EMEA Morning Briefing: Wall Street Gains to Lift Europe; U.S. CPI Data in Focus

BY Dow Jones & Company, Inc. | ECONOMIC | 09/14/21 12:37 AM EDT

MARKET WRAPS

Watch For:

U.K. Unemployment; IEA Oil Market Report; updates from Mediaset, Petrofac, JD Sports Fashion, Ocado, Pandora

Opening Call:

European stocks are primed for further gains on Tuesday, although investors remain mindful of key U.S. inflation data due later. In Asia, stocks and the dollar were steady, Treasury yields and oil gained, while gold dipped.

Equities:

European shares should extend their start-of-week advance on Tuesday, following Wall Street's mostly higher finish.

The Dow and the S&P 500 booked their first positive close in six sessions on Monday, with the blue-chip index scoring its best daily gain in about five weeks. However, Nasdaq ended 1% lower, extending its losing streak to a fourth session in a row.

"We are basically in a drifting market," said Peter Cardillo, chief market economist at Spartan Capital Securities, pointing to modest gains Monday for the Dow and small-cap stocks, but pressure on Nasdaq.

"What we are seeing here is basically a market that's very much gripped by seasonal factors," Cardillo said. "We have had four or five days of declines. But the decline has been without any major volumes. That's a good sign, which means the market isn't likely to encounter any serious decline during the month of September."

Chris Beauchamp of IG said investors "continue to expect further improvement in the global economy, providing further support for risk assets." Investors are wary, however, ahead of inflation data out of China, the U.K. and the U.S., which could intensify concerns about rising prices and slowing growth.

Energy shares will remain in the spotlight, having been among the strongest performers on Monday, rising alongside the price of oil. Crude extended its gains in Asia this morning.

Forex:

The dollar stalled in Asia and HSBC doesn't expect this week's key U.S. inflation and retail-sales data releases will provide much reason to propel it back up.

HSBC said the dollar's recent gains, which took the DXY Dollar Index to a two-week high of 92.8850, came despite stronger equity markets, with the currency failing to break "new ground." Tuesday's CPI data "should reaffirm that the upward momentum is fading." Inflation will be the key indicator of when the Federal Reserve is likely to start raising interest rates, HSBC said.

Meanwhile, Thursday's retail sales figures "are likely to show another drop, with lower auto sales, slower household- related spending, and weaker spending on restaurants and entertainment amid the Delta variant's spread."

Minh Trang, senior FX trader at Silicon Valley Bank, said the dollar has had a "relatively good run overall during September but it's taking a bit of a reprieve."

He said the dollar's performance year to date has been better than most had expected in January. Some of the narrative driving the dollar has shifted, although that doesn't mean the dollar will weaken, he said. But Fed and Covid-19 are still the biggest factors moving the dollar, with tapering conversations expected and Trang anticipates a weaker third quarter due to the pandemic.

Sterling could get a boost from U.K. inflation figures Wednesday, ING said. Firm CPI data should "keep expectations in play" of 2022 Bank of England interest-rate increases, leaving EUR/GBP at risk of falling below 0.8500. Sterling should also be able to "better withstand any dollar strength on risk aversion," said ING.

Bonds:

Treasury yields edged higher, with investors awaiting this week's round of closely watched economic data.

Rates markets "will be closely watching" CPI, retail sales and the University of Michigan data this week, UniCredit analysts wrote in a note.

"One key element to watch will be the movement in real yields and breakevens. Last week, break-even rates increased and real yields declined further in both Europe and the U.S., with both movements much more pronounced in the eurozone," they said. "This suggests that concerns on the growth outlook persist, while investors expect inflation to remain high for the time being."

Investors snapped up euro covered bonds last week, meeting with strong demand the busiest week in terms of new-bond supply in 2021 so far, ABN Amro said.

"Seven issuers sold EUR6.35 billion of euro benchmark covered bonds last week, marking it the busiest week of 2021 in terms of new supply," senior fixed income strategist Joost Beaumont said, adding that all deals were well received, reflected by an average 2.4 bid-to-cover ratio.

The average new issue premium stood at 1.4 basis points, slightly higher than in previous weeks when premiums were almost zero, he said, citing the bank's own estimates. Lenders were able to issue longer-dated covered bonds, marking the reopening of a funding window at very long-end of the curve.

Energy:

Oil futures continued to climb in Asia, extending Monday's gains, on signs of further supply disruptions.

Tropical Storm Nicholas, which is heading towards the Gulf of Mexico, is expected to develop hurricane strength before it makes landfall, ANZ said. "The current path of the storm indicates refineries and terminals in Texas could see some curtailment," it noted.

Disruptions in Libya were also likely to remain in focus, after protesters shut down its biggest oil terminal, Es Sider, days after its restart following previous demonstrations, ANZ added.

U.S. oil production, following the damage caused by Hurricane Ida to infrastructure in the Gulf of Mexico, has dropped by about 1.4 million barrels a day since late August, said Ricardo Evangelista, senior analyst at ActivTrades, in a note.

"Meanwhile, the consensus, despite the uncertainty caused by the growing number of coronavirus cases, is that oil demand will continue to increase in the run-up to the end of the year, in a dynamic that could support further increases in price," Evangelista said.

Metals:

Gold prices edged lower, stuck below $1,800, after the dollar kicked off the week with a firm tone.

Oanda said gold appears to be stable for now as investors await the August inflation report, which could deliver some signs that inflation is "transient."

"If U.S. inflation appears like it will hover above 5% for the rest of the year, that could be the catalyst to send both Treasury yields and the dollar higher, which would be bad news for gold bulls," Oanda said.

