European Midday Briefing: Stocks Start Busy Week With Solid Gains

MARKET WRAPS

European stocks made solid gains to start a busy week of economic data and a possible European Central Bank interest rate cut.

U.S. consumer-price inflation data for August will take center stage as investors anticipate the Federal Reserve will start cutting interest rates this month.

On Thursday, the ECB is widely expected to cut its deposit rate by 25 basis points to 3.50%, though it is likely to be cautious about prospects for further cuts as services inflation in particular remains relatively elevated.

"A further 25 basis-point cut in September...should be uncontroversial," Nomura, said, adding that preconditions for this, including slower wage growth and weaker service-price momentum, have been met.

Stocks to Watch

Barclays downgraded Adidas to equalweight from overweight, cutting its price target to 215 euros from 254 euros citing its high valuation, uncertainties in the U.S. and weaker Chinese prospects.

Big pharma's 11% return on R&D investment this year is encouraging, particularly in light of the U.S. Inflation Reduction Act, Berenberg said.

Kering's core brand Gucci is likely to be stuck in its turnaround for a while due to a tough luxury-demand environment and the time it will take for new products to ramp up RBC said, cutting its recommendation on the stock to sector perform from outperform, and trimming its target price to 290 euros from 310 euros.

Deutsche Bank downgraded Pernod to sell from hold, and Remy Cointreau to hold from buy.

U.S. Markets:

Stock futures were rising and if last week investors were focused on economics, this week might get more political as Kamala Harris and Donald Trump face off in their first debate Tuesday.

In addition to the uncertainty over the Fed's plans, markets are expected to remain volatile heading into the November election.

Few U.S. companies are slated to report earnings this week, though Oracle will report on Monday after the close.

Stocks to Watch

Apple is poised to unveil a new generation of iPhones at its annual fall product event on Monday. Shares rose 0.9%.

Dell Technologies and Palantir Technologies: Both join the S&P 500 index this month and both stocks rose more than 6%.

Nvidia shares advanced more than 1%, after it fell 14% last week.

Forex:

The euro could give back some of its recent gains if the ECB cuts interest rates on Thursday and indicates sufficient inflation progress to ease policy further, according to Swissquote Bank.

Eurozone inflation is slowing and given significant rate-cut expectations for the Fed, there's room for an increase in ECB rate cut bets, however unlike the Fed the ECB has a single mandate to maintain price stability, it added.

"Therefore, the ECB may not let itself [be seduced] by faster rate cuts if European officials think that there is the slightest chance that inflation could pick up momentum in the next few months."

The dollar edged higher, recovering from recent falls, but was prevented from rising too much as investors continued to price in aggressive interest rate cuts by the Fed, Unicredit Research said.

The market prices in more than 100 basis points of Fed rate cuts by year-end and more than 200 basis points by July 2025, and the scenario is preventing any sustained dollar recovery and might not rule out new lows in the near term, it added.

ING said the debate between Harris and Trump will be key for the dollar's direction as it could prove to be one of the biggest market movers this week.

"Joe Biden's poor performance in the previous debate in late June presaged a swing in the polls towards Trump and a firmer dollar."

ING expects a Trump victory would be positive for the dollar due to the prospect of loose fiscal policy and tight monetary policy as potential tariffs lift inflation.

A Harris win is expected to weaken the dollar due to possibly tighter fiscal and looser monetary policies, it said.

Sterling's muted reaction to a survey Monday that showed U.K. permanent job placements fell at an accelerated pace in August is surprising, Monex Europe said.

The REC survey leaves market pricing for BOE interest-rate cuts looking overly conservative, it added.

Bonds:

German Bunds look set to remain supported by U.S. tailwinds and shaky risk sentiment at the start of the week, Commerzbank Research said.

"While the air for 10-year Bund yields is getting thinner below 2.2% as Federal Reserve and European Central Bank easing expectations look stretched in our view, the market's rate-cut excitement could extend ahead of the U.S. CPI and ECB decision."

Jefferies saw the trough of the ECB's rate path at around 2.50%-2.75% if the growth and inflation data pans out as expected.

Having already started to cut interest rates, the ECB's rate path is much clearer than that of the Fed, it said.

"We expect the ECB to cut at a gradual pace of 25 basis points a quarter for the coming meetings, data dependent, and move its rates below 3%."

