MARKET WRAPS
Watch For:
EU PPI, ECB consumer expectations survey results; Services PMI data for EU, U.K., France, Germany, Italy; U.K. official reserves, Chancellor Jeremy Hunt takes questions in the House of Commons, monthly car registrations figures; trading updates from Ashtead Group, Ryanair Holdings, SEB, DS Smith
Opening Call:
European equities may open lower as weak China services PMI data triggers concerns over its growth momentum. In Asia, stock benchmarks were lower; treasury yields were mixed; the dollar was little changed; while oil futures were mixed and gold declined.
Equities:
European stock futures point to declines early Tuesday weighed by fresh China data signaling that growth momentum in the country’s service sector may have lost steam.
The Caixin China services purchasing managers index slid to 51.8 in August from 54.1 in July, Caixin Media Co. and S&P Global said Tuesday.
Employment in the service sector continued to expand in August but growth slowed, Caixin said.
U.S. markets were closed for the Labor Day holiday on Monday, sapping liquidity from international markets.
The market backdrop heading into the fall has been surprisingly strong and still without a recession. Despite a modest pullback in August, U.S. equities were still nearing record levels, with the AI-craze helping push up some technology stocks, including shares of Nvidia Corp(NVDA), to fresh highs.
“The [Chinese] government has been unwilling to get the bazooka out and unleash massive stimulus measures,” said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.
“Now it does feel like there is a bit more interest from the Chinese to protect the property market and give investors confidence.”
However, some analysts caution that the measures may not be enough.
Other restrictions on home transactions and land supply remain in place in large cities, Nomura analysts said.
Also, contracting exports, geopolitical tensions and weak confidence in the private sector may weigh on the economy in general and on potential home buyers’ sentiment in particular, they added.
Forex:
The U.S. dollar was little changed in Asia.
Meanwhile, the euro has had a tough time against the U.S. dollar since mid-July, depreciating by 4.5% over that period, due to a diverging economic performance between the eurozone and the U.S., Hartmut Preiss, analyst at DZ Bank Research said.
“The main reason for this movement is probably the different economic development of the two currency areas,” he said.
While the U.S. shows a good economic situation, sentiment indicators in the eurozone paint a rather gloomy economic picture.
“The U.S. currency has also become more attractive due to noticeably higher yield premiums,” he said.
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GBP/USD’s recent attempt to bounce off “the neckline” level at 1.260 has failed to find much follow-through amid the strength of the U.S. dollar, IG said.
That signals a bearish continuation of the currency pair’s recent downtrend.
Technical chart analysis shows that the relative strength index has struggled to cross back above the key 50 level in the past month.
GBP/USD is testing the head-and-shoulder neckline at 1.260 again this week, with any failure to defend the level potentially paving the way toward a decline to 1.231, it said.
Bonds:
Treasury yields were mixed early Tuesday after the Labor Day holiday in the U.S. on Monday.
Central bank decisions in September may cause some short-term disruptions, but are unlikely to alter the trend of falling yields, Florian Spaete, senior bond strategist at Generali Investments, said.
While government bond yields rose in August, particularly in the U.S., he expects bond yields to fall in the medium term, given the expected slowdown, he said.
“Despite the recent yield increase, we are sticking to our medium-term view of lower yields,” he said.
Generali Investments’ base case is that both the Federal Reserve and the European Central Bank have reached the peak rate in the current cycle.
Energy:
Oil futures were mixed early Tuesday as optimism over China’s stimulus policy faded amid concerns over long-term growth.
However, some traders believe the market’s supply deficit is likely to support prices in the long run.
“That there is still plenty of momentum so close to $90 a barrel may suggest we could see a strong push to break above which would represent a big shift in the market dynamic in quite a short period of time,” Oanda said.
Metals:
Gold was lower in early Asian trade.
The precious metal has been a little choppy and continues to trade shy of $1,950 after trying to break above in the immediate aftermath of the U.S. jobs report, Oanda said.
There are a combination of technical resistance levels that could be pushing back, it said, adding that it is also likely that the rebound of the last couple of weeks has run out of steam.
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Copper declined in early Asian trade as traders assessed the impact of Beijing’s efforts to support the property sector.
