUR/USD's Outlook Still Weak, Charts Show

The dollar edged lower as improved risk appetite and rising equities pulled the safe-haven currency away from Thursday's six-month high, but it remains set for further gains, ING said.

"The dollar may correct a bit lower today, but the risks remain skewed towards further strengthening in the near term."

Bonds:

The ECB's confidence that core inflation will continue to ease gives room to some modest economic growth in 2024 and this is supportive for the corporate bond segment, Vontobel said.

Vontobel thinks the ECB's interest-rate hiking cycle is over after its latest hike.

The BlackRock Investment Institute said easing inflation and the prospect of recession in the coming quarters has bolstered the appeal of high-quality income in bond portfolios.

"For longer maturities, we prefer euro area nominal government bonds over longer-dated U.S. Treasuries," BlackRock said, adding that market pricing of long-run policy rates has overshot in the eurozone relative to the U.S.

While Christine Lagarde didn't fully rule out a further interest-rate rise in the event of data surprises, "we think the bar is high," BlackRock said.

Energy:

Crude futures continued to gain, with the recent rally led by both OPEC and the IEA forecasting deficits to global supply, as cuts from Saudi and Russia take hold, BMI said.

BMI added that the supply picture is being further compounded by various unplanned outages among other major producers, noting "a brief shutdown of Libyan oil export ports and power and maintenance-related outages in Kazakhstan."

Metals:

Base metals were mixed with sluggishness in demand growth, from China and the rest of the world, continuing to put pressure on prices, HSBC said.

While the debate on what kind of policy support from China should be coming, discussions should be more focused on the timing of the stimulus, HSBC added.

"We believe any government stimulus will be broadly supportive of metals demand, but unlikely to drive demand significantly higher as it has in previous years."

HSBC also said metals associated with the energy transition are likely to have structural demand opportunities, with copper, cobalt and lithium likely to remain elevated in the medium to long term. Read more .

DOW JONES NEWSPLUS

EMEA HEADLINES

H&M 3Q Sales Increased 6% on Year, Missing Forecasts

Sweden's Hennes & Mauritz on Friday reported fiscal third-quarter sales that missed expectations, but said its work toward hitting a 10% operating margin in 2024 is heading in the right direction.

"Profitability and inventory levels have been prioritised in the quarter, " it said.

Eurozone Swings to July Trade Surplus Despite Fall in Exports

The eurozone swung to a trade surplus in July, despite declining exports, as imports fell more rapidly.

The bloc's goods-trade balance, measuring the difference between exports to and imports from the rest of the world, showed a surplus of 6.5 billion euros ($6.92 billion), according to data from European Statistics body Eurostat released Friday. In July 2022, the eurozone booked a trade deficit of EUR36.3 billion amid surging costs for energy imports in the aftermath of Russia's full-scale invasion of Ukraine.

Tension Between Ukraine and Ally Poland Over Grain Exports Vexes EU

WARSAW-Russia's blockage of Ukrainian food exports has become a painful political issue next door in the European Union.

EU authorities must decide Friday whether to extend a ban preventing Ukrainian grain from being sold in neighboring EU countries, an issue that has sparked a rift between Kyiv and Poland, one of the Ukrainian government's strongest backers in the war. The temporary ban, aimed at keeping out cheaper exports, expires at midnight Friday.

Russia Seeks to Expand Naval Presence in the Mediterranean

As the U.S. and Russia vie for greater influence in Africa, Moscow is seeking access for its warships to a Mediterranean port in Libya that could expand its naval footprint in the North Atlantic Treaty Organization's backyard.

Senior Russian officials, including Deputy Defense Minister Yunus-Bek Yevkurov, met with Libyan warlord Khalifa Haftar in recent weeks to discuss long-term docking rights in areas he controls in the war-torn country's east, according to Libyan officials and advisers. The Russians have requested access to the ports of either Benghazi or Tobruk, the Libyan officials and advisers said, both of which are located less than 400 miles from Greece and Italy.

GLOBAL NEWS

China's Economy Shows Fresh Signs of Fragile Recovery

SINGAPORE-China's economy showed modest signs of improvement in the late summer after months of feeble growth, tentative evidence that the slowdown in the world's second-biggest economy that is holding back global growth might be easing.

China isn't out of economic danger just yet, with a drawn-out property slump, falling exports and frosty relations with the U.S.-led West among a stack of challenges facing leaders in Beijing.

Rising Rates Make Big Companies Even Richer

The Federal Reserve jacked up interest rates to slow the red-hot economy. At some of the biggest and most secure companies, the moves had the opposite of the intended effect, boosting their profits and spending power.

The winners from higher rates were high-quality borrowers, who locked in low interest rates around the pandemic with bonds maturing further in the future than any time this century. Higher rates have little immediate impact on their borrowing costs-only affecting bonds when they are refinanced-while they earn more on their cash piles straight away.

How Private Equity Stacks Up Against the Stock Market

Blackstone just got added to the S&P 500 index, and this coming Tuesday is International Talk Like a Pirate Day. That makes now a good time to mention two scathing private-equity books that came out a week apart this year, with so much pirate imagery in the titles alone that Johnny Depp might be owed royalties.

One is called These Are the Plunderers: How Private Equity Runs-and Wrecks-America. The other is Plunder: Private Equity's Plan to Pillage America. On cover art, Plunder comes out ahead, with its suit-and-tie skeleton and crossed cutlasses. Plunderers took a big lead on irony last month when KKR (ticker: KKR) agreed to buy its publisher, meaning that private equity now gets a small taste of the proceeds from taking down private equity.

UAW Strikes at Plants Owned by GM, Ford, Stellantis

The United Auto Workers union for the first time ever went on strike at all three Detroit car companies, with about 12,700 workers hitting the picket lines shortly after midnight Friday in targeted work stoppages at plants in Michigan, Ohio and Missouri.

UAW officials initiated the walkout after failing to clinch new labor deals with General Motors, Ford Motor and Jeep-maker Stellantis for about 146,000 U.S. factory workers. Bargaining went late into the night, but the two sides remained too far apart to avoid a walkout at the 11:59 p.m. ET deadline.

China's Defense Minister Being Removed From Post, U.S. Officials Say

Chinese Defense Minister Li Shangfu was taken away last week by authorities for questioning, according to a person close to decision making in Beijing, while U.S. officials say he is being removed from his post.

Li hasn't made a public appearance since late August. The U.S. officials cited unspecified intelligence as the basis for their assessment that he has been relieved of his duties.

Write to paul.larkins@dowjones.com

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

(END) Dow Jones Newswires

September 15, 2023 05:47 ET (09:47 GMT)

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