EMEA Morning Briefing: Markets May Take a Breather After Rally

MARKET WRAPS

Watch For:

U.K. retail sales, public sector finances; EU flash consumer confidence indicator; France monthly business survey; no major corporate events expected

Opening Call:

European stock futures were mixed amid a negative lead from U.S. stock futures. Asian stock benchmarks were broadly higher; the dollar weakened slightly; Treasury yields were steady; oil futures were mixed and gold gained.

Equities:

European stock futures were mixed early Friday after the Fed's big rate cut sparked a global rally in stocks yesterday as traders bid up technology shares and other risky assets.

"It's clear the Fed will be cutting rates aggressively over the next year and that's what should matter to markets and risk assets," said Ross Mayfield, investment strategist at Baird.

A stable economic backdrop and lower interest rates should broaden the opportunity in equities, said Ashish Shah, global co-head and chief investment officer of Public Investing within Goldman Sachs Asset Management.

In small cap stocks, a favorable valuation envelope is meeting an improved 2025 earnings outlook and creating opportunities in health care, particularly biotech, along with the software sector in technology and insurance stocks in financials, Shah said.

Earlier Friday, the Bank of Japan left its short-term policy rate unchanged, while China also maintained its benchmark lending rates.

Forex:

The U.S. dollar weakened early Friday. A general mood of "risk on" is widely acknowledged as a "gently softer USD adds to the allure of risk assets," said Vishnu Varathan, head of Macro Research for Asia ex-Japan, at Mizuho Securities (Singapore).

"The seduction of a Fed proactively engineering a soft-landing has overtaken misgivings about the hawkish temperance to an upsized 50bps cut by the Fed," Varathan said.

Bonds:

The Bank of England's decision to maintain the overall reduction of its gilt holdings--or quantitative tightening--at 100 billion pounds in the year starting in October shows that it is keener on cutting the size of its bond holdings rather than the impact of gilt sales in the market, Deutsche Bank chief U.K. economist Sanjay Raja said.

"By maintaining a steady quantitative tightening envelope the monetary policy committee has implicitly signaled that the Bank puts more weight on the total stock of gilt reduction as opposed to the Bank's active sales footprint."

Energy:

Oil prices were mixed, but may be supported by demand hopes. There's a media report that U.S. refineries plan to undertake their lightest preventive maintenance season in three years, which should boost demand for crude oil in coming months, ANZ Research analysts said.

This comes after data earlier this week showed U.S. commercial crude oil inventories had dropped to their lowest level in nearly a year, the analysts added.

Metals:

Gold was higher, supported by Middle East tensions that should maintain safe-haven demand for the precious metal. Israel launched a wave of airstrikes against Hezbollah targets in southern Lebanon on Thursday, which were more extensive than in previous days.

The return of geopolitical tensions to the forefront could sustain gold's "shine" or even push it to more historic peaks swiftly, said Samer Hasn, senior market analyst at XS.com.

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Copper prices rose, supported by the risk-on tone across markets. The U.S. Fed's rate cuts has eased concerns of weak demand, ANZ Research said.

The lower rates should help release the pent-up demand from the U.S. housing market, they said, as data earlier this week showed that U.S. housing starts jumped 9.6% to 1.36 million units in August, the fastest pace since April.

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Iron ore futures were higher, supported by favorable sentiment in the black metal sectors following the U.S. Fed rate cut, said Huatai Futures analysts.

However, analysts cautioned that supply is expected to outpace demand in the medium-to-long term, which could exert downward pressure on prices.

TODAY'S TOP HEADLINES

Japan Consumer Inflation Picked Up in August Amid BOJ Rate Hike View

TOKYO-Japan's consumer inflation grew at a faster pace in August and stayed well above the Bank of Japan's 2% target amid expectations for an additional rate increase in the near term.

Overall consumer prices rose 3.0% in August from a year earlier, compared with July's 2.8% growth, government data showed Friday. The pace of price increases in food and household durable goods picked up during the month.

China Keeps Benchmark Lending Rates Unchanged

China kept its benchmark lending rates unchanged on Friday, despite growing expectations for a cut after the U.S. Federal Reserve's larger-than-expected interest rate reduction earlier this week.

