European Midday Briefing: Miners, Oil Majors Help Lift Stocks; Energy crisis debated

MARKET WRAPS

Stocks:

European stocks posted solid gains on Friday, with investor attention remaining focused on inflation and central bank monetary policy.

More hawkish comments on Thursday from Jerome Powell, who said the central bank should not waver in its commitment to aggressively tackling inflation, and the European Central Bank’s historic rate hike have added to the narrative that financial conditions will tighten further.

Nonetheless, shares were on track to end the week in positive territory, even as pressures from higher interest rates – which have plagued the stock market this year and heightened the risk of a recession – remain evident.

The energy crisis remains in focus, with European ministers discussing plans for intervention in the continent’s energy markets at an emergency meeting aimed at curbing soaring electricity prices.

Read more here.

Comments from post-ECB analysts:

The ECB press conference confirmed market prices for a short, sharp cycle, Citi said.

On the hawkish side of the ECB’s rhetoric were the hike to 75 basis points, the sharp rise in inflation forecasts, commitments to further rate hikes in the next few meetings and the suggestion that rates are still a long way from where inflation is needed to target, said Citi.

On the more dovish side, Citi mentioned Christine Lagarde, who said a 75 basis point rate hike is not the norm, an acknowledgment that the ECB can’t lower energy-driven inflation and that market prices aren’t too bad.

RBC Capital Markets raised its forecast for ECB interest rate decisions and planned further increases by 175 basis points to a final rate of 2.5%.

“We expect that to be achieved in a further 75bp move in late October, followed by a 50bp move in December and two smaller 25bp hikes in the first quarter of next year,” RBC said.

Stocks to watch:

Airbus deliveries are slightly behind the rate of previous years, but this reflects supply chain issues rather than weaker customer demand, Citi said.

The aircraft manufacturer booked no new aircraft orders and delivered 39 aircraft in August. The 382 aircraft it has delivered so far this year represents 55% of its full-year 2022 target, but the company is 2% behind the average for the three-year period ended 2019, Citi said.

“Deliveries are a little behind what we would like, but we don’t see this as insurmountable.”

Read: Airbus Delivery Guidance looks challenging

Economic insight:

A UK recession in the coming quarters is no longer likely following the introduction of a price cap on household electricity and natural gas bills, Pantheon Macroeconomics said.

With the measure, the average household will spend less on energy in the next six months than in the last six, which will improve the near-term inflation outlook.

“CPI inflation will rise from 10.1% in July to a peak of 10.8% in October before easing thereafter,” Pantheon said.

Household real disposable income has already bottomed out and the expected recovery looks strong enough to ensure that an economic recession is narrowly avoided.

US markets:

Stocks were expected to rise and endure a three-week losing streak, with investor attention remaining focused on inflation and central bank monetary policy.

Further hawkish comments from Jerome Powell, who said the central bank should not waver in its commitment to aggressively tackling inflation and the European Central Bank’s historic rate hike, have added to the narrative that tightening financial conditions in the US will face one blistering inflation.

Still, stocks have been on track to emerge from a three-week losing streak, even as pressures from higher interest rates – which have plagued the stock market this year and heightened the risk of a recession – remain evident.

Currency:

The dollar fell to a weekly low in early trade, with the DXY dollar index slipping below 109.00 even after Jerome Powell underscored his commitment to fighting inflation.

“The driver of this USD pullback appears to be some reversal from recent JPY weakness, with USD/JPY falling on Bank of Japan Governor Haruhiko Kuroda’s warning that the JPY’s rapid weakening is undesirable after meeting the Japan’s Prime Minister Fumio Kishida is drifting back below 143,” said UniCredit Research.

EUR/USD surged to a 3-week high.

Morgan Stanley said it remains short EURUSD, expecting it to trade below par again and targeting 0.97 with a stop at 1.05.

The background to his view is that the ECB’s monetary policy normalization may be inefficient to support the currency if the normalization takes place in a stagflationary environment.

She sees the Italian elections on September 25, euro-zone inflation data at the end of the month and the prospect of price support for European energy as key catalysts.

Danske Bank said it still sees further downside risk for the euro and is targeting EUR/USD at 0.95 on a 12-month horizon, adding that medium-term valuation drivers should weigh more sustainably on the cross in the coming quarters.

