MARKET WRAPS
Stocks:
European markets moved higher on Monday as investors assess a
fresh batch of earnings, weighing up the odds of a recession.
BP and Shell gained in London as the price of Brent crude
jumped. Steam-systems group Spirax-Sarco Engineering, chemical
company Croda International and industrial-software firm Aveva were
also among the highest risers, while Hargreaves Lansdown, Legal
& General, Admiral and Barclays lead financial stocks
higher.
BHP lost ground after the miner launched a $5.8 billion takeover
bid for Australian copper-and-gold mining company Oz Minerals Ltd.,
which the latter rejected.
Elsewhere, Siemens Energy fell after it reported a wider net
loss in the last quarter due to poor performance by its wind-energy
unit. Vestas Wind Systems, another wind-turbine manufacturer,
declined.
Stocks to Watch:
ArcelorMittal shares are seen as good value by investors, with
buyback action helping the stock defy a volatile environment for
steel prices, Citi said.
The Luxembourg-based steel maker has reduced its share count by
more than 30% in the last two years, the bank said. With another
buyback worth around $1.4 billion planned, further pruning of
shares should prompt its share price to rise, Citi said. Shares
could rise to about EUR100 in four years, the bank said.
---
Playtech could benefit from a wholesale restructuring of the
business by either its own management or a third party, Deutsche
Bank said. The gambling-technology company is trading 30% below the
October 680 pence cash offer from Aristocrat, which failed to pass
a shareholder vote for approval, the German bank said.
Deutsche Bank expects a favorable valuation gap between the
company's stock and that of other gambling-technology peers. The
bank upgraded its rating on the stock to buy from hold, but lowered
the target price to 602 pence from 693 pence.
U.S. Markets:
U.S. stock futures pointed to a modestly higher start for Wall
Street on Monday as investors debated just how aggressive the
Federal Reserve will have to be in its effort to cool historically
high inflation.
Stocks closed mostly lower on Friday after the U.S. jobs report
for July was much stronger than expected, leaving many investors to
believe that while the U.S. isn't now in a recession the Fed won't
be pulling up anytime soon on boosting interest rates in its effort
to slow the economy. Despite losses Friday, the S&P 500 has
risen for three straight weeks.
The U.S. added 528,000 jobs in July, more than double estimates
of 258,000, while the unemployment rate fell to 3.5%, better than
estimates of 3.6%.
"The massive beat by payrolls makes it hard to argue we are in a
recession. And if we are, it's certainly on the more unusual side,"
said Mike Loewengart, managing director of investment strategy at
ETrade.
"It's not just a strong total number that highlights the health
of the job market--growth was across the board and not limited to
one or two sectors. The market's tepid reaction could be sign that
any hopes of a more dovish Fed are likely out the window,"
Loewengart added.
Next up for investors this week are U.S. inflation data. The
consumer price index will be released Wednesday, and economists
surveyed by FactSet expect CPI to have risen 8.7% year over year in
July, down from 9.1% in June. The year-over-year core reading for
July was forecast at 6.1%.
Robert Schein, chief investment officer of Blanke Schein Wealth
Management, said the stronger-than-expected jobs number in July
"likely sets the stage for yet another hot inflation reading" on
consumer prices.
"The stock market is in a holding pattern until Wednesday's
consumer price index report, as this data will help to confirm if
the Fed's tightening efforts have been successful in starting to
tame inflation or if continued Fed tightening is needed," Schein
added.
Second-quarter earnings season also continues this week, with
reports from Walt Disney (DIS), Coinbase (COIN), Norwegian Cruise
Line Holdings (NCLH) and Rivian Automotive (RIVN).
Elsewhere, Senate Democrats on Sunday passed the Inflation
Reduction Act of 2022 in a party-line vote. The legislation aims to
fund clean energy initiatives, lower heathcare costs and create new
jobs, among other things.
Forex:
The euro could stay weak after ratings agency Moody's cut
Italy's outlook to 'negative' from 'stable' on Friday following
Prime Minister Mario Draghi's resignation, ING said.
The development could prompt the European Central Bank to offer
further support through more aggressive re-investment of the
Pandemic Emergency Purchase Programme or its new transmission
protection instrument, the Dutch bank said.
"None of this will help the beleaguered euro, where the ECB's
trade-weighted measure remains glued to the lows of the year," ING
said. EUR/CHF will monitor the performance of Italian bonds and
could fall towards the lower end of a 0.97-0.98 range while EUR/USD
may trade between 1.0100-1.0300, it said.
---
The prospect of the Bank of England delivering another large
interest rate rise likely limited sterling's declines after the
central bank forecast a U.K. recession at its last meeting, ING
said.
"Sterling probably has not sold off more since investors do not
quite know what to do with a reserve currency that will be backed
by rates at 2.25% if we are correct with our BOE call for the
September meeting," the Dutch bank said.