The one-year loan prime rate was maintained at 3.35%, and the five-year rate at 3.85%, the People's Bank of China said.

Japan's Central Bank Keeps Rates Unchanged

TOKYO-The Bank of Japan left its short-term policy rate unchanged Friday as it examines how the economy and markets are digesting its most recent interest-rate increase.

The Japanese central bank maintained its target for the overnight call rate at 0.25% after raising it to that level in July. In March, the BOJ ended the world's last negative interest rate policy and set the target at a range of 0% to 0.1%.

U.K. Consumers Turn Notably Gloomier, Survey Says

Consumers in the U.K. have become significantly more pessimistic this month, pointing to weaker personal finances and economic activity, with borrowing costs set to stay high after the Bank of England chose to hold interest rates.

Research group GfK's measure of consumer confidence tumbled to minus 20 in September, well down on the minus 13 of July and August. Key future indicators on personal finances, the economy and purchase intentions all turned sharply lower, GfK said Friday.

U.K. Consumers Turn Notably Gloomier, Survey Says

Consumers in the U.K. have become significantly more pessimistic this month, pointing to weaker personal finances and economic activity, with borrowing costs set to stay high after the Bank of England chose to hold interest rates.

Research group GfK's measure of consumer confidence tumbled to minus 20 in September, well down on the minus 13 of July and August. Key future indicators on personal finances, the economy and purchase intentions all turned sharply lower, GfK said Friday.

Mercedes-Benz Group Cuts Full-Year Outlook, Citing Macroeconomic Deterioration

Mercedes-Benz Group lowered its full-year outlook, a move it said was triggered by the further deterioration of the macroeconomic environment, specifically in China.

The German luxury car brand on Thursday said its cars unit is now expected to post an adjusted return on sales between 7.5% and 8.5%, down from a prior outlook between 10% and 11%, for the year. This outlook implies an expected adjusted return on sales of around 6% for the second half of the year, it said.

Nike CEO John Donahoe Stepping Down After Rocky Tenure

Nike leader John Donahoe will retire as chief executive next month after nearly five years at the helm, capping a tenure marked by a series of missteps that caused the sneaker giant to lose ground to competitors.

Elliott Hill, who in 2020 retired as the company's president of consumer and marketplace, will succeed Donahoe as president and CEO starting Oct. 14, Nike said Thursday. Donahoe will also step down from the board of directors.

Warren Buffett's Berkshire Hathaway Sells More Bank of America Stock. Here's How Much It Has Left.

Berkshire Hathaway resumed sales of Bank of America stock in recent days, unloading about $900 million worth of shares and dropping its stake in the big bank to $34 billion, or 10.8% of the shares outstanding.

Berkshire sold 22.3 million shares of Bank of America on Tuesday, Wednesday, and Thursday at prices averaging $39.58 to $40.78, according to a Form 4 filing with the Securities and Exchange Commission late Thursday. Berkshire now owns 836 million shares.

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Expected Major Events for Friday

04:30/NED: Sep Consumer confidence survey

06:00/GER: Aug PPI

06:00/UK: Aug Public sector finances

06:00/DEN: Sep Consumer expectations

06:00/UK: Aug UK monthly retail sales figures

06:45/FRA: Sep Monthly business survey (goods-producing industries)

07:00/SPN: Jul Trade Balance

07:00/SPN: Jul Industrial Orders & Turnover

07:00/SWI: 2Q Balance of Payments

08:00/ICE: Aug Harmonized CPI

08:30/UK: 2Q Bank of England statistics on UK banks' external claims

08:30/UK: Aug Monthly Insolvency statistics

09:00/LUX: Aug Unemployment

09:00/LUX: 2Q Balance of Payments

09:00/BEL: Sep Consumer Confidence Survey

10:00/UK: Aug Aluminium Production report

14:00/EU: Sep FCCI Flash Consumer Confidence Indicator

15:59/GRE: Jul Balance of Payments

17:59/POR: Jul ICSG Copper Report

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(END) Dow Jones Newswires

September 20, 2024 00:15 ET (04:15 GMT)

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