EMEA Morning Briefing: Stocks drop at the start of the week; Oil, gold fall

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Eurozone June unemployment, July manufacturing PMI; Germany June retail trade, July manufacturing PMI; France July Manufacturing PMI; Italy June unemployment, July manufacturing PMI; UK July Manufacturing PMI, June Zoopla House Price Index; HSBC, Heineken, Pearson, MTN Group, AngloGold Ashanti . update from

Opening Call:

European stocks are set to fall on Monday after closing higher last week on positive corporate earnings and better-than-expected economic data. In Asia, major benchmarks advanced broadly; Treasury yields increased; Dollar, oil and gold weakened.

Equity:

European stocks are expected to drop at the Monday morning open after rising corporate earnings last week. US stock futures are lower on Friday after Wall Street closed its best month since 2020.

Investors have taken comfort in recent days from the idea that slowing economic growth could encourage the Fed to raise rates at a slower clip. They have also been encouraged by positive cues during earnings season, as expectations for quarterly profit growth compared to the previous month have risen.

But money managers and strategists are also debating whether the stock could hold on to recent gains due to continued monetary tightness and worrying signals about the economy. Many have doubts.

“The markets seem to have prematurely declared victory over inflation,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “It is completely out of step with what the Fed and Chair Powell have set out this week.”

Conflicting economic signals are forcing investors to look ahead without a clear vision of how business conditions will develop in the coming months. Data on Thursday showed the US economy shrank for the second quarter in a row, meeting a popular definition of recession. At the same time, employers have continued to add jobs and the unemployment rate remains low.

“It’s this weird dynamic of having a really strong labor environment with a weak economic environment,” said Michael Vogelzang, chief investment officer at Raleigh, N.C.-based CapTrust. “I don’t think anyone can really really understand where this is going to come out without more data.”

foreign currency:

The dollar weakened in Asia on expectations of the Fed being less aggressive.

SPI Asset Management said expectations around a rapidly slowing US economy indicate a less aggressive tightening.

The SPI said markets have priced a more jumbo Fed rate-hike scenario, and the recent pullback in Treasury yields has resulted in the elimination of long USD positions.

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Bond:

Treasury yields were largely higher early Monday, as long-term Treasury yields eased on Friday, with the 10-year yield ending at its lowest since April 6, a weak-than-life. Thursday was followed by expected US economic data and perceived signs of a less hawkish tone. irrigated. Data on US inflation and employment costs were taken largely on Friday morning.

The Fed’s preferred inflation gauge, the personal consumption index, rose 1% in June, due to higher fuel prices, and rose 6.8% for the year, up from 6.3% in the previous month – the highest rate since January 1982.

“Given that the PCE grew 6.8% year-on-year, which was higher than the previous measure of 6.3% and is part of a continuing upward trend, the Fed should be concerned that inflation is heading higher and they are going independent. “There is a need to be aggressive in raising interest rates,” said Chris Zacarelli, chief investment officer at Advisory Alliance.

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Ninepoint’s Mark Wisniewski said corporate investment-grade bonds offer attractive returns and are an option for investors facing volatility in other markets.

He said investment-grade bonds are paying “5% or more,” compared to less than 3% last year. Although speculative grade bonds pay higher yields, “the problem with higher yields is that obviously as we go into a recession of the default rate, higher yields get beaten a bit more,” he said.

Wisniewski said he thinks investment grade credit is the best value out there.

energy:

Oil futures in Asia declined amid uncertainty over the outcome of the OPEC+ meeting this week.

Philip Securities Research said the group would consider keeping oil output unchanged for September despite calls from the US for more supplies, but a modest increase in output is also expected to be discussed.

“Whatever the outcome of the meeting, it could have a significant impact on oil prices,” said Lukman Otunuga, manager, market analysis, FXTM.

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Goldman Sachs’ global head of commodity research, Jeffrey Curry, has cited a strong upside risk for oil behind the broad, “unprecedented” spread between physical global oil and oil futures prices.

“The physical markets are trading at a substantial premium to the futures market,” Curry said.