Pointing to Beijing’s move to cut the downpayment ratio for first-time homebuyers and adjust interest rates for existing mortgages, ANZ analysts said these measures may not immediately translate into stronger demand for commodities.
“Markets were more circumspect as they considered the impact of support measures for China’s property sector,” they said.
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Iron ore prices were lower in early Asian trade as China ordered its top steelmaking hub, Tangshan, to reduce production due to worsening air quality, Nanhua Futures said.
Most iron and steel companies in Tangshan received orders to lower sintering production starting from Sept. 4, it said.
TODAY’S TOP HEADLINES
China Caixin Services PMI Fell in August
A private gauge of China’s service activities fell to its lowest level in eight months, signaling that the service sector’s growth may have lost steam.
The Caixin China services purchasing managers index slid to 51.8 in August from 54.1 in July, Caixin Media Co. and S&P Global said Tuesday.
Yes, There Is a Bull Case for Investing in China
Given the endless bad news about China’s economy, the contrarian in me wants to be bullish.
It’s true that debt, housing, local government and consumer demand are all a mess, and dire demographics raise the prospect of a Japanese-style economic disaster. But there are three things working in China’s favor as an investment destination: Stocks rarely have been this cheap compared with the U.S.; its entire weight in the global benchmark is smaller than Apple’s; and a weaker dollar might help.
Putin Says Russia Won’t Rejoin Ukraine Grain Deal Until West Meets Demands
President Vladimir Putin said Russia won’t rejoin a deal enabling Ukrainian grain to be shipped globally until the West meets its demands to facilitate Russian agricultural exports, after quitting an agreement that guaranteed the safety of a crucial part of the global food supply chain.
“We are not against this deal; we are ready to immediately return to it as soon as the promises made to us are fulfilled. That’s all,” Putin said at a joint press conference after a meeting with his Turkish counterpart, Recep Tayyip Erdogan, in the Russian Black Sea resort of Sochi on Monday. “So far no obligations toward Russia have been fulfilled,” Putin said.
L’Occitane’s Controlling Shareholder Decides Against Takeover Offer
L’Occitane International’s controlling shareholder has dropped plans to proceed with a possible takeover offer for the cosmetics company, prompting shares to plunge after resuming trade Tuesday.
The cosmetics retailer said in a filing to the Hong Kong Exchange late Monday that “it was informed by the controlling shareholder on 3 September 2023 that it has decided not to proceed with the possible transaction.”
Orora to Buy Bottle Maker Saverglass From Carlyle in $1.4 Billion Deal
Australian packaging company Orora on Tuesday said it would buy French high-end glass bottle maker Saverglass from private-equity firm Carlyle Group in a deal valued around 2.16 billion Australian dollars (US$1.40 billion).
Orora said Saverglass, which designs and makes bottles for premium spirit and wine markets, will become the centerpiece of its glass business, expanding its footprint outside Australia and boosting opportunities for growth. The company will raise roughly A$1.35 billion to help fund the acquisition.
Russia-Led Theatrics Take Center Stage at U.N.
UNITED NATIONS-Rock star Roger Waters was in Switzerland when he heard from his friend Randy Credico, a comedian and radio personality who rose to prominence during special counsel Robert Mueller’s investigation of Russian interference in the 2016 election.
Credico told Waters, a Pink Floyd co-founder, that Russia was eager to have him speak at the U.N. Security Council, the premier venue for diplomats and-increasingly-entertainers.
North Korea’s Kim Jong Un Expected to Meet Putin in Russia
WASHINGTON-North Korean leader Kim Jong Un is expected to travel to Russia soon to meet with President Vladimir Putin, U.S. officials said Monday, the latest sign that negotiations are accelerating over ammunition Moscow is seeking for its war in Ukraine.
The trip would be unusual for the North Korean leader, who rarely travels abroad. Moscow and Pyongyang have grown closer amid economic sanctions and diplomatic pressure from the U.S. and its allies.
Italy Seeks to Leave China’s Belt and Road Initiative-Without Angering Beijing
ROME-Italy is preparing to cancel its controversial membership in China’s Belt and Road infrastructure initiative, engaging in an elaborate diplomatic dance to avoid angering Beijing and triggering retaliation against Italian businesses.
(MORE TO FOLLOW) Dow Jones Newswires
09-05-23 0015ET