---
Friday's unexpectedly strong jobs data has caused short-term
Treasury yields to rise and markets to price in a higher terminal
rate (or peak) for interest rates, which should help the dollar
strengthen further, MUFG said.
"There is room for the U.S. dollar to rebound further in the
near-term," the bank said. The rate market is now pricing a higher
probability of a third 75 basis-point interest-rate rise in
September, while ISM surveys and the "blow out" July jobs data have
eased recession fears, MUFG said.
Bonds:
German 10-year Bunds recovered after sharp falls on Friday
caused yields to jump as unexpectedly strong U.S. jobs data
increased expectations for future U.S. interest-rate rises.
Commerzbank said the combination of lower bond supply and
Wednesday's U.S. inflation data--which should show a
decline--"argues for more balanced moves" in bonds this week.
European government-bond supply should decline further into the
summer, with less than EUR9 billion to be issued via auctions in
Germany and Austria this week, Commerzbank said.
Energy:
Oil prices ticked higher, supported by economic data from China.
China's exports grew at a faster-than-expected pace last month,
suggesting the major economy isn't yet feeling the impact of a
slowdown in Western economies.
Meanwhile, Russia-related supply risks will put a floor under
prices, Capital Economics said. A limited supply increase from
OPEC+ means the oil market is likely to remain tight and prices
should remain close to $100 a barrel, the economic-research firm
said.
Metals:
Metals prices inched up Monday after China reported
better-than-expected export figures for July. China's exports and
trade surplus both beat expectations with the former 18% higher in
dollar terms and the trade surplus hitting $101.3 billion in
July.
China's trade figures ease some concerns over falling global
demand, weighed down by rising prices and higher interest rates,
Stephen Innes, managing partner at SPI Asset Management said.
However, Innes added that manufacturing data still remains weak,
weighing on commodity prices for now.
---
Steel prices are expected to reach their near-term floor, Citi
said. Steel-producer margins in China are already negative, while
in Europe, spot-based price margins for producers are also starting
to turn negative, the bank said.
Negative steel margins usually precede production cuts and a
rebalancing of supply, it noted. Steel prices typically recover
when cuts to supply accelerate, though the scale of the rebound
will depend on the overall recovery in demand for steel, the bank
added.
Although European producers are expected to remain highly
profitable in the second half of the year due to contracted steel
prices and hedged energy costs, they are still seen implementing
production cuts, Citi said.
DOW JONES NEWSPLUS
EMEA HEADLINES
World's Biggest Miner Rebuffed on $5.8 Billion Copper Play
ADELAIDE, Australia-Copper miner Oz Minerals Ltd. rejected a
takeover approach by BHP Group Ltd., which is seeking to boost its
output of a metal needed for electric vehicles, wind turbines and
solar farms.
Adelaide-based Oz Minerals said Monday it had received a
proposal on Friday from BHP to buy the company for 25 Australian
dollars a share. That price, equivalent to about $17 a share,
values the company at almost 8.4 billion Australian dollars, or
roughly $5.8 billion.
UPS to Buy Italian Healthcare-Logistics Provider Bomi Group
United Parcel Service Inc. agreed to acquire Italy's Bomi Group,
as the transportation giant looks to bolster its
medical-product-distribution business.
UPS didn't disclose the sale price. The Wall Street Journal
previously reported that the deal was worth several hundred million
dollars, according to people familiar with the matter.
Veolia to Sell Suez's UK Waste Business to Macquarie for $2.4
Bln
Veolia Environnement SA said Monday that it will sell Suez's
U.K. waste business to Macquarie Group Ltd. in a 2.4 billion euros
($2.44 billion) deal.
The French utility said in June it would sell the business to
satisfy the U.K.'s antitrust watchdog-the Competition and Markets
Authority-which had expressed concerns over the harming of
competition in the supply of water- and waste-management services
in the country.
How YouTube Keeps Broadcasting Inside Russia's Digital Iron
Curtain
Months into its war against Ukraine, Moscow continues to let its
own citizens access YouTube, leaving a conspicuous hole in its
effort to control what Russians see and hear about the
conflict.
The video-streaming service, owned by Alphabet Inc.'s Google, is
one of the few places where Russians can view and discuss images of
the war from independent outlets. Russia has restricted domestic
access to many other big platforms-including news sites and
Facebook-since the conflict began.
Iran, U.S. Close In on Nuclear Deal Text but Hurdles Remain
Negotiations between Iran and the U.S. on reviving the 2015
nuclear deal are close to completion, the European Union's senior
negotiator at the talks said Sunday evening, but it remained
unclear whether Tehran will accept the final deal.