Physical Brent oil prices in the spot market were trading at around $112 a barrel on Thursday, while “paper oil, or financial oil,” the front-month September futures contract, was trading at around $106, due for October delivery. Brent contracts at $101.

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Curry said a one-year delivery of Brent oil is $90. “This does not mean that the price of oil is expected to decline – it means that consumers are willing to pay a larger premium to take delivery of that oil today as opposed to yesterday,” he said.

Price spreads between future deliveries “have never been this high,” he said.

Metal:

Gold in Asia fell as Treasury yields rose, adding to the attractiveness of USD-denominated real-income assets.

TD Securities said last Friday’s continued rise in the US employment cost index did not allow the Fed to signal that its rate-hike cycle is complete, and that there are risks that the Fed will open an opening against speaker market expectations. The Feds can push the axle back.

TD Securities said it expects gold’s recent rally to eventually fade.

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Zinc declined in Asian trading after Friday’s rally, which was supported by further signs that Europe’s energy crisis was putting smelters under pressure, ANZ said.

There was a sharp decline in metal mining and refining production in 1H, a 12% drop in overall production, ANZ said as inventory held at London Metal Exchange warehouses fell to a two-year low of 70,500 tonnes Huh.

“Supply side issues are focusing on the base metals sector,” ANZ said.

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Buoyed by firm demand expectations, Chinese iron ore futures moved up.

Galaxy Futures said steel-making raw material prices may pick up in August amid a strong macroeconomic outlook and a better sentiment for the industry.

Galaxy Futures said it expects steel mills to pick up production on the back of improvement in profitability.

Today’s top headlines

China’s manufacturing output grew at a slow pace in July

China’s factory activity expanded at a slower pace in July, according to a private gauge, as Beijing’s easing of stringent COVID-19 restrictions and lockdowns largely eased the economic impact of the country’s less economically important areas. was limited to

Caixin Media Co. And according to data released by S&P Global on Monday, Caixin China’s Purchasing Managers Index fell from 51.7 in June to 50.4 in July. The 50 mark separates expansion from contraction.

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Markets resist broader slowdown for stake in private-equity managers

The sale of minority interests in private-fund managers has stalled so far this year due to market turmoil, though buyers seem to be picky about which firms they return, the number of people working on these deals. have to say.

So-called common-partner bets—the level of demand for non-controlled investments in which the buyer typically receives a portion of the fund manager’s profit flow—has exploded in recent years, as more investors seek to capitalize on the rapid growth. alternative investment industry.

Fall in food prices eases upward pressure on global inflation

Falling prices for commodities such as wheat or corn are set to slow growth in consumer food prices, easing pressure on a key driver of global inflation.

But economists have warned that it is too early to declare victory. Agricultural markets remain volatile and the ongoing war in Ukraine, coupled with unusually hot and dry weather in parts of Europe and the US, could lead to new disruptions in the food supply.

Individual investors bet on tech stocks

Technology stocks have risen this year. Many individual investors have used this as an opportunity to double down.

The Nasdaq Composite Index—home of the big tech stocks that prompted the market’s decade-long rally—has fallen 21% in 2022. Shares of Amazon.com Inc and parents of Google and Facebook have also suffered double-digit declines, which have been hit. Sour attitude about high interest rates and their growth prospects.

Agriculture giant expects continuing food-supply problems despite Ukraine grain deal

Some of the world’s biggest agricultural companies say the world’s supply of crops is under pressure and is likely to remain so despite the fall in grain prices.

Russia’s invasion of Ukraine is disrupting supplies from one of the world’s top grain-exporting regions. Inclement weather affecting large crop-producing regions, including South America, is also helping to offset supply shortages.

War with Russia enters new phase as Ukraine prepares southern counterblow

After months of painfully slow advances by Russian forces in Ukraine’s east, the focus of the war is turning south, where a potentially decisive phase of the conflict will unfold.

(more to follow) Dow Jones Newswires

Aug 01, 2022 00:32 ET (04:32 GMT)

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