European equities edged higher on Wednesday, but with traders
wary of making bold bets ahead of the U.S. inflation report deemed
crucial to the market's short-term trajectory.
Stocks have been roiled in 2022, with sharp moves driven by
fears that 40-year high U.S. inflation will batter consumer
confidence, cause the Federal Reserve to hike borrowing costs
aggressively and tip the U.S. economy into recession.
Consequently, investors are eager to see that inflation has
peaked. Economists forecast headline year-over-year CPI growth will
dip from 9.1% in June to 8.7% last month, mostly the result of
lower energy costs.
But many traders fear that if the data shows "core"
inflation--5.9% in June--remains stubbornly high, then the more
optimistic tone in stocks seen over much of the past two months
will be challenged.
"Markets seems to be going into today's all important U.S. CPI a
little on the apprehensive side," said strategists at Deutsche
"The nervousness is hardly surprising when you consider that
these prints have coincided with some of the most volatile market
reactions over the past year. Indeed, it was only two months ago
that the release sent the S&P 500 to its lows for the year and
contributed to the Fed accelerating its hiking pace to 75bps,"
The increase in Norwegian July CPI-ATE to a record high will
have raised eyebrows at Norges Bank, said Capital Economics.
Norges Bank's target measure, CPI-ATE, which excludes energy
prices and tax changes, jumped to a record high of 4.5% in July. A
tight labor market and high agricultural prices are likely to keep
CPI-ATE way above Norges Bank's target for some time.
"We expect the core rate to stay between 3.5% and 4.0% until
early 2023." Norges Bank has all but confirmed it will hike
interest rates at next week's meeting. "We think it is increasingly
likely that the bank will increase rates by another 50bp next
Stock futures inched higher, but the mood remained cautious as
traders awaited the consumer-price index report due at 1230
Also damping sentiment was a recent rash of poorly-received
corporate news. There is particular concern about the health of the
semiconductor sector after Micron followed Nvidia with a warning
In addition, a recent rally in badly battered former bull market
darlings has come to a juddering halt in the past few
sessions--also hurting retail investor confidence. And some are due
for more pain on Wednesday.
Shares in crypto exchange Coinbase were down a further 5.5% in
premarket action after reporting a $1 billion second quarter loss,
and Roblox plunged 17.4% after a key sales metric declined for the
second consecutive quarter.
The dollar continued to weaken in cautious trading ahead of the
MUFG Bank said the consensus is for a slight slowing in headline
inflