MARKET WRAPS

Watch For:

Germany June industrial production index; France June foreign trade, June balance of payments; June industrial production index, 2Q flash estimate of job creation; Italy June industrial production; UK July Halifax house price index, Bank of England market participants survey results; updates from Deutsche Post, Allianz, London Stock Exchange, WPP, AngloGold Ashanti, Capita, Hargreaves Lansdown, Sberbank, Naturgy Energy Group

Opening Call:

European equities may push a tad higher ahead of the U.S. jobs report later today. In Asia, stock benchmarks rose; the dollar edged higher; Treasury yields fell; oil and gold rose amid choppy trade.

Equities:

European stocks appear poised to make slight gains at the open on Friday after U.S. closed mixed Thursday as investors weighed a fresh batch of corporate earnings reports as they looked ahead to Friday's U.S. jobs report.

"We are getting some updated outlook from a lot of the management of these companies, it wasn't as pessimistic as some had feared," said Shawn Cruz, head trading strategist at TD Ameritrade. "I think the worst-case scenario has been pulled off the table and that's bringing some buyers back into the market."

But some investors say volatility is likely to return, especially if the slowing economy begins to take a toll on the outlook for corporate earnings later in the year.

Some money managers also say markets have been overly eager in predicting that the Fed will stop raising interest rates and then cut them next year.

"We could be in a bit of a bear-market rally," said Desmond Lawrence, senior investment strategist at State Street Global Advisors.

Investors appear to be reasoning that slowing economic growth will pull the Fed back from raising interest rates, which would boost the price of stocks and bonds, Lawrence said. "That might be a little bit premature," he said, adding that expectations of corporate earnings "are pretty elevated for what seems to be turning into a slowdown."

Saira Malik, chief investment officer at Nuveen, said market expectations of Fed rate cuts in early 2023 are "optimistic."

"We think the Fed will have to continue to increase rates for the foreseeable future until inflation gets to a much lower level," Malik said. "And it could take a recession in order for us to get there."

Employment gains in July are expected to drop to 258,000 from 372,000 in the prior month, a poll of economists by The Wall Street Journal estimated. If so, it would mark the smallest increase since December 2021.

"We should anticipate a drop from recent levels, but perhaps not too big a drop, as demand remains strong. The 250,000 expectations look reasonable, and perhaps even a bit conservative," said Brad McMillan, chief investment officer at Commonwealth Financial Network. "If we get anything in the 200,000-300,000 range, that would be in line with the data so far this year and support continued growth."

However, worse results would signal that the U.S. economy has "suddenly gotten much worse, and a recession is going to happen sooner rather than later--and that would spook markets," according to McMillan.

Forex:

The dollar edged higher in Asia amid mixed signals.

USD should track Treasurys, so market participants should watch two-and five-year yields as they'll guide USD moves, said Chris Weston, Pepperstone's head of research.

The Fed has made itself data dependent; thus bad data should be bad for USD and good data should boost USD, Weston added.

Capital Economics thinks the dollar still has further to run, Senior Markets Economist Jonas Goltermann said.

"We think the dollar will appreciate further through at least the end of the year as the global economy continues to falter and 'safe-haven' demand remains strong."

"Although we see limited scope for a further widening of expected interest rate differentials in favor of the greenback, we expect an environment in which the Fed and other major central banks continue to tighten monetary policy, even as economic growth slows, to support further dollar strength," he said.

Bonds:

Yields fell in Asia as the Treasurys selloff stopped overnight ahead of key U.S. employment data due today.

Investors are worrying about a possible recession and U.S. jobless claims data overnight sparked projections of labor markets loosening up, which could lead to a less hawkish interest rate move next month.

The Bank of England on Thursday was the latest central bank to deliver an outsize rate increase, as it warned that inflationary pressures continued to build and said a recession was likely to begin later this year.

The BOE decision comes as there "now seems to be a view among investors that, across DM (developed markets), any acceleration in monetary tightening will only lead to a weaker economy, and hence less rate hikes further ahead and/or earlier rate cuts," said Franziska Palmas, markets economist at Capital Economics.

"Indeed, sovereign bond yields have also fallen in the wake of recent chunky hikes by other DM central banks," including the Fed, the European Central Bank, the Bank of Canada and the Reserve Bank of Australia, she wrote.