The text of an agreement could be closed in coming hours, said
the EU's Enrique Mora, the coordinator of the talks. However, Iran
must still decide whether to set aside its demand that the nuclear
deal can only be revived if a multiyear United Nations atomic
agency probe into its nuclear program is closed.
Israel, Palestinian Militants Agree to Cease Fire After Three
Days of Fighting
JERUSALEM-Israel and Gaza militant group Islamic Jihad agreed to
a cease-fire late Sunday after three days of fighting that saw more
than 40 Palestinians killed and rockets fly deep into Israel's
heartland, in the most intense exchange of fire since an 11-day
conflict last year.
The cease-fire, brokered by Egypt and the United Nations, came
into effect at 11:30 p.m. local time, Israeli, Palestinian and
Egyptian officials said.
Explosions Rock Ukraine's Zaporizhzhia Nuclear Power Plant
ZAPORIZHZHIA, Ukraine-Explosions shook Europe's largest nuclear
plant over the weekend, prompting fears that the war could unleash
a nuclear catastrophe.
Located in the Russian-occupied city of Enerhodar along the
Dnipro river, which divides the Russian and Ukrainian forces in the
area, the Zaporizhzhia nuclear power plant is now perilously close
to the front lines of the fighting.
GLOBAL NEWS
Wall Street Shuffles Bets on Consumer Loans as Economy Slows
The looming prospect of a recession has Wall Street shifting its
bets on which debts Americans will make good on and which could
lapse.
Some investors are spurning low-rated bonds backed by pools of
consumer loans, preferring safer slices of debt that offer more
protection when missed payments mount. Others are steering clear of
debt tied disproportionately to people with low credit scores, or
demanding higher returns to hold it.
Wood-Pellet Exports Boom Amid Ukraine War, Environmental
Concerns
The wood-pellet market is on fire.
War has cut off the supply of compressed-wood pellets from
Russia, Belarus and Ukraine to the power plants in Western Europe
that burn them instead of coal. That has put a premium on pellets
from North America, especially the U.S. South.
China's Export Growth Stays Unexpectedly Robust, Offsetting
Broader Weakness
HONG KONG-China's export machine remained surprisingly resilient
in July following a strong bounceback from the spring's harsh
Covid-19 restrictions, defying again predictions of softening
global demand for Chinese-made goods.
Chinese shipments to the rest of the world rose to $332.9
billion in July, China's General Administration of Customs said
Sunday, an 18% increase compared with a year earlier. The reading
beat a median forecast of 15.6% growth among economists polled by
The Wall Street Journal. July's year-over-year growth rate
represents an acceleration from the 17.9% pace in June.
Pause in the Storm: U.S.-Stock Funds Rose 8.9% in July
Investors needing a morale boost should just read the "July"
column of their 401(k) statement. The rest of the 2022 entries are
still too depressing.
Stocks rallied in July, a respite after months of declines. The
average U.S.-stock mutual fund or exchange-traded fund rose 8.9% in
the month, according to Refinitiv Lipper data. But for 2022 so far,
through July, the funds are still down 14.4%. (Market indexes are
little changed for August so far.)
Investors Brace for More Market Volatility as Earnings Estimates
Slump
Corporate-earnings expectations are falling. That means the
stock market is again at risk of appearing expensive, even after
this year's tumble.
Wall Street often uses the ratio of a company's share price to
its earnings as a gauge for whether a stock appears cheap or
overpriced. By that metric, the market as a whole had been
especially pricey for much of the past two years when easy monetary
policy propelled major stock indexes to dozens of new highs.
Fed's Michelle Bowman Says Large Interest-Rate Rises Could
Continue
A Federal Reserve official said the U.S. central bank could
follow two consecutive 0.75-percentage-point rate rises this summer
with a third such increase at its meeting next month.
Fed governor Michelle Bowman said she strongly supported the
Fed's 0.75-percentage-point rate increase last month and
"similarly-sized increases should be on the table until we see
inflation declining in a consistent, meaningful and lasting
way."
What CEOs Are Saying: 'My Guess Is That We Are Past Peak
Inflation'
Here is what some of the world's corporate leaders said this
week about the economy, supply chains, consumer spending and the
movies, among other topics.
Starbucks Corp. Interim Chief Executive Howard Schultz:
Explosions Rock Ukraine's Zaporizhzhia Nuclear Power Plant
ZAPORIZHZHIA, Ukraine-Explosions shook Europe's largest nuclear
plant over the weekend, prompting fears that the war could unleash
a nuclear catastrophe.
Located in the Russian-occupied city of Enerhodar along the
Dnipro river, which divides the Russian and Ukrainian forces in the
area, the Zaporizhzhia nuclear power plant is now perilously close
to the front lines of the fighting.
Write to nihad.ahmed@wsj.com.
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This article is a text version of a Wall Street Journal
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(END) Dow Jones Newswires
August 08, 2022 06:58 ET (10:58 GMT)
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