Strength in the dollar is likely the main reason gold fell [Monday] to touch the support zone of $1,790 an ounce, said Carlo Alberto de Case, market analyst at Kinesis. On the other hand, fears over the spread of the Covid-19 delta variant, and the possibility the Fed will again postpone the start of the tapering are the "main supportive drivers for the gold price," he told MarketWatch.

Copper was also lower as supply risks from some Chilean mines eased, ANZ said.

Progress has been made on the ongoing labor disputes at the Andina and Cerro Colorado copper mines in Chile, ANZ said. Workers at the Andina mine have agreed to end a three-week stoppage of work, while Cerro Colorado mine workers have accepted a new wage offer. This should mean production at these mines will ramp up soon.

TODAY'S TOP HEADLINES

Democrats Release Details of Proposed Tax Increase

House Democrats spelled out their proposed tax increases on Monday, pushing higher rates on corporations, investors and high-income business owners as they try to piece together enough votes for legislation to expand the social safety net and combat climate change.

The plan would increase the top corporate tax rate to 26.5% from 21%, impose a 3-percentage-point surtax on people making over $5 million and raise capital-gains taxes-but without the changes to taxation at death sought by the Biden administration. The tax increase details were the last major missing piece in the Democratic agenda, and their release will accelerate lawmakers' negotiations over which new spending to give priority to and which tax increases they find acceptable.

Chris Dodd, Barney Frank Back Fed Chairman Powell for Second Term

The two main sponsors of the 2010 financial-regulatory legislation that bears their names said Monday that President Biden should reappoint Fed Chairman Jerome Powellto a second term atop the central bank.

The endorsement of Mr. Powell by former Sen. Chris Dodd (D., Conn.) and former Rep. Barney Frank (D., Mass.) is notable because the Fed chairman has encountered stiff resistance from some liberal Democrats who are disappointed at measures to ease financial regulations under Mr. Powell. They have cited that record in urging Mr. Biden to pick someone else to lead the Fed when Mr. Powell's term expires in February.

Iran Intends to Resume Nuclear Talks in the Near Future

Iran said Monday it planned to resume nuclear talks in the near future, the clearest indication yet that negotiations on reviving the 2015 nuclear deal could soon resume, and the Biden administration confirmed it would drop a resolution censuring Iran for failing to cooperate with nuclear inspectors.

The comments came after Iran agreed over the weekend to allow International Atomic Energy Agency staff access and reset cameras and other equipment that monitor Iranian activities at various nuclear-related sites in Iran.

RBA's Lowe Pours Cold Water on Early Rate-Increase Speculation

Reserve Bank of Australia Gov. Philip Lowe, on Tuesday moved to strongly push back on current market pricing suggesting the central bank could raise interest rates as early as late 2022, saying the bank's desired wages and inflation targets remain a long way off.

Mr. Lowe also poured cold water on the idea that the RBA would raise interest rates soon to rein in runaway house- price growth.

U.S. Budget Deficit Narrowed to $2.7 Trillion in First 11 Months of Fiscal Year

The U.S. budget deficit narrowed to $2.7 trillion during the first 11 months of the fiscal year from $3 trillion in the same period a year earlier, with the gap between spending and revenue declining as the recovery from a pandemic- induced slump boosted taxes.

Inflation Expectations Continue to Climb, New York Fed Survey Shows

Americans' expectations of future inflation hit a record high last month, according to a new report from the Federal Reserve Bank of New York, potentially challenging the central bank's confidence that inflation pressures will ebb over time.

In its August Survey of Consumer Expectations, the bank said Monday that respondents see inflation a year from now at 5.2%, up from expectations of 4.9% last month. Three years from now, it is expected to be at 4%, up from the 3.7% expected in July. Both readings mark record-high readings for data that goes back to 2013.

Uranium Stocks Jump as Reddit's WallStreetBets Goes Nuclear

Shares of uranium mining companies surged Monday as retail traders from Reddit's WallStreetBets forum focused their energies on the rallying radioactive metal.

Companies tied to uranium in Australia and the U.K. powered higher Monday, while shares of U.S.-listed companies also rose.

Covid-19 Study in England Shows Few Deaths Among Vaccinated People

LONDON-An analysis of more than 50,000 Covid-19 deaths in England this year offers reassuring evidence on the effectiveness of vaccines, showing that mortality rates among people fully inoculated against coronavirus were a fraction of those without a shot.

The analysis is notable because it includes estimates of the mortality rate between vaccinated and unvaccinated groups that account for differences in age. It also provides considerable detail about the overall health of breakthrough-case victims who succumbed to Covid-19 after receiving two doses of vaccine.

Write to paul.larkins@dowjones.com

Expected Major Events for Tuesday

05:00/FIN: Jul Retail sales

05:00/FIN: Aug CPI

06:00/ROM: Jul Industrial production

06:00/UK: Aug UK monthly unemployment figures

06:30/SWI: Aug Import Price Index

06:30/SWI: Aug PPI

07:00/SPN: Aug CPI

07:00/SVK: Aug CPI

07:00/SVK: Aug Core & net inflation development

07:30/SWE: Aug CPI

08:00/BUL: Jul Trade with third countries - preliminary data

08:00/BUL: Jun Trade with EU Member States - preliminary data

08:00/FRA: Sep IEA Oil Market Report

08:30/UK: 2Q Mortgage Lenders and Administrators Return (MLAR) statistics

10:00/FRA: Jul OECD Composite Leading Indicators

15:59/UKR: Jul Trade

23:01/UK: Aug Scottish Retail Sales Monitor

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


  (END) Dow Jones Newswires
  09-14-21 0037ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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