Energy:

Oil futures rose in Asia amid somewhat choppy trading.

Liquidity in the crude oil markets has evaporated, leading to a choppy trading environment, spurring financial players to rapidly shift positions and focus more on intraday trading, Citi said.

Aggregate open interest across the ICE Brent and Nymex WTI crude oil futures curves stood below 3.5 million contracts, a multiyear low, Citi noted.

Oil had tumbled overnight after the U.S. EIA said crude and gasoline supplies rose.

The price action shows that "demand concerns are now the dominant influence on the global energy market and even though supply worries will persist with the Russia-Ukraine war, we will need to see evidence of demand stabilizing for the oil market to begin to find a near-term bottom," Sevens Report Research said.

Metals:

Gold edged higher in early Asia trade, buoyed by safe-haven demand driven by global recession risks.

Central banks worldwide are acknowledging recession risks, said Oanda senior market analyst Edward Moya.

The Bank of England had a rather gloomy outlook and the Czech central bank surprised markets by halting its rate-increase cycle, Moya noted.

--

Zinc rose in Asia as rising energy costs threaten to curtail more supply, ANZ said.

Commodities giant Glencore, which has already suspended one of its zinc smelters in Europe, warned that Europe's energy crisis poses a substantial threat to supply.

"These concerns also helped reverse an earlier decline in copper, as investors weighed up threats to growth amid a hawkish Fed," ANZ added.

--

Chinese iron-ore futures moved slightly higher.

Sentiment may be weighed in the near term by worries that conditions in China's property sector will worsen, CBA said.

Property construction in China accounts for around 30% of the country's steel demand and 20%-30% of its copper, aluminum and zinc consumption, CBA noted.

"Over 300 property projects under construction are facing a mortgage boycott as homeowners lose faith property developers will complete the projects as promised," CBA added.

 
 
 

TODAY'S TOP HEADLINES

Fed's Mester backs higher interest rates until inflation begins to fade

The president of the Cleveland Federal Reserve said Thursday that the central bank needs to keep raising interest rates until high U.S. inflation has begun to subside, joining a coterie of senior Fed officials who've backed more aggressive measures.

"We're committed to getting inflation down," Loretta Mester said at an event at the Economic Club of Pittsburgh. She needs to see several months of easing price pressures, she said, before she could be sure the Fed was making progress.

 
 
 

Sen. Kyrsten Sinema Wins Tax Changes to Democrats' Climate Bill

WASHINGTON-Democrats revised their climate and healthcare package, striking a deal with centrist Sen. Kyrsten Sinema (D., Ariz.) to scale back some tax provisions in the plan and add in a new tax on stock buybacks to try to win her support.

In a brief statement Thursday night, Ms. Sinema said she would move forward with the legislation after a review of its provisions by the Senate's nonpartisan parliamentarian. While Ms. Sinema didn't outright back the plan, Senate Majority Leader Chuck Schumer (D., N.Y.) said in his own statement that he believed the changes would keep the bill on track in the 50-50 Senate, in the face of united Republican opposition.

 
 
 

Ukraine Sees Path to Surging Grain Exports After First Shipment

KYIV, Ukraine-Ukraine said its first grain shipment since the start of Russia's invasion had been a success and could lead to a surge in exports to prewar levels within two months, but industry players warned that sizable hurdles remain.

Oleksandr Kubrakov, Ukraine's infrastructure minister, said 17 vessels loaded with grain were ready to depart the three Ukrainian Black Sea ports operating under a deal agreed upon last month. He said two or three ships will soon begin leaving daily, with a view to traffic ultimately reaching 100 outgoing vessels each month.

 
 
 

China Launches Live-Fire Drills, Missiles Around Taiwan After Pelosi Visit

China encircled Taiwan with rocket and ballistic-missile fire while testing the democratic self-governing island's defenses with navy ships and war planes, as Beijing protested a visit by U.S. House Speaker Nancy Pelosi.

"The exercises have begun," China's navy said on its official social-media account shortly after noon local time Thursday.

 
 
 

Ukraine Fires on Bridges, Rail Lines in Bid to Loosen Russia's Grip on Kherson

Ukrainian forces struck a railway bridge in the southern Kherson region on Thursday, the Ukrainian military said, as it seeks to cut Moscow's supply lines in preparation for a looming counteroffensive.

