European Midday Briefing: Stocks Dented by Weak U.S. Data

MARKET WRAPS

European stocks were weaker Wednesday as investors digested some disappointing U.S. economic data as well as the latest Chinese stimulus measures .

Investors are likely looking ahead to U.S. PCE inflation data on Friday.

After this month's bumper rate cut by the Federal Reserve, uncertainty remains over how much and how fast U.S. rates will fall from here.

"Uncertainty surrounding the macro scenario remains high and markets are seeking more insight from data as it comes in," ING said.

U.S. Markets:

Stock futures were retreating after the S&P 500 and Dow industrials hit records Tuesday.

Data on sales of new homes in August are slated for release later Wednesday, while Micron and Jefferies are due to report earnings.

Forex:

The euro could extend its gains after receiving a boost from China's stimulus measures, as the European Central Bank is unlikely to accelerate interest rate cuts as some expect, MUFG Bank said.

"Increased global growth optimism will help and the stimulus measures announced by China will certainly add to dollar selling momentum," MUFG said.

Market expectations for an October ECB rate cut are rising but until underlying inflation is closer to target, the ECB is likely to continue with a cautious approach to rate cuts despite weaker growth, MUFG said.

The dollar fell after China's stimulus boosted emerging market currencies and weaker-than-expected U.S. consumer confidence data fueled concerns about an economic slowdown, ING said.

"The jury is out on whether this China stimulus story is an enduring one for global FX."

However, investors seem to have shifted to a sell-dollar mindset on mounting evidence of a U.S. slowdown, it said, adding that the currency might continue trading on the soft side ahead of Friday's core PCE price index data.

UOB said the dollar was likely to continue falling against the offshore Chinese yuan, with the weekly chart indicating a lack of support below 6.9960, with the next substantial support at 6.8100.

The Swedish krona briefly extended its losses after the Riksbank delivered a widely-expected 25 basis-point interest-rate cut and said it expects rates to be cut further at a faster pace than previously communicated.

Bonds:

Eurozone short-end government bonds are expected to remain strong, as weak economic data fuel expectations of a faster pace in ECB rate cuts, Commerzbank Research said.

"The poor data flow keeps on pushing ECB easing expectations, supported by the official reluctance to counter latest market moves."

Energy:

Oil prices fell as demand concerns kept a lid on the boost from China's stimulus package announced Tuesday.

"The rising geopolitical tensions and the Chinese stimulus measures strengthen the oil bulls' hands, but the $72.85-a-barrel level is yet to be cleared to send the price of a barrel into the medium-term bullish consolidation zone," Swissquote Bank said.

Metals:

Three-month copper rose and gold was flat.

Sucden Financial said Tuesday's gains, on the back of China's plans, are expected to be short-lived and unlikely to significantly affect the price trend in the near term.

HSBC Global Research said a detailed analysis of the potential impact of China's central bank rate cuts on copper and aluminum prices shows that the two metals are likely to be range bound in this rate cycle and rally when demand picks up.

Lithium

Lithium has little scope to rebound further, as supply remains abundant relative to demand, HSBC Global Research said separately.

EMEA HEADLINES

Rightmove Rejects Third Bid From REA Group Valued at $8.1 Billion

Rightmove rejected a third bid from News Corp.-controlled REA Group valued at $8.1 billion, saying the latest offer still materially undervalues the company and its future prospects.

Australian real-estate advertiser REA launched its latest bid earlier this week as it perseveres in its attempt to combine two of the English-speaking world's dominant real-estate listing websites.

Commerzbank CEO to Step Down; Finance Chief Bettina Orlopp Named Successor

Commerzbank said Chief Executive Manfred Knof is stepping down and will be succeeded by Chief Financial Officer Bettina Orlopp as it goes through a battle with UniCredit over the future of the bank.

The German bank on Tuesday said that early this month Knof informed Jens Weidmann, chairman of the supervisory board, of his decision not to seek a second term as CEO. He has served as Commerzbank's CEO since 2021.

Rio Tinto Aims to Increase Aluminum Margin, Return on Capital

Rio Tinto said it aims to improve the earnings margin and return on capital in its aluminum business over the rest of the decade by lowering costs, increasing its footprint in recycled aluminum and switching to lower-cost renewable power.

The world's second-biggest mining company by market value said it has a plan to raise both the earnings before interest, taxes, depreciation and amortization, or Ebitda, margin and return on capital employed for its aluminum business by 5 percentage points by 2030.

GLOBAL NEWS

Stock-market indicator with a near-perfect track record is flashing a 'buy' signal

One closely-watched stock-market indicator is flashing a bright-red buy signal as more companies' shares join the rally.

A sharp increase in a measure known as the McClellan Summation Index is sending a signal that has predicted further gains for the S&P 500 with near-perfect accuracy, according to Dean Christians, a senior research analyst at SentimenTrader.

Investors see risks that the inflation battle isn't over yet

Concerns that inflation might not be so easily defeated are starting to creep back into financial markets

As of Tuesday, inflation swaps and Treasury Inflation Protected Securities were hinting that price pressures could linger above the Federal Reserve's 2% target, if only modestly so, for years to come. That's a notable shift from earlier this month, when both market-based gauges of investors' expectations were sliding.

Israel Intercepts Missile Fired at Tel Aviv as Fighting Escalates

Israel intercepted a missile fired by Hezbollah from Lebanon at the commercial capital of Tel Aviv early Wednesday morning, as the fighting between the parties continued to escalate.

Alerts sent residents scrambling into shelters as the missile approached. Israel's military said air defenses intercepted the missile.

China Says It Test-Fired Intercontinental Ballistic Missile

SINGAPORE-China said it test-fired an intercontinental ballistic missile on Wednesday, a rare public acknowledgment that is likely to increase tensions with its neighbors.

The ICBM, which was carrying a dummy warhead, fell into "expected sea areas" in the Pacific Ocean, China's Defense Ministry said in a statement, without specifying the exact location. The ministry said the launch, which was carried out by the People's Liberation Army Rocket Force, was part of routine annual training and "is not directed against any country or target."

Zelensky Appeals for More Pressure on Russia in U.N. Speech

NEW YORK-Ukrainian President Volodymyr Zelensky told the United Nations Security Council that "Russia can only be forced into peace," as he presses allies for more support to resist intensifying Russian onslaughts.

Zelensky is in the U.S. to present what he has called a "victory plan," an effort aimed at refocusing waning Western attention on Ukraine as Russia's invasion slides toward the three-year mark.

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

(END) Dow Jones Newswires

September 25, 2024 05:31 ET (09:31 GMT)

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