“Until we see a broad recovery in global growth, an investment boom, a sharp drop in energy prices and/or the Fed’s rate cuts, we believe EUR/USD has more downside in store and the ECB decision won’t change that.”

Bind:

Euro-zone government bond yields extended gains early Friday in further reaction to the ECB’s rate hike and promises of more hikes.

“We believe that the ECB will be looking to bring its interest rates into neutral territory relatively quickly and as a result expect another 50 basis point rate hikes in October and December,” Pimco said.

Energy:

Oil prices were higher, bolstered by Vladimir Putin’s threat to halt crude oil supplies to nations supporting the price cap plan and as investors judged the recent sell-off “exaggerated,” ANZ said.

metals:

Base metals and gold rose ahead of a national festival in China, with commodities gaining on a weakening dollar.

Marex said traders may seek to cover positions with the SHFE index closing for the Mid-Autumn Festival, as well as a possible LME closure after the Queen’s death in the UK

DOW JONES NEWSPLUS

   
 
 

EMEA HEADLINES

Europe holds emergency talks on energy market interventions

BRUSSELS- European energy ministers discuss plans to intervene in the continent’s energy markets at an emergency meeting aimed at curbing soaring electricity prices.

Diplomats said many countries – including the European Union’s biggest economies Germany and France – seemed to agree ahead of Friday’s meeting on the idea of ​​capping power generators’ revenues from nuclear, renewables and other non-gases and the money redistribute businesses and consumers.

   
 
 

Cineworld Receives $785 Million First Day Relief from Bankruptcy Court

Cineworld Group PLC announced on Friday that it had received “day one” court approval from a US bankruptcy court, giving it immediate access to approximately $785 million from a $1.94 billion line of credit granted to support the business.

Shares were up 0.21p, or 5%, at 07:30 GMT at 4.35p.

   
 
 

The Baltic States and Poland are shortening the land route to the EU for most Russian visa holders

European Union countries on Thursday announced new restrictions on Russian tourists coming to the bloc, with the Baltic states and Poland saying they would restrict entry for most Russian visa holders because of the war in Ukraine.

With air routes to the EU largely disrupted, Russian tourists have entered the EU in large numbers overland via Lithuania, Latvia, Estonia, Poland and Finland. Estonia had already started blocking Russian visa holders. Finland has reduced the number of new tourist visas to be issued.

   
 
 

Ukrainian forces advance east, threatening Russian supply lines

The Ukrainian military advanced as much as 30 miles to the east of the country and liberated more than 20 villages and towns, a senior commander said, in a rapid push aimed at cutting off Russian supply routes.

Brig. General Oleksiy Hromov, a senior officer in Ukraine’s General Staff, gave the first official confirmation of the successes of an offensive launched Tuesday east of Ukraine’s second-largest city, Kharkiv.

   
 
 
   
 
 

GLOBAL NEWS

The Fed’s Powell reiterated the need to take decisive action on inflation

Federal Reserve Chair Jerome Powell said the central bank was focused squarely on bringing down high inflation to prevent it from taking hold as it did in the 1970s, reiterating expectations of a third Rate hike of 0.75 percentage points in a row later this month.

“It is very strongly our view, and my view, that we must act openly and strongly now, as we have done, and we must carry on until the job is done,” Mr Powell said Thursday morning at a virtual conference that hosted from the Cato Institute.

   
 
 

Inflation eases in China as growth challenges mount

Inflation in China unexpectedly eased in August, a renewed sign of trouble in the world’s second largest economy as fresh lockdowns in major cities again threaten growth.

Consumer prices rose 2.5% in August year on year, China’s national statistics bureau said on Friday, down from 2.7% in July. Economists polled by the Wall Street Journal had expected 2.8%.

   
 
 

White House considers order to review US tech investments in China and other countries

WASHINGTON — The Biden administration is considering an executive order to review and potentially limit U.S. overseas investment in the development of cutting-edge technology in China and other potentially hostile countries.

According to people familiar with the matter, the White House intends to issue such an order within the next few months to monitor and potentially block foreign investment by American companies and investors.

   
 
 

Inflation expectations are ‘collapsing’ – which is why this could lead to a rebound in equities

(FOLLOWING) Dow Jones Newswires

Sep 9, 2022 5:36 AM ET (09:36 GMT)

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