MARKET WRAPS
Watch For:
EU money supply; Germany Ifo business climate index; France monthly business survey, unemployment; trading updates from Julius Baer Group, Renault, Stellantis, TotalEnergies, Neste, EssilorLuxottica, Saint-Gobain, Vivendi, Vinci, Nestle, Air France-KLM, Roche, Hermès, Enel, Lloyds Banking Group, Anglo American, AstraZeneca, Unilever, Rentokil Initial, Airtel Africa, ITV, Centrica, RELX, Euronext, STMicroelectronics, BE Semiconductor, Siltronic, BT Group, Centamin, Vodafone
Opening Call:
European stock futures fell early Thursday, tracking a selloff in Asian and U.S. equities. The dollar and Treasury yields edged lower; and oil and gold futures dropped.
Equities:
A global risk-off mood looks set to extend to Europe as a Wall Street selloff caught a second wind following a disappointing start to big tech earnings.
After a frenzy over artificial intelligence sent stocks to new heights in the first half of the year, investors have suddenly grown more skeptical of its potential payoffs.
The market’s reaction Wednesday to Alphabet’s earnings, which slightly outpaced estimates but sparked AI-spending concerns, showcased the sky-high bar for the group as investors await results from Nvidia, Microsoft and others.
“You can’t just meet estimates. You have to beat estimates,” said David Lundgren, portfolio manager at Little Harbor Advisors. Referring to the unofficial projections shared on Wall Street, he added, “You have to beat the whisper number, frankly.”
The risk-off mood has continued amid U.S. election uncertainty, tech earnings disappointment and fresh signs of softness in global growth, said Lloyd Chan, senior currency analyst at MUFG Bank, noting strong gains in both JPY and CHF.
A slew of earnings results are due from major European companies today, as well as U.S. economic data including the first estimate of second-quarter growth.
Forex:
The euro looks set to fall after showing resilience this year, shrugging off Germany’s sluggish production sector, France’s budget woes and the move towards right-wing politics across the region which could all return to haunt it, Rabobank forex strategist Jane Foley said.
The eurozone’s current account surplus could offer the euro protection from speculative flows and souring sentiment but there’s little justification for the euro to continue trading in the upper half of this year’s range against the dollar.
“Numerous bad spots” in the eurozone’s economic and political backdrop present “downside risk” to the euro. With a September U.S. interest-rate cut now priced in, EUR/USD could fall to 1.05 within three months from 1.0858 currently, Foley said.
Bonds:
German government bond yields fell sharply Wednesday after surveys showed activity in the eurozone all but stalled this month as the bloc’s biggest economy contracted.
The overall eurozone activity survey indicated that the first-quarter GDP growth upswing now looked like “an outlier [and] not the beginning of the long-awaited recovery,” said Citigroup.
“Other forward-looking indicators may get more attention at the ECB ahead of the key September meeting. The pressure to cut interest rates faster could be growing again,” Citigroup added.
Energy:
Oil futures fell early Thursday, weighed down by the negative market sentiment that swept global stock markets overnight.
The crude-oil market remains sensitive to concerns over a slowing Chinese economy as well as to geopolitical and crude inventory issues, said Mohammad Amer, regional commercial director at Exness. Worries over China’s economic slowdown could mitigate any upward pressure on oil prices from supply risks, Amer said.
Metals:
Investors may stay cautious ahead of key U.S. economic data due out this week, said Eman AlAyyaf, CEO of EA Trading. Data to watch out of the U.S. include the advance estimate of 2Q GDP and Friday’s June PCE price index, AlAyyaf said.
The data could offer clues about the Fed’s future actions, with markets expecting rate cuts to begin in September, which could support higher gold prices, AlAyyaf added.
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Copper has marked a drop of more than 20% from record highs in May, as weakness in China’s economy fed expectations for a fall in demand for the industrial metal.
