European Midday Briefing: Stocks Edge Higher Despite Some Disappointing Data

MARKET WRAPS

European stocks were mostly higher on Monday and as traders digested some disappointing Eurozone data , including French and German PMI surveys that came in much weaker than expected.

However, Hamburg Commercial Bank said the European Central Bank would welcome slower input and output price inflation, and an October interest-rate cut could very well be on the table.

Before the data was released money markets already had a 64% probability of a 25-basis-point rate in October priced in, according to LSEG data.

Stocks to Watch

More sell ratings have been slapped on diversified major miners by sell-side analysts over the past three months as iron-ore prices have weakened, Citi said.

While the Street remains in favor of buy ratings on the stocks of BHP, Rio Tinto, Glencore, Anglo American and Vale, 6% of ratings are now sell, up from 2% in July, it said.

"This increase in sell-side caution seems primarily due to lower commodity prices, in particular iron-ore prices, which have been a major earnings driver for the big diversified miners."

The sell side appears to be more positive on Rio, Glencore and Vale versus BHP and Anglo, it added.

U.S. Markets:

Stock futures were struggling for direction as investors close out the last full week of September awaiting a key inflation report.

Several Federal Reserve officials are slated to speak this week, and investors will be listening for any clues they offer on their outlook for the remainder of the year after last week's jumbo cut.

Markets are also awaiting the Fed's preferred inflation gauge, the PCE Price Index for August, due Friday.

Forex:

The euro extended its losses after the eurozone PMI dats trailed expectations. The data followed weaker-than-expected German and French PMIs earlier.

The dollar edged higher after last week's Fed rate cut sparked a brief selloff in the currency.

"FX markets are starting the week in a consolidative mood," ING said.

Sterling rose to its strongest against the euro in two years after the French and German PMIs.

ING said barring a surprise fall in U.K. services PMI, there seems little on the U.K. calendar this week to challenge the market's shallow pricing of the Bank of England's interest-rate cutting cycle.

The Hungarian forint might fall as the National Bank of Hungary could cut interest rates by another 25 basis points to 6.5% on Tuesday and sound "dovish" by signalling further rate cuts, ING said.

Bonds:

Eurozone government bond yields slid after the French PMI survey data.

Deutsche Bank Research lowered its forecast for Treasury yields following the Fed's meeting to reflect a more rapid interest-rate cutting cycle.

The updated forecast puts 2-year and 10-year Treasury yields in the middle of next year at 3.50% and 4.05% respectively, versus 3.95% and 4.25% previously.

Yields across the curve are projected to be 30-50 basis points above forwards in the middle of next year, driven by a higher expected fed funds rate path and term premia compared to market pricing, it added.

Portuguese government bond yields edged higher after Fitch's decision to raise the outlook on Portugal's A- rating to positive from stable as the country continues to reduce its public debt.

"The positive outlook reflects continued progress in reducing public debt, a record of and commitment to prudent fiscal policy, and ongoing external deleveraging, which reduce Portugal's vulnerabilities," it said.

Energy:

Oil prices rose on geopolitical tensions and dovish monetary policy in China, though demand concerns linger.

Brent is enjoying a limited rebound after falling below $70 a barrel earlier in September as escalating tensions in the Middle East brought back risk premiums, though concerns around the level of global demand are still pressing, ING said.

Israel and Lebanon-based militant group Hezbollah accelerated cross-border attacks overnight into Sunday, raising the possibility of all-out war.

Meanwhile, Chinese sentiment appears to be improving after the central bank lowered the reverse repurchase rate by 10 basis points and injected more liquidity into financial systems, and hinted at the possibility of other measures to support economic growth, benefiting oil, ING added.

Metals:

Gold futures slipped, returning some gains from Friday's rally but hovering near all-time highs.

Citi reiterated its bullish stance on gold, with baseline average price projections of $2,800-$3,000 per ounce in 2025.

A sharp rebound in bullion ETF inflows and healthy central bank demand--excluding China--should drive prices higher sequentially over the medium-term, it said, although a steep third quarter decline in Chinese retail gold imports is likely to be a cap on investor enthusiasm and a bearish tailwind to monitor, it added.

Iron Ore

Chinese iron-ore capital investment rose just 4.3% on year in the first half of 2024, despite strong prices.

