European Midday Briefing : Stocks Boosted by China Moves to Revive Markets

MARKET WRAPS

Stocks:

European stocks were higher on Monday, tracking gains in Asia after China's government set out measures to revive stock markets, but with trade quiet as U.K. markets are closed for a public holiday.

Danske Bank said the Chinese measures "had been flagged recently but the scale was wider than expected."

Read Chinese Stocks Rally After Beijing Moves to Boost Market

Jerome Powell's comments at Jackson Hole that the central bank could raise rates further but will proceed carefully didn't change the needle much, and contained little to worry equity investors, Danske said.

SEB said "European inflation and U.S. employment are the main items on the international macro agenda this week. Both employment and inflation are expected to move downwards, although levels will still worry central banks."

Read Eurozone Interest Rates Can't Come Down Yet, Le Maire Says

Read Investors Seem to Have Longer to Wait for Fed Policy Shift

Stocks to Watch

European car manufacturers are intertwined with China's negative growth sentiment, particularly German manufacturers, Citi said.

Citi has downgraded its GDP estimates for China, which represents around 30% of global car demand and 70% of electric-vehicle demand.

The Chinese market accounts for 33% of BMW's EBIT, 30% of Porsche's, 26% of Volkswagen's and 23% of Mercedes-Benz's, Citi said. Stellantis and Renault are barely exposed in the market, though Renault's interest in Nissan adds a wrinkle, it added.

Despite solid sales over the last 12 months and year to date, Citi forecast a small sales decline in China this year compared with 2022.

U.S. Markets:

Index futures edged higher, with the outlook for monetary policy remaining in focus after Powell left the door open to further rate increases.

The yield on the 10-year Treasury note fell slightly, after settling at 4.239% on Friday. The 2-year yield, in contrast, ticked higher.

Stocks to Watch

ADRs of Alibaba rose 1%, https://urldefense.com/v3/__http://JD.com__;!!F0Stn7g!BDd6gB1xL8uUMH3DNFRuDGXJdzemWHYPH667Gn8FmxdQqNy4FdramlUfkSn13R_GOllkrJTc9Yqnl0RxJnjuJcnwWZ4LB7nl4UwI91lTI-I$ gained 1.2%, and Baidu rose 1.1% after the Chinese government said it would reduce a tax on trading and take other steps to boost its capital markets.

3M rose 4.3% in premarket trading following a report from WSJ that said the company and plaintiffs attorneys were nearing a settlement in which 3M would pay $5.5 billion to resolve claims it sold faulty combat earplugs to the U.S. military.

Read 3M Nears Roughly $5.5 Billion Earplugs Settlement

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Forex:

Investors continue to favor the dollar over other major currencies due to the conviction that economic weakness is greater outside of the U.S. than inside it, UniCredit said.

"Markets remain convinced that economic weakness is likely to remain more evident outside the U.S. and yield spreads will probably move further in favor of the dollar."

Powell said at Jackson Hole that interest rates could rise further, but that the central bank will proceed carefully, which was enough to keep the dollar firm across the board, UniCredit added.

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EUR/USD has scope to fall further, based on technical charts, UOB said. Last week, the currency pair broke below July's low of 1.0832 and dipped slightly below the 55-day week exponential moving average near 1.0790.

However, EUR/USD's downward momentum hasn't increased much and its fall is approaching oversold territory, so the pace of any drop is expected to be relatively gradual, UOB added, noting next significant support is at late May's low near 1.0635.

Bonds:

Eurozone government bond yields mostly eased in early trade as Powell and Lagarde left the door open for further interest-rate rises in their speeches at Jackson Hole.

Read ECB Account, Data Could Guide Bond Market Ahead of September Meeting

Energy:

Oil prices edged higher as Chinese stimulus efforts offset concerns about demand and higher supply.

Concerns about China's economy have been a key drag on demand expectations. Adding to those concerns, China's Industrial profits fell 12.6% in May, according to data released Sunday.

Reports of easing tensions between the U.S. and both Iran and Venezuela have also emerged, which could also see sanctions on Caracas and Tehran lifted, boosting their oil exports.

Metals:

Read Barron's September Is Bad for Stocks. Is It Still Good for Gold?

DOW JONES NEWSPLUS

EMEA HEADLINES

Why Central Bankers Are Unsure Whether They've Raised Rates Enough

JACKSON HOLE, Wyo.-Central bankers from around the world are finally getting the inflation slowdown they have long been expecting, but worry it won't last.

That apprehension explained the uneasy optimism underlying their discussions here in the Wyoming mountains this weekend about whether interest rates have reached a summit.

Digital Payments Can't Serve Up a Free Lunch

For investors, the massive market for digital payments used to offer a rare dreamland of growth companies with a low-risk, oligopolistic business. That Cathie Wood is doubling down on it should tell them this was too good to be true.

Wood's ARK Investment Management is known for betting on fast-growing technology moonshots and for upping the stakes whenever other investors jump ship. Last week, ARK announced it had nearly doubled its holdings in Dutch payments-processing company Adyen, the shares of which are now worth half what they were on Wednesday of the previous week, before it reported disappointing half-year revenue and earnings.

'The Market Is Dead': Ukraine's Farmers Count the Cost of Grain Deal's Collapse

PISKY, Ukraine-As Russia squeezes Ukraine's ability to export its huge grain harvests, it is farmers like Valery Kolosha who are counting the cost.

Russia last month pulled out of an international agreement that facilitated Ukrainian exports via the Black Sea and has since launched a series of attacks on port facilities in the country. Together, those actions have hindered the exit points for three-quarters of Ukraine's grain.

GLOBAL NEWS

Rising Long-Term Rates Loom Over Autumn on Wall Street

Jerome Powell's much-anticipated speech Friday did little to resolve the conflict gripping markets late this summer: whether a rapid climb in interest rates spells doom for the surprising 2023 stock-market rally.

The Federal Reserve chair said inflation remains too high and officials are open to raising rates again, if needed, in his address at the Kansas City Fed's annual symposium. He suggested that interest rates could stay high for the foreseeable future, keeping borrowing costs elevated and, in turn, pressuring stocks as investors more deeply discount the value of future corporate earnings.

Fed's Inflation Fight, China's Slowdown Hammer Emerging Markets

Rising U.S. interest rates and China's economic sluggishness are dealing a double blow to emerging markets.

Investors had expected developing economies from Brazil to Thailand to shine this year as U.S. interest rates fell, the dollar weakened and Chinese demand rebounded after three years of pandemic-driven lockdowns.

Foxconn Founder Stirs Up Taiwan Presidential Race by Declaring Bid

SINGAPORE-Terry Gou, the billionaire founder of iPhone assembler Foxconn Technology Group, said he plans to run for Taiwan's presidency, complicating a closely watched contest that could reshape the island's testy relations with Beijing and affect U.S. policy toward China.

Gou announced his bid at a Monday briefing in Taipei, where he cast himself as an independent candidate who can unite Taiwan's disparate opposition forces and unseat the ruling Democratic Progressive Party, which has tightened ties with Washington, at the presidential election due in January.

Gina Raimondo Says China Visit Aimed at Protecting U.S. Economic Interests

BEIJING-Commerce Secretary Gina Raimondo said she would use a four-day visit to China this week to ensure an easing in tense relations while standing firm in confrontations over technology restrictions and Chinese trade practices.

Raimondo, who arrived in Beijing on Sunday, said that she will seek to "protect what we must and promote where we can" as she discusses economic and commercial relations with her Chinese counterparts.

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

(END) Dow Jones Newswires

08-28-23 0559ET