EMEA Morning Briefing : Stocks Seen Weighed by Risk-Off Sentiment

MARKET WRAPS

Watch For:

U.K. Public sector finances, retail sales; trading updates from Saab, Danske Bank, Hargreaves Lansdown

Opening Call:

European stock futures were broadly lower, tracking declines in Asian equities; the dollar gained; Treasury yields steadied; while oil futures and gold declined.

Equities:

Stock futures in Europe were broadly lower early Friday, following yesterday's selloff in Wall Street where the tech slump extended to broad declines across sectors.

Investors have been shifting from the megacap tech stocks that dominated the first half of the year into shares of smaller companies and more economically sensitive sectors.

The rotation has been largely driven by increased conviction that the Fed could begin cutting interest rates in September.

"We expect that interest-rate cuts will help broaden out the participation in markets, which is always a healthy thing," said Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group.

The European Central Bank held interest rates unchanged on Thursday, as expected, but signaled it was open to cutting rates again this year.

Forex:

U.S. dollar gained on risk-off sentiment. European and U.S. equities have extended their recent declines while the VIX, Wall Street's so-called fear gauge, has continued its uptrend, said Rodrigo Catril, senior FX strategist at NAB, adding that risk aversion was prevailing without a clear catalyst.

There's been an apparent reflex by market participants "to get out of risk, and more generally assets," which points to liquidation-type motivations, said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank. This "squares with" a broad-based USD bounce, Varathan added.

Bonds:

Yields on the two-and 10-year U.S. government debt bounced off their lowest levels in months on Thursday on the possibility of a shallower-than-expected rate-cutting cycle by the Fed.

Attention shifted away from the timing of the Fed's first interest-rate cut to the question of how long any easing cycle would last - with an eye toward a possible victory by Republican presidential nominee Donald Trump and the impacts of his tariff proposals.

"U.S. inflation may continue to stay low in the next few months and allow the Fed to start easing in September," said Thierry Wizman, global FX and rates strategist at Macquarie. However, "the Fed's easing cycle may be shallower than presumed."

Energy:

Oil fell, weighed by negative sentiment spurred by overnight declines in U.S. equity markets. Should positive supply and positioning dynamics worsen, crude oil prices will be more vulnerable to broad weakening in commodity demand amid a slowing global economy and waning Chinese demand, said TD Securities.

Also, major energy agencies downgrading their demand outlooks doesn't augur well for crude oil prices, it added.

Metals:

Gold declined on likely position adjustment but losses could be limited by lingering hopes for Fed rate cuts. A lower interest-rate environment will probably boost demand for gold and other precious metals as the opportunity cost of investing in these assets declines, said Antonio Ernesto Di Giacomo, market analyst Latam at xs.com.

With a high probability of a Fed rate cut in September, bullion demand will likely stay strong, the analyst added.

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It is hard to see a reason why nickel prices would rise again given the strong pipeline of high-pressure acid leaching projects in Indonesia, said Vivek Dhar, an analyst at Commonwealth Bank of Australia.

"The pace of mined nickel supply growth, as well as the breadth of intermediate nickel products, have both surprised on the upside," he said. "The latter has particularly led to pessimism around long-term nickel prices."

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Iron ore prices fell amid weaker investor sentiment. China's Third Plenum meeting, which ended Thursday, failed to signal any policy shift, which weighed on iron ore, ANZ Research said.

This comes amid a combination of weakening seasonal demand and a rise in supply from key iron-ore exporters, it said.

TODAY'S TOP HEADLINES

U.K. Consumers Stay Cautious as New Government Takes Office

U.K. consumer confidence edged up only slightly this month, with respondents' outlook on the economy holding firm as a new government sets out plans to improve public finances, a monthly survey said Friday.

Consumer confidence, as measured by research group GfK's barometer, rose marginally to minus 13 in July, from minus 14 in June, a little weaker than economists' expectations of minus 12 in a Wall Street Journal poll.

U.K. Financial Regulator Tells Banks to Go Easier on Politicians

The U.K.'s financial regulator has told the country's institutions to go easier on due diligence of politicians, a move that follows a scandal over a private bank's decision last year to cut off Brexit advocate Nigel Farage.

The Financial Conduct Authority on Thursday said financial firms must improve their treatment of so-called politically exposed persons, or those entrusted with a prominent public function, and their families. A review by the FCA began after Coutts, a private bank to the country's royal family and wealthy elites, last year abruptly closed Farage's accounts after judging him a reputational risk.

EU's Von der Leyen Wins Second Term, Seeking Political Calm Amid Turmoil

In a vote for political calm and continuity that runs counter to current anti-incumbent trends, the European Union's top official, Ursula von der Leyen, won a second term as president of the bloc's executive branch.

The ballot by lawmakers settles the EU's leadership team for the next five years at a time of upheaval in Europe and the U.S., war in Ukraine and growing security concerns about China.

Meta in Talks to Buy Stake in Eyewear Giant EssilorLuxottica

Facebook parent Meta Platforms is in talks to acquire a stake of about 5% in eyewear company EssilorLuxottica, the company it partners with to make its Ray-Ban smart glasses, according to people familiar with the matter.

The talks are continuing and may not result in a deal, the people said.

Drone Strike Suspected as Blast Rings Out in Tel Aviv

TEL AVIV-An explosion hit Tel Aviv overnight Friday in what is suspected to have been a drone strike on Israel's commercial capital.

The Israeli military said the blast was caused by "the falling of an aerial target," according to its initial probe. No air-raid sirens were activated ahead of the explosion.

Balance of Power in France's National Assembly Tilts Toward Macron

PARIS-France's National Assembly chose its speaker from President Emmanuel Macron's ranks on Thursday, a sign of how the leader's pro-business party, though badly battered during recent elections, narrowly holds the balance of power in the divided Parliament.

Picking a speaker is typically a humdrum affair, but this time the contest was closely watched for indications of how a majority might form within the National Assembly and chart a path out of the unprecedented gridlock that has gripped France since Macron called the snap elections that took place earlier this month.

Netflix Keeps Streaming Crown With Continued Subscriber, Revenue Growth

Netflix continued to add new customers in the second quarter and raised the low end of its forecast for full-year revenue growth, a sign of its continued strength as legacy entertainment companies grapple with cable's demise.

The streaming company added 8.05 million subscribers in the second quarter, compared with 5.89 million net new subscribers during the same period a year earlier. It expects new customer additions to be lower in the current quarter than the same period last year, when it began limiting password sharing in earnest.

Blackstone, Bullish on AI, Charges Into Data Centers

Asset manager Blackstone sees its dealmaking accelerating more in the months and years ahead as it concentrates on artificial intelligence as a centerpiece of its investment strategy.

The New York private-equity firm invested $33.7 billion in the second quarter, roughly 73% more than in the year-earlier period and the most in any quarter over the past two years, Stephen Schwarzman, Blackstone co-founder and chief executive, said Thursday during an earnings call with analysts. Much of the pick up focused on developing the computing infrastructure to support generative AI technology.

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Expected Major Events for Friday

06:00/GER: Jun PPI

06:00/UK: Jun Public sector finances

06:00/UK: Jun UK monthly retail sales figures

07:00/SPN: May Trade Balance

08:00/EU: May Euro area balance of payments

08:00/ICE: Jun Harmonized CPI

08:30/UK: Jun Monthly Insolvency statistics

09:00/ITA: May Balance of Payments

17:59/POR: May Balance of Payments

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

(END) Dow Jones Newswires

07-19-24 0015ET