Thursday, August 11 2022

MARKET ENVELOPES

To watch:

Retail sales in Italy; OECD Composite Leading Indicators; UK BRC-KPMG Retail Sales Monitor; meeting of the Eurogroup of finance ministers of the euro zone; no significant gains expected

Opening call:

Stocks in Europe are poised for heavy opening losses on China Covid-19 concerns, with more brakes hitting stock benchmarks in Hong Kong and Shanghai. Elsewhere in Asia, the dollar surged, while Treasury yields, oil and metals all weakened.

Shares:

European stocks face steep opening losses on Monday as fears of further Covid restrictions in China add caution ahead of the US earnings season which begins this week.

In Asia, stocks in Hong Kong and China were deep in the red as investors grew increasingly concerned about the recent rise in Covid-19 infections in China.

KGI Securities said the latest resurgence of the virus in several Chinese cities could prove to be a major drag on both business activity and investor sentiment in the near term. Most analysts pointed to Covid-19 as a key driver for China’s second-half outlook.

Elsewhere, shares of Macau-focused casinos fell after city officials announced a week-long closure of gambling halls and other businesses to tackle a rise in Covid-19 cases in central Macau. asian game.

In the United States, investors expect worries about runaway inflation and struggling consumers to dominate corporate earnings season, creating winners and losers in a struggling stock market.

Investors this week will be looking at earnings reports from major financial firms, including JPMorgan and BlackRock, as well as other companies such as PepsiCo and Delta Air Lines. They will also analyze new inflation readings that will likely influence the pace of the Fed’s rate hike plans.

Forex:

The dollar strengthened in Asian trades as risk aversion sentiment driven by losses in some regional stock markets and US stock futures guided management.

The ABC said the dollar could continue to rise this week as the global economic outlook appears to be deteriorating.

He pointed to US data due out this week, which is expected to show inflation remained stubbornly high in June, especially the reduced average and weighted median measures. High inflation could encourage the FOMC to raise rates by 75 basis points at its next policy meeting later this month, the ABC said.

However, OANDA said the dollar’s reign is “slowly coming to an end as Fed tightening is fully priced into markets.”

He thinks recession fears are high and Wall Street fears the Fed will need to address weaker economic data points at the September meeting. OANDA thinks investors are beginning to guess that the peak of Fed tightening is near and that means “dollar strength is going to be limited going forward.”

USD/JPY climbed 0.7% to 136.99 after touching 137.28, its highest intraday level since September 1998 and JPMorgan said further deterioration in Japan’s trade deficit would create fundamental headwinds for the yen.

JPM said Japan’s trade balance appears to have moved in line with the yen price of Brent, suggesting the trade deficit is likely to persist if oil prices remain at their current high levels, implying a sustained flow of Brent sales. yen from importers.

Obligations :

Treasury yields fell slightly on Monday morning after climbing on the back of the strong US jobs report. The yield curve remained inverted, with the yield on two-year Treasury bills trading higher than the 10-year equivalent.

“The surprise is how strong the job market still is,” Chilton Trust said. “That labor market equilibrium is still having its effect here, and it affirms this need for muscle from the Fed and the priority given to fighting inflation over unemployment.”

Chilton Trust expects the yield curve to remain inverted in the coming months and believes a rate hike of 0.75 percentage point is warranted.

Other news:

According to Refinitiv, global companies in the first half of 2022 raised less money issuing sustainability bonds than in the prior year period.

Companies issued $264 billion worth of such bonds – a category that includes green, social and sustainability bonds – in the first half of the year, down 10% from the first six months of 2021. Many companies took advantage of the market last year when interest rates were lower, Refinitiv said.

He added that the market is still relatively new and operates at a different cadence than the traditional bond market, which companies use to finance acquisitions and other corporate events.

Energy:

Oil was lower in Asia, giving up earlier gains, on concerns over the latest Covid-19 outbreak in China.

The resurgence of the virus and the detection of a new, highly contagious subvariant of Omicron in Shanghai will likely be negative for the oil market, SPI Asset Management said.

Shanghai officials have identified a case of the Omicron BA.5.2.1 variant, according to reports released over the weekend. Meanwhile, neighboring Macau is set to enter quarantine early Monday as authorities seek to contain a Covid-19 outbreak there.

Other news:

A likely outcome of this week’s meeting between Joe Biden and Mohammed bin Salman of Saudi Arabia will be for the Saudis to agree to loosen the oil taps, RBC Capital Markets said.

“We believe it [Biden] will seek not only additional barrels, but also a redirection of exports to Europe to offset impending Russian losses with the most severe energy sanctions expected to come into effect in several months,” RBC said.

Any increase in Saudi oil production will likely be in line with the terms of the current OPEC+ production deal. Saudi Arabia and the United Arab Emirates could offset the underperformance of production by OPEC members such as Nigeria and Angola, RBC added.

Read: Manufacturers brace for Nord Stream repairs, fearing pipeline won’t reopen

Metals:

Gold futures fell slightly as the dollar appreciated.

On the technical charts, gold saw a major downside break of pivotal support at $1,785/oz, so further selling is expected in the near term, CMC Markets said.

Gold is now falling into a descending channel on the daily chart, with pivot resistance at the July 1 low of $1,785/oz. If the downtrend continues, further support is likely to be at the 100% Fibonacci extension level of $1,700/oz.

Base metals fell on fears of slowing global economic growth.

Copper suffered its fifth consecutive weekly loss last week on fears that central banks may continue aggressive tightening to deal with still high inflation.

Iron ore futures were weaker, extending their recent price swings, after a strong sell-off earlier this year.

Huatai Futures said the rise in new Covid-19 infections in China was likely to remain a “major disruptor” as any tighter movement restrictions or production halts could weigh on demand for steel ore.

Longer term, Huatai warned of Beijing’s commitment to cutting steel production and achieving carbon neutrality as negatives for iron ore prices.

Other news:

Jefferies said commodity prices were heading for a bottom in the second half, cutting its 2022 forecast for iron ore fines by 9.8% to $121.78/tonne, aluminum by 23% to $1.17/lb, copper up 16% to $3.79/lb, and gold up 3.1% to $1,938/oz, among other changes.

“While we expect a strong recovery from this slowdown, it will take time as Chinese stimulus is expected to be partially offset by near-term weakness in the US and Europe. We also believe we will come back to this period. with the benefit of hindsight as having been a great entry point that most market players will have missed.”

The bank’s top picks are Rio Tinto, IGO, and Oz Minerals.

   
 
 

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Major events expected for Monday

06:00/DEN: May Balance of payments (provisional figures)

06:00/DEN: May Foreign trade (provisional figures)

06:00/NOR: June IPC

06:00/NOR: June PPI

06:00/ROM: May International Trade

06:00/DEN: June IPC

07:00/CZE: May Retail

07:00/SVK: May Industrial Production

08:00/ITA: May retail sales

09:00/MLT: May International trade

09:00/CYP: May foreign trade (provisional)

10:00/POR: May International Trade Statistics

10:00/FRA: May OECD Composite Leading Indicators

23:01/UK: June BRC-KPMG Retail Sales Monitor

All times in GMT. Powered by Onclusive and Dow Jones.

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

 

(END) Dow Jones Newswire

July 11, 2022 12:37 a.m. ET (04:37 GMT)

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