European Midday Briefing : Stocks Steady as Investors Look for Clues of Size of Fed Rate Cuts

MARKET WRAPS

European stocks were hovering higher Thursday after markets were all but assured of the Federal Reserve cutting rates with yesterday's inflation data.

The next big question is how big the cut will be, and investors could get some indications with data coming out at 1230 GMT on July U.S. retail sales and industrial production.

An earnings report from Walmart due before open could also shed further light on the state of the U.S. consumer.

Stocks to Watch

European banks could be approaching peak net interest income if loan growth remains muted, Jefferies said.

"Net interest income was in-line with estimates for the first time since Q4-20, suggesting we could be near peak in the absence of loan growth."

It added that non net interest income continued to surprise positively.

Pretax profit was 10% higher than expectations on average--based on the results of the 32 banks covered by the brokerage--with around two thirds of the gap explained by revenue and the rest by lower credit costs.

U.S. Markets:

Stock futures ticked higher while bond yields fell slightly as traders awaited a slew of data including July retail sales and weekly jobless benefit claims.

Stocks to Watch

Cisco Systems ' earnings beat analysts' expectations and executives put forward a restructuring plan. Shares rose 6%.

Ulta Beauty stock surged after Warren Buffett's Berkshire Hathaway disclosed it bought a stake position in the cosmetics company last quarter.

Nike shares climbed after Bill Ackman's Pershing Square Capital Management disclosed that it had acquired a new stake.

Forex:

The prospect of the U.S. interest rate cuts and its economy slowing was proving supportive for the euro as the options market showed increased demand for bets on the currency's rise, ING said.

One-month risk reversals show a skew in favor of euro call options over put options for the first time since 2022, and EUR/USD could rise to 1.12, it added.

"We would like to keep this bias for the time being, even though the prospect of European fiscal consolidation and potentially wider sovereign spreads may reappear in September."

The dollar was steady after briefly falling in reaction to Wednesday's inflation data.

While the data lay the foundations for the Fed to start cutting interest rates in September, a 50 basis points cut is unlikely, Commerzbank said, adding that the Fed won't be in crisis mode just because inflation is moving toward the 2% target.

For panic-like rate cuts to happen, the August labor market report on Sept. 6 would need to be much weaker than expected and show a slump in employment, it said.

Sterling was little moved after data on Thursday showed the U.K. economy expanded by 0.6% in the three months to June compared with the previous quarter.

"There were no surprises in the U.K. GDP report, confirming that the economy has enjoyed a strong recovery from its mild technical recession last year," Abrdn said.

The BOE might be less active than the Fed in cutting interest rates as the U.S. economy cools, but the U.K. could still cut rates further this year as its services inflation is finally moderating, it added.

The Norwegian krone extended gains after interest rates were left on hold by the country's central bank.

Bonds:

Gilt yields edged higher after the latest U.K. GDP data came in line with expectations.

"This should be seen as another sign that the U.K. economy is feeling the monetary policy tightening and that the Bank of England can continue easing gradually," Mizuho said, adding that it expects the next BOE rate cut in November.

Energy:

Oil prices rose, recovering some lost ground after Wednesday's sell-off following a surprise increase in U.S. crude oil inventories.

Geopolitical risks continue to hang over the market, as it's unclear how and if Iran will retaliate against Israel after the assassination of a Hamas leader on Iranian soil, ING said.

This uncertainty has prompted increased options trading activity, as investors want to protect themselves from significant upside, it added.

Metals:

Gold futures rose after Wednesday's selloff, but remaining firmly below the $2,500 mark.

The precious metal has gained on a weaker dollar and lower Treasury yields as the market awaits more clues on the prospects of easing monetary policy, market watchers say.

EMEA HEADLINES

Orsted Net Loss Widens After Hefty Impairments

Orsted's second-quarter net loss unexpectedly widened after it booked hefty impairments on wind and synthetic fuel projects.

The Danish renewable-energy company said Thursday that impairments in the quarter totaled 3.91 billion Danish kroner ($577.1 million), mainly due to delays in the construction of an onshore substation for its U.S. Revolution Wind offshore project and as it has decided to walk away from its FlagshipONE synthetic fuels project in Sweden.

German Cyber Agency Wants Changes in Microsoft, CrowdStrike Products After Tech Outage

Since last month's blue-screen deluge, CrowdStrike has published analyses of what went wrong and said it hired third-party security companies to review its product. Now, Germany's powerful cybersecurity agency is seizing the moment and hoping to rattle tech and cyber companies into altering their products to head off another mega-meltdown.

In particular, the Bonn-based Federal Office for Information Security is taking aim at the access Microsoft gives security providers to its Windows kernel, a core part of its operating system. As well, the German agency is looking for fundamental changes in the way CrowdStrike and other cyber firms design their tools, in hopes of curbing that access.

GLOBAL NEWS

Russia Withdraws Some Forces From Ukraine in Response to Kursk Invasion

SUMY, Ukraine-Russia is withdrawing some of its military forces from Ukraine to respond to a Ukrainian offensive into Russian territory, U.S. officials said, the first sign that Kyiv's incursion is forcing Moscow to rejigger its invasion force.

The officials said the U.S. is still seeking to determine the significance of Russia's move and didn't say how many troops the U.S. assesses Russia is shifting. But the new U.S. assessment bolsters claims by Ukrainian officials who said last week's surprise invasion of Kursk province had drawn Russian forces away from Ukraine, where Moscow's advantage in manpower and equipment is allowing them to grind forward in several places.

Rapid Spread of Mpox in Africa Is Global Health Emergency, WHO Says

KAMPALA, Uganda-The rapid spread of Mpox in Africa constitutes an international health emergency, the World Health Organization said Wednesday, marking the second time in two years that the virus has triggered such a declaration by the United Nations agency.

Cases of Mpox, which is transmitted through close physical contact, including sexual intercourse, have been surging in the Democratic Republic of Congo, where the virus is now circulating in several camps for displaced people in the country's troubled east. From eastern Congo, Mpox appears to have spread to the neighboring Central African Republic, Burundi, Uganda and Rwanda, as well as to some African countries farther afield.

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

(END) Dow Jones Newswires

08-15-24 0538ET