MARKET WRAPS
Watch For:
EU Foreign Trade; Germany ZEW Indicator; UK Unemployment; no
major corporate updates expected
Opening Call:
Europe is poised for a positive open after U.S. shares reversed
course from a lower start to finish Monday's session with solid
gains. In Asia, stocks mostly tracked Wall Street's bounce; while
the dollar, Treasury yields, oil and metals all edged lower.
Equities:
European equities should extend their winning streak on Tuesday,
tracking Wall Street's rebound.
U.S. stocks bounced back from a lower open on Monday, handing
the Dow its longest run of gains since late May, as investors
looked past soft data out of China and U.S. data that missed
forecasts. Asian markets echoed the U.S. gains early Tuesday.
Stocks have been buoyed by recent data showing U.S. inflation
was cooling, though still running quite hot.
"The good news on inflation coming on the heels of a very strong
July payrolls report has reinvigorated belief in a 'soft landing'
for the economy," UBS Global Wealth Management said.
"This is an outcome that we thought was at least as likely as a
recession, and now the markets are moving closer to pricing in this
scenario. The risk is that the markets get ahead of themselves,
especially with investor FOMO starting to kick in."
Economic Insight:
Morgan Stanley said supply-chain pressures continue to ease.
The July Morgan Stanley Supply Chain Index eased due to
"improvement in global costs of shipping raw materials, better
delivery times and backlogs in some economies, and an incipient
drop in containership charter rates."
It added: "Supply chains are still under stress, and we are
still far from normal levels, but July's print confirmed the break
we saw in June and we do not see signs of a slowing pace of
improvement."
Forex:
The dollar eased back slightly in Asia after its strong gains on
Monday spurred by China's disappointing economic data.
HSBC said the dollar should remain strong as it's too early for
the Federal Reserve to pivot towards cutting interest rates. Even
when the Fed eventually does cut rates, it's unlikely to happen in
isolation with other central banks following suit.
"As such, it is likely that the USD can remain on the front foot
as the U.S. is better to withstand the softening global economic
momentum and other central banks appear to have more room to
disappoint the markets in the months ahead."
Bonds:
Treasury yields fell further in Asia with the 10-year rate
remaining below 2.8%.
In data released on Monday, the New York Fed's Empire State
manufacturing index, a gauge of manufacturing activity in the
state, plummeted in August, while a home-builder's sentiment index
fell 6 points to 49, the first time it's been below break-even
since May 2020.
"The front end of the U.S. curve prices 25bp more in Fed hikes
than it did at the end of July, but a 3.5-3.75% peak funds rate
still seems modest and the turn in rates after 1Q next year will
only happen if the yield curve is 100% right in warning of upcoming
recession," said Société Générale.
"[The] concern now is that the path of least resistance is for
the front end of the U.S. rates market to price in more, as Fed
officials have no choice but to sound tough in the face of a very,
very tight labour market and far too-high inflation."
Energy:
Oil prices extended their retreat in early Asia trade after
China's economic data raised fears that a slowing global economy
will reduce demand for energy products.
The data "doesn't bode well for oil demand especially when the
country remains so committed to zero-Covid," OANDA said. "And with
cases continuing to rise, the downward pressure on oil prices could
intensify."
Oil futures settled with a loss of around 3% on Monday with
prospects for the revival of the Iran nuclear deal, which could
lead to more global crude supplies, also contributing to oil's
heavy losses.
Read: Iran Says Some Issues Still Pending as Deadline for
Nuclear Deal Looms
Metals:
Gold futures edged lower still in Asia, having dropped below
$1,800 on Monday to settle at their lowest level in more than a
week. However, losses were contained early Tuesday as the dollar
lost some traction.
---
Copper prices were slightly weaker in further reaction to the
China economic data.
Meanwhile, supply-side issues in Europe will also likely remain
in focus, as rising power prices have led to many smelters running
at a loss. "This could see further cuts to capacity over the coming
months," ANZ said.
---
Most iron ore futures were a touch lower after data showed crude
steel output dropped 6.4% on year in July, weighing on the iron ore
market, ANZ said.
Overall, the lack of any sizable pickup in China's
infrastructure investment has added to headwinds which the steel
industry is likely to face in coming months.
TODAY'S TOP HEADLINES
Freight Demand Is Moderating Heading Toward the Fourth
Quarter
Warren Buffett's Berkshire Hathaway Keeps Spending Through
Volatile Markets
Warren Buffett's Berkshire Hathaway Inc. scooped up millions
more shares of Apple Inc. and doubled down on its energy
investments, while the stock market swooned in the second
quarter.
The moves were made public in Berkshire's 13F filing, which was
released after the stock market closed Monday. Regulations require
institutional investors managing more than $100 million to file the
form, which lays out firms' equity holdings as of the end of the
most recent quarter, as well as the size and market value of their
positions.
There Is No Preset Path for Australian Rate Rises, RBA Says
SYDNEY-The Reserve Bank of Australia is staying flexible on the
size and pace of future interest-rate rises, underlining in the
minutes of its Aug. 2 board meeting the need to respond to a
shifting inflation outlook and labor data.
The minutes, published Tuesday, repeated the RBA's warning that
the path to reining in inflation while maintaining economic growth
is narrow.
Iran Says Some Issues Still Pending as Deadline for Nuclear Deal
Looms
Iran on Monday said there were several issues with the
nuclear-deal draft text that the U.S. needs to address before
Tehran can agree to it, leaving the fate of the nuclear agreement's
revival still uncertain.
The European Union had set Monday as the deadline for Iran, the
U.S. and the other countries in the 2015 deal to say whether they
would accept the deal or not, according to diplomats. The EU last
week circulated what it called a "final text" on reviving the
accord and sent the draft following four days of talks in Vienna,
saying the 16 months of negotiations were now over.
China Restarts Military Drills in Response to Latest U.S.
Lawmakers' Visit to Taiwan
TAIPEI-China's military responded to the surprise arrival in
Taiwan of a new delegation of U.S. lawmakers by announcing a
resumption of military drills around the island, in the latest
flare-up of tensions in the region.
The delegation, led by Senate Foreign Relations Committee member
Ed Markey (D., Mass.), met with Taiwanese President Tsai Ing-wen on
Monday to discuss maintenance of regional stability and deepening
U.S.-Taiwan trade, according to Taiwan's presidential office. The
group arrived in Taipei on Sunday without having previously
announced the two-day visit.
Ukraine Urges Civilians to Leave Kherson as It Prepares Bid to
Retake Russian-Held Territory
KYIV, Ukraine-Kyiv is urging residents of the Russian-occupied
Kherson region to leave before a winter exacerbated by shortages
sets in and ahead of a promised Ukrainian counteroffensive to
retake the strategic area.
"Evacuate. A harsh winter is coming. We need to help you, to
save you from the cold and the enemy," Deputy Prime Minister Iryna
Vereshchuk said Sunday in Zaporizhzhia, a city near the front
line.
Write to paul.larkins@dowjones.com
Expected Major Events for Tuesday
06:00/UK: Jul UK monthly unemployment figures
07:00/SVK: Jun New orders in industry
07:00/CZE: Jul PPI
07:00/SVK: 2Q Flash estimate of GDP
07:00/SVK: 2Q Flash estimate of total employment
08:00/BUL: Jul CPI
08:00/POL: Jun Merchandise trade
09:00/GER: Aug ZEW Indicator of Economic Sentiment
09:00/EU: Jun Foreign trade
23:01/UK: Jul Scottish Retail Sales Monitor
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(END) Dow Jones Newswires
August 16, 2022 00:16 ET (04:16 GMT)
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