“Recent economic ‘droughts’ in China, such as industrial slowdowns and property market issues,” have caused the flow of demand to slow, said Adam Koos, president and senior financial adviser at Libertas Wealth Management Group.
“Globally, economic uncertainties, including potential recessions in other major economies, have added to the pressure on copper prices,” said Koos.
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Iron ore prices fell as high inventories and weak demand have soured investor appetite for the commodity. The absence of further stimulus for China’s property sector has added to the weak demand outlook, ANZ said.
TODAY’S TOP HEADLINES
China’s Central Bank Cuts Key Policy Rate in Surprise Move
China’s central bank unexpectedly cut the rate on its medium-term loans to banks, just days after its surprise reduction to a key short-term policy rate as it sought to support the country’s ailing economy.
The People’s Bank of China lowered the rate on its one-year medium-term lending facility to 2.3% from 2.5% previously, its first such cut since August, according to an official statement released Thursday. It also injected 200 billion yuan, or about $27.54 billion, of liquidity into the market via the facility.
IPOs Line Up in Wall Street’s Busiest Week of 2024
Initial public offerings this week are set to raise a combined $5.1 billion, the most for any week to date this year, according to Renaissance Capital.
The flurry of activity comes amid heightened market volatility. On Wednesday, the S&P 500 and Nasdaq each notched their worst one-day percentage declines since 2022.
The Economy Looks Like It’s Growing. That Could Be Another Wrinkle for the Fed.
The U.S. economy has grown, if economists’ predictions are right, rebounding from its slow start this year.
But robust growth could force the Federal Reserve to delay a cut in interest rates, which traders are now predicting will happen in September.
Companies Shed Bigger Assets to Slash Debt, Get Lean
Companies are selling off bigger pieces of their business to slim down and cut debt as the pace of dealmaking picks up.
The size of completed divestment deals is up about 11% so far this year at $350.5 billion, according to financial data analytics provider Mergermarket, even as the number of such deals fell about 10% during the same time. In the second quarter, the value of completed deals has jumped by more than 50% year-over-year while the number completed deals fell about 11%.
Why copper prices have dropped over 20% from record highs in just two months
Copper settled Wednesday at the lowest price in more than three months, marking a drop of more than 20% from record highs in May, as weakness in China’s economy fed expectations for a fall in demand for the industrial metal.
Several factors were contributing to the downtrend in copper prices, said Adam Koos, president and senior financial adviser at Libertas Wealth Management Group, but the biggest issue seemed to be centered on demand concerns, particularly from China, the world’s largest consumer of copper.
German bond yields dive as eurozone economy stalls
German government bond yields fell sharply on Wednesday, and the euro struggled to make ground against an otherwise weaker U.S. dollar, after surveys showed activity in the eurozone all but stalled this month as the bloc’s biggest economy contracted.
The yield on the German 2-year government bond BX:TMBMKDE-02Y fell 11.6 basis points to a five-month low of 2.664% as investors reasoned that the signs of a slowdown made it more likely that the European Central Bank will reduce interest rates at its next meeting in September.
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Expected Major Events for Thursday
06:00/DEN: Jun Central Government Finance & Debt
06:00/NOR: 2Q Business tendency survey
06:00/SWE: Jun PPI
06:00/NOR: Jun Labour force survey SA, incl unemployment
06:45/FRA: Jul Monthly business survey (goods-producing industries)
08:00/GER: Jul Ifo Business Climate Index
08:00/EU: Jun Monetary developments in the euro area (M3)
08:30/UK: Jun Capital issuance statistics
10:00/UK: Jul CBI Industrial Trends Survey
10:00/FRA: 2Q Claimant count and job advertisements collected by France Travail
11:00/TUR: Turkish interest rate decision
13:00/BEL: Jul Business Confidence Survey
17:59/UK: REC JobsOutlook survey
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This article is a text version of a Wall Street Journal newsletter published earlier today.
(END) Dow Jones Newswires
07-25-24 0016ET
