European Midday Briefing : Investors Continue to Weigh U.S. Data

MARKET WRAPS

Stocks:

European stocks were lower on Friday, as traders continued to digest the U.S. inflation data and what it could mean for interest rates.

Investors fear that rising energy and food prices could push up inflation and result in further interest-rate rises.

"An increasing number of investors and the Federal Reserve's Mary Daly warned that this was 'not a data point that says victory is ours'," Swissquote Bank said.

London's FTSE 100 fell 1.0% as traders exercised caution after stronger-than-expected U.K. GDP data raised concerns about the need for more Bank of England interest-rate rises.

"The reading is economically positive but it complicates the decision which the BOE now faces in terms of its next interest rate decision, particularly if it chooses to tighten further and potentially incite a recession," Interactive Investor said.

Track the analysts' views on the latest UK GDP data here.

U.S. Markets:

Stock futures wavered as investors awaited another reading on inflation.

The producer-price index is expected to tick up 0.2% in July from the prior month, up from 0.1% in June.

The University of Michigan consumer sentiment gauge is also set for release, which includes consumer inflation expectation.

Treasury yields edged lower. The yield on the benchmark 10-year note was trading below 4.1%.

Stocks to Watch

Cano Health was falling 50% after it said there was "substantial doubt" about its ability to continue operating within one year.

Flowers Foods reported second-quarter adjusted earnings of 33 cents a share, beating analysts' estimates, as revenue rose 8.8% to $1.23 billion. Shares were rising 1.9%.

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Bonds:

Gilt yields rose after the latest U.K. GDP data came in stronger than expected, raising the prospect of more Bank of England interest-rate rises.

"The better-than-expected growth figures will likely give the BOE some comfort that raising interest rates to fight inflation hasn't yet pushed the economy into recession," Moneyfarm said.

Energy:

Oil prices inched up as weak demand, particularly in China, offset optimism from OPEC that demand is likely to rise this year globally, with supply set to be constrained by the cartel in the near term.

OPEC's projection of rising demand in the third and fourth quarters should mean inventories will be drawn down in the wake of Saudi-led supply cuts, ING said.

"The significant cuts that we are currently seeing from OPEC+ continue to be supportive for medium sour crudes."

Read IEA Raises Oil Supply Forecasts as U.S. Producers Counter OPEC+ Cuts

Metals:

Base metals prices were falling, while gold was flat in early trading, as a stronger dollar and weak demand in China kept pressure on prices.

"For base metals, we expect prices to remain under pressure due to lackluster Mainland Chinese demand," BMI, a subsidiary of Fitch Solutions said.

However, stimulus hopes will likely provide a floor to prices in the near term, as will falling warehouse stocks, it added.

DOW JONES NEWSPLUS

EMEA HEADLINES

UK Economy Unexpectedly Grew in 2Q - Update

The U.K. economy unexpectedly grew in the second quarter of 2023, helped by expanding services and industrial output, despite the drag on activity caused by strikes, an extra bank holiday and continued high inflation.

Gross domestic product grew 0.2% from April to June compared with the previous three-month period, after a 0.1% expansion in the first quarter, according to data from the Office for National Statistics released Friday.

IEA Raises Oil Supply Forecasts as U.S. Producers Counter OPEC+ Cuts

The International Energy Agency raised its forecast for global oil supplies next year while moderating its demand expectations, pointing to a more balanced oil market that could cap oil prices.

In its monthly market report, the IEA said it expects oil supplies to rise by 1.5 million barrels a day next year, 300,000 barrels a day more than it was expecting last month.

UBS Sheds Swiss Government Aid for Credit Suisse Takeover

UBS said it would no longer rely on Swiss government assistance tied to its emergency takeover of Credit Suisse in March, marking an important step in the complex and politically fraught absorption of its smaller rival.

The Swiss bank said it terminated a roughly $10 billion government backstop that had limited its potential losses on some Credit Suisse assets. UBS also exited emergency liquidity lines the country's central bank had provided to keep Credit Suisse afloat.

Rio Tinto Says Simandou Partners Have Reached Infrastructure Agreements

Rio Tinto on Friday said agreements have been reached between companies seeking to develop the giant Simandou iron-ore project and the government of Guinea on the trans-Guinean infrastructure needed to export the steelmaking ingredient.

Rio Tinto said the Simfer joint venture, which is developing blocks 3 and 4 of the Simandou project, has finalized key agreements with the Winning Consortium Simandou or WCS, which is developing blocks 1 and 2, and Guinea's government for the joint development of port facilities and roughly 370 miles of new railway.

GLOBAL NEWS

American VCs Still Have a Lot at Stake in China

President Biden's executive order restricting investments by U.S. firms in some Chinese technology sectors over national security concerns threatens to cause problems for investors with existing deals in China.

U.S. venture firms have been pulling back from China amid rising tensions between the countries, but many had gone all in on China, and the order may restrict reinvesting in existing portfolio companies and potentially hurt returns.

Chinese Banks' Loan Issuance Shrinks, Signaling Weak Credit Demand

Chinese banks issued a smaller-than-expected amount of new loans in July, signaling that credit demand remained weak despite the government's call to lend more to businesses and households.

New loans extended by banks in China stood at 345.9 billion yuan ($47.93 billion) in July, down significantly from CNY3.05 trillion in June, the People's Bank of China said on Friday.

Ukraine's Sea Drones Alter Balance of Power in Black Sea

ISTANBUL-Ukraine has altered the military balance of power in the Black Sea in recent months, using sea drones to strike back at Russia's more powerful navy and threaten Russian military supply lines and shipping lanes.

Small, inexpensive and difficult to defend against, the homemade drones have allowed Ukraine to open up a new front in the war, attacking strategic military targets and symbols of Russia's dominance in the Black Sea-including the headquarters of Moscow's fleet in occupied Crimea and a bridge connecting the peninsula to Russia. Ukraine says the drones are developed and produced domestically, but has been secretive about the details of the program.

Biden Seeks Billions in New Ukraine Funding

WASHINGTON-President Biden requested an additional $24 billion in defense, energy and humanitarian funding for Ukraine and other countries as part of a new $40 billion request to Congress to pay for items the administration termed critical.

The request comes as Congress is still wrangling over funding the federal government for the next fiscal year, with a government shutdown possible in October if no agreement is reached. While Democrats and Republicans reached a deal on spending caps during debt-ceiling talks earlier this year, some conservatives are pushing for further cuts.

Ecuador Arrests Six Colombians in Slaying of Presidential Candidate

Six Colombians were arrested in connection with the assassination of an Ecuadorean presidential candidate in Quito, officials with Ecuador's Interior Ministry said, hours after President Guillermo Lasso declared a state of emergency to bring order to the country buffeted by drug-fueled violence.

A high-ranking police official said the Colombians are part of a drug-trafficking criminal organization. He said some of the suspects had been arrested in the past in Ecuador and had also committed crimes in Colombia, where U.S. officials say the cocaine trade is flourishing.

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

(END) Dow Jones Newswires

08-11-23 0558ET