EMEA Morning Briefing : Stock Futures Rise as Mood Boosted by Fed Outlook Hopes, China Stimulus

MARKET WRAPS

Watch For:

Germany foreign trade; UK BRC-KPMG retail sales monitor; no major trading updates expected

Opening Call:

European equities look set to start the week higher as mood improves on hopes for a Fed rate pause and Beijing’s policy stimulus. In Asia, stock benchmarks advanced; the dollar weakened slightly; while oil and gold futures edged higher.

Equities:

European stock futures point to gains at the start of the week amid hopes for a rate pause by the Federal Reserve and optimism over further policy easing targeting the Chinese real-estate sector.

The U.S. economy added 187,000 jobs in August, topping economist expectations but still affirming a slowdown in the pace of job gains that’s likely to be welcomed by the Fed.

The nonfarm payrolls report shows economic growth is still “solid,” which may be buoying some investors’ hopes for a “soft landing,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. But “it’s too soon to declare that the Fed’s job is over” bringing inflation down through higher interest rates aimed at cooling the economy, he said.

After Friday’s employment report, federal-funds futures continued to point to a high probability that the Fed will keep its benchmark rate steady at a targeted range of 5.25% to 5.5% at its policy meeting later this month, according to the CME FedWatch Tool.

“To be clear, the Fed won’t get carried away with [Friday’s] report. It’s just one that needs to be repeated on a number of occasions but there’s plenty of cause for optimism in there,” said Craig Erlam, senior market analyst at Oanda.

The effects from the Fed’s monetary tightening are still working through the economy, whose strength is “remarkable” in the face of the central bank’s aggressive rate hikes since early 2022, said Steve Wyett, chief investment strategist at BOK Financial.

“We think the majority of the impact of what the Fed has done is still in front of us,” he said, which makes him cautious about how much further the stock market could run higher from here.

“It just appears the stock market has built in a lot of really good news, ” said Wyett. “If the Fed is able to thread the needle on this, we’re not so sure that results in a significant move higher in equities.”

U.S. markets are closed Monday for the Labor Day holiday.

Read: As U.S. stock-market investors celebrate soft economic data, is bad news becoming bad news again on Wall Street?

Forex:

The U.S. dollar fell slightly in Asia, after making gains Friday following U.S. jobs data.

The Fed must be content that labor-market conditions are cooling but not alarmingly so, said Paul Mackel, global head of forex research at HSBC.

Activity data in the eurozone are still trending lower and aren’t improving much for China. Unless those strengthen materially, then it will be harder for the greenback to fall, he said. U.S. services-sector activity data due Wednesday will be closely watched.

Bonds:

Treasurys weren’t traded early Monday due to the Labor Day holiday in the U.S.

Treasury yields finished mostly higher Friday, but were down for the week, after the Cleveland Fed’s Loretta Mester comments on inflation.

In remarks made at a conference in Europe on Friday, Mester said inflation “remains too high” despite some progress. Fed officials are trying to determine whether the current level of the fed funds rate target “is sufficiently restrictive and how long policy will need to remain restrictive to keep inflation moving down,” she said. Within the Treasury market, her remarks overshadowed Friday’s jobs data, which investors and traders read as supporting the case for a cooling labor market.

“Our base case view is that by the time of the November FOMC meeting, the economy will have shown clear signs of slowing, leading the Fed to finally put an end to its sharpest rate-hike cycle since the 1980s. We expect U.S. Treasury yields to fall by year-end as both U.S. growth and inflation moderate,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

Energy:

Oil futures advanced early Monday amid easing investor concerns over higher supply.

Data showing OPEC’s oil production held broadly steady in August and news that Russia had agreed on further OPEC+ cuts also helped ease concerns over supply, said ANZ.

Metals:

Gold futures rose slightly in Asia on fresh signs of the U.S. economy cooling.

“Cooling U.S. jobs data raised expectations the Fed would pause its rate hikes. The USD fell and bond yields retreated on the data, helping boost investor demand for the precious metal,” ANZ said.

–

Copper rose on China’s stimulus measures to support the property sector.

Beijing’s move to reduce the down-payment ratio for first-time homebuyers and adjustment to interest rates for existing mortgages exceeded market expectations and are helping boost sentiment across commodity markets, ANZ said. Copper is widely used in manufacturing and building construction.