Citi expects 2024 capex growth will be similar to 1H levels, keeping annual iron-ore investment more than 40% below a 2014 peak.

EMEA HEADLINES

Commerzbank Shares Fall After Germany Holds Stake-Reduction Plans

Shares in Commerzbank fell at market open after Germany's government said it has decided to keep its stake in the lender for the time being, delaying any potential move towards a tie-up with Italian bank UniCredit.

The stock traded around 4% lower at 15.08 euros ($16.84) on Monday morning, paring some of this month's gains, which were sparked by the speculation of a takeover approach by UniCredit after it disclosed a 9% stake on its German peer and became its second-largest shareholder. Commerzbank shares are up 40% year-to-date.

Rightmove to Study REA's Latest Offer After Rejecting Two Previous Proposals

Rightmove said it would consider a third takeover proposal worth 6.0 billion pounds ($7.99 billion) from News Corp-controlled REA Group, having rejected two previous ones.

The London-listed real-estate listing website said Monday that it received a third proposal of 341 pence in cash and 0.0422 new REA shares for each Rightmove share.

CMA CGM to Buy $1.2 Billion Stake in Brazil Port Operator Before Launching Takeover

French shipping group CMA CGM agreed to buy a 48% stake in Brazilian port terminal operator Santos Brasil Participacoes for 6.33 billion Brazilian reais ($1.15 billion) and outlined plans to acquire the remaining shares as it looks to boost its presence in the country amid increasing demand.

According to a securities filing from Santos Brasil on Sunday, CMA CGM will buy around 215 million shares for 15.30 reais each in cash and 40 million global depositary receipts-equivalent of 199 million shares-from Brazilian asset manager Opportunity. The French company will then launch a public offer for the remaining shares in the coming months at the same price.

Siemens to Carve Out eMobility Electric Vehicle Charging Unit

Siemens said it would separate its electric vehicle charging unit to create an independent business that is more agile and better positioned to capitalize on opportunities in the fast-growing market.

The business, known as eMobility, provides hardware, software and electric vehicle charging infrastructure for public, residential, commercial and municipal customers. It offers charging technology and infrastructure as well as planning and implementing grid connections.

Springer Nature Sets Price Range for Its Initial Public Offering

German research journal Springer Nature priced its planned initial public offering, implying a market capitalization of up to 4.7 billion euros ($5.25 billion).

The academic publisher on Monday said that it will offer shares at between 21 euros and 23.50 euros each, valuing the business at between 4.2 billion euros and 4.7 billion euros.

GLOBAL NEWS

The Rate Cut Happened. Not All Borrowing Costs Are Going Down.

The Federal Reserve is finally cutting interest rates. One key gauge of borrowing costs has been going up anyway.

Yields on longer-term U.S. Treasurys have ticked higher since the Fed approved a 0.5 percentage point rate-cut last week. The yield on the benchmark 10-year U.S. Treasury note, which helps set interest rates on everything from mortgages to corporate bonds, settled Friday at around 3.73%, up from 3.64% the day before the Fed's move.

Sorry, the Fed Can't Save Us From a Bear Market

Wall Street commentary around this week's Fed rate cut could have filled a very long and boring book, but much of what you need to know about its effect on the stock market can be found in a movie rarely linked with monetary policy: "The Wizard of Oz."

The great and powerful man behind the central bank curtain, Jerome Powell, really can't do as much as people think to keep their portfolios from shriveling if the wheels are already starting to come off the economy. Stocks' initial reaction to Wednesday's cut was exuberant. That often proves to be a head fake, though-we still don't know how this movie ends.

Israel Calls On Civilians Near Hezbollah Targets to Evacuate as Strikes Intensify

TEL AVIV-Israel warned residents of Lebanon to evacuate from places near where Hezbollah stores its weapons as its military intensifies attacks against the militant group.

The Israeli military launched a series of airstrikes in Lebanon on Monday morning in what it said was a pre-emptive assault targeting Hezbollah's military infrastructure. Dozens of airstrikes hit Lebanon, according to the country's state news agency. Israeli military spokesman Daniel Hagari said the airstrikes would continue in the near term and told residents of southern Lebanon to stay away from areas that would be targeted.

Bipartisan Spending Deal Would Avert Shutdown, Aid Secret Service

(MORE TO FOLLOW) Dow Jones Newswires

September 23, 2024 05:32 ET (09:32 GMT)

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