Ukrainian forces have concentrated fire on crossings over the Dnipro River, last month destroying a large road bridge 3½ miles to the east as well as striking the railway bridge.

 
 
 

France's Macron Wins Passage of Measures to Fight Inflation

French President Emmanuel Macron secured passage of a package of measures to help bolster household finances, a boost for the French leader as the country copes with rampant inflation stemming in part from Russia's war of attrition in Ukraine.

French lawmakers on Thursday gave final approval for the second of two bills that include more than €20 billion, equivalent to about $20.4 billion, in new measures aimed at helping French people cope with fast-rising prices-including an increase in pensions, rebat

 
 
 

Elon Musk Alleges Twitter Fraud in Countersuit Filed in Delaware

Elon Musk accused Twitter Inc. of fraud, saying the company misrepresented the condition of its business and key metrics about the users on its platform before he agreed in April to acquire the company for $44 billion.

Mr. Musk said in a countersuit made public Thursday that he decided to terminate the merger agreement after learning of what he described as troubling facts, including a restatement of Twitter's monetizable daily average users days after the pact was signed and that Twitter was allegedly miscounting the number of false and spam accounts.

 
 
 

Elon Musk Suggests Big Tesla Factory Expansion Plans

Tesla Inc. Chief Executive Elon Musk said Thursday that the electric-vehicle maker is likely to need roughly a dozen factories to reach its goal of selling 20 million vehicles annually by 2030.

An announcement about Tesla's next factory location could come later this year, he said at the auto makers's annual shareholder meeting, held at its Austin, Texas-area factory. Tesla currently has four car plants.

 
 
 

Warner Bros. Discovery Weighs Free Ad-Supported Streaming Plan

Warner Bros. Discovery Inc. is exploring launching a free, ad-supported streaming service, its chief executive said, the latest effort by a streaming giant to reach a broader audience as the competition for users intensifies.

The new company, the result of Discovery's merger with AT&T Inc.'s WarnerMedia earlier this year, will first focus on a previously announced plan to combine its two main streaming services, HBO Max and Discovery+, executives said during a call with investors. The combined subscription platform will be rolled out starting in the U.S. next summer, said JB Perrette, the company's CEO of global streaming.

 
 
 

China Evergrande Group to Give Up Land Use Rights of Soccer Stadium for Over $800 Million

China Evergrande Group will give up its land use rights of a football stadium in China for 5.52 billion yuan ($817.89 million), as the embattled property developer looks for ways to pare debt.

The real estate conglomerate will return the land to its owner, China's Guangzhou Municipal Planning and Natural Resources Bureau, China Evergrande said late Thursday.

 
 
 

Penguin Random House CEO Defends Publishing Merger at Antitrust Trial

WASHINGTON-Penguin Random House's chief executive testified Thursday that the publishing giant's planned acquisition of competitor Simon & Schuster would benefit consumers and authors, pushing back against antitrust claims from the Justice Department.

Markus Dohle, who has run Penguin Random House since its creation in a 2013 merger, said the company was "the best home" for Simon & Schuster's imprints.

 
 
 

Write to hoishan.chan@dowjones.com

 
 
 

EXPECTED MAJOR EVENTS FOR FRIDAY

00:01/UK: Jul KPMG and REC UK Report on Jobs

06:00/GER: Jun Industrial Production Index

06:00/FIN: Jun Foreign trade

06:00/UK: Jul Halifax House Price Index

06:45/FRA: Jun Industrial production index

06:45/FRA: Jun Foreign trade

06:45/FRA: Jun Balance of payments

06:45/FRA: 2Q Flash estimate of job creation

07:00/CZE: Jun Retail trade

07:00/HUN: Jun Preliminary Industrial Production

07:00/SWI: Jul SNB foreign currency reserves

07:00/AUT: Jul Wholesale Price Index

07:00/SPN: Jun Industrial Production

07:30/EU: Jul EuroCOIN indicator of euro area economic activity

08:00/ITA: Jun Industrial Production

09:00/GRE: Jun External Trade (provisional data)

All times in GMT. Powered by Onclusive and Dow Jones.

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

 

(END) Dow Jones Newswires

August 05, 2022 00:47 ET (04:47 GMT)

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