India’s GDP growth of 7.8% on year for the quarter ended June, its fastest pace in 12 months, is also lending support, ANZ added.

–

Iron ore futures advanced amid China’s property-sector stimulus.

“With the implementation of various economic and real estate policies, we believe that the property sector will survive the most difficult time, and the demand for steel in real estate will gradually stabilize and rise,” Huatai Futures said.

TODAY’S TOP HEADLINES

Investors Head Into Fall With Jitters After Summer Rally

Stock market bulls are on edge heading into September.

The S&P 500 is up 18% so far this year, even after falling in August for its first monthly decline since February. The benchmark index rallied in the final week of the month, finishing near its monthly highs for the sixth consecutive month. Now investors are questioning whether stocks can continue defying expectations and hang onto this year’s gains.

Chinese Developer Stocks Jump on Easing Mortgage Policy

Shares of Chinese property developers rose sharply Monday, as more major Chinese cities said over the weekend that they would ease mortgage policies in a bid to shore up the real-estate sector.

The Hang Seng Mainland Properties Index rose 8.2%. Hong Kong-listed Longfor Group Holdings climbed 10% and Seazen Group jumped 17%. Shanghai-Listed Gemdale added 4.1% and China Vanke gained 1.4%.

Wall Street is raising quarterly profit forecasts for the first time in two years

After nearly two years of concerns about a recession, growing optimism about the economy is starting to filter down into Wall Street’s expectations for individual companies’ quarterly results, with analysts growing more upbeat about corporate profit in the months ahead

While expectations for those quarterly results usually trend lower as earnings season arrives, analysts over the past two months have actually nudged their profit forecasts higher for the first time in two years, according to a FactSet report released Friday.

Ukraine’s Zelensky Appoints Crimean Tatar Executive as New Defense Minister

KYIV-Ukraine’s President Volodymyr Zelensky has tapped a Crimean Tatar executive to be the country’s new minister of defense, changing the ministry’s leadership amid procurement scandals as Ukrainian troops fight to advance toward the Crimean Peninsula that was annexed by Russia in 2014.

The new appointee, Rustem Umerov, until now the head of Ukraine’s state property fund and a special presidential envoy, played a key role in some of Ukraine’s most sensitive diplomatic negotiations since Russia launched a full-scale invasion in February 2022.

South Africa Says It Didn’t Deliver Arms to Russia

JOHANNESBURG-South Africa’s president said Sunday that an official inquiry found no evidence supporting allegations made by the U.S. ambassador to the country that South Africa had delivered arms to Russia.

A Russian cargo ship that docked surreptitiously at South Africa’s largest naval base in December delivered unspecified equipment South Africa’s arms procurement company had ordered in 2018, but no arms were exported to Russia, President Cyril Ramaphosa said.

The Disappointing Bet That Could Turn Into the Biggest IPO of the Year

When Masayoshi Son’s SoftBank Group struck a 2016 deal to buy chip company Arm, he was so excited he said the $32 billion purchase was “very much my destiny” after decades of tech investing.

“You can say almost with confidence,” the billionaire chief executive told analysts, “that it will grow 5x in five years.”

How Novartis’s CEO Learned From His Mistakes and Got Help From an Unlikely Quarter

Monday afternoons at Swiss drugmaker Novartis now feature the Ronny Gal Show.

Starting at 2:30 p.m. in Basel, an industry news and intelligence report written by Gal hits the inboxes of 250 senior officials, who rush to read which deals the chief company strategist says Novartis should pursue, what science it should investigate and what rivals are doing.

Write to [email protected]

Expected Major Events for Monday

06:00/SWE: 2Q Balance of Payments

06:00/ROM: Jul PPI

06:00/GER: Jul Foreign Trade

07:00/SPN: Aug Unemployment

07:00/SWI: 2Q GDP

07:00/TUR: Aug CPI

07:00/TUR: Aug PPI

07:00/CZE: 2Q Wages

07:00/SVK: 2Q Labour Force Sample Survey: Employment & unemployment

07:00/SVK: 2Q Average monthly wage of employees

15:00/DEN: Aug Foreign Exchange & Liquidity

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

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

(END) Dow Jones Newswires

09-04-23 0017ET