Energy:

Oil prices rose more than 1% following a steep weekly loss as the U.S. warns a weather system forming in the Gulf of Mexico could strengthen into a hurricane by midweek, potentially threatening offshore oil-and-gas output.

"Demand weakness and a soft oil balance in 2025 are still clearly a concern," ING said.

"While OPEC+ cuts leave the market a bit tighter for the remainder of this year, this doesn't resolve the surplus that is expected next year."

Traders await monthly reports from the EIA, OPEC and the IEA this week for fresh insights into supply and demand trends.

Metals:

Gold futures continued to hover within a tight range, with market focus primarily on the size of the upcoming Fed interest-rate cut later in September, market watchers said.

August's inflation data, and producer price index data on Thursday will be scrutinized for further clues on the Fed's pathway to monetary policy easing.

Base Metals

Copper, aluminum, zinc and nickel gained in a price correction after a sharp selloff, although copper and aluminum remain down on week.

China's metal-exchange stocks have declined, which could increase demand in the near term.

Shanghai Futures Exchange inventories fell for all base metals other than lead over the reporting week, with copper stocks recording their biggest weekly decline since March 2023, ING said.

Aluminum inventories also fell, with marginal decreases in zinc and nickel stocks.

Iron Ore

Fourth-quarter iron-ore prices are unlikely to fall below $90 a metric ton for a sustained period because of the industry's cost structure, and Commonwealth Bank of Australia expects prices will range between $100-$110 a ton.

EMEA HEADLINES

'Super Mario' Draghi Pitches Radical Change to Fix Europe's Economy

BRUSSELS-Mario Draghi wants to rescue Europe again.

The 77-year-old former European Central Bank president, famous for his pledge to "do whatever it takes" to save the euro during Europe's debt crisis, on Monday delivered his prescription for jump-starting Europe's sluggish economy and strengthening its defense industry.

Europe's heading for a recession as the U.S. consumer buckles, strategist warns

Europe is heading into a recession as the U.S. consumer buckles, a strategist warned, advising investors to shift into defensive stocks.

BCA chief European strategist Mathieu Savary says investors should focus on forward-looking indicators rather than current measures that show the economy is still expanding.

OCI Global to Sell Methanol Business for $2.05 Billion

The Netherlands-based OCI Global has agreed to sell its methanol business for $2.05 billion as part of its continuing efforts to pare debt.

OCI said Monday that it has agreed to sell the methanol business to Methanex Corp. in a cash and share deal.

Entain Online Net Gaming Revenue Grows Ahead of Expectations

U.K. betting-and-gambling group Entain said its online net gaming revenue has grown ahead of expectations in the second half of year so far as the positive momentum of the second quarter continues.

The company, which houses Coral, Foxy Bingo and Partypoker brands, said Monday that international and Central and Eastern Europe regions continue to perform well, while the U.K. and Ireland online business has returned to growth earlier than anticipated.

GLOBAL NEWS

September Is Once Again a Tough Month for Stocks

September is living up to its reputation as a tough month for stocks.

The S&P 500 fell 4.2% last week on concerns about the health of the U.S. economy. Friday's monthly jobs report showed the labor market added fewer jobs than expected. Tuesday's weak manufacturing data led stocks to their worst day since early August.

A Guide to Why You Should Buy Bonds (And Why You Shouldn't)

If you buy bonds, make sure you do it for the right reasons.

Whereas equity investors have had a bumpy few months, believers in the venerable 60/40 portfolio should be permitted a victory lap: As the S&P 500 delivered a negative 5.1% return between the end of July and Aug. 5, a portfolio consisting of 60% U.S. equities and 40% 10-year Treasurys lost only 2.6%. Then, the 4.2% stock drawdown that happened last week translated into only a 1.9% loss for the 60/40 portfolio.

China Still Isn't Seeing Much Inflation

China's consumer inflation picked up amid supply constraints caused by abnormal weather, though the reading is unlikely to shake off concerns around limp demand and other pressures facing the world's second-largest economy.

The country's consumer-price index rose for a seventh consecutive month in August, increasing 0.6% from a year earlier, China's National Bureau of Statistics said Monday. That fell short of the 0.8% rise expected by a Wall Street Journal poll of economists, though it marked an acceleration from July's 0.5% increase.

How Trump and Harris Compare on Key Policy Issues

(MORE TO FOLLOW) Dow Jones Newswires

September 09, 2024 06:27 ET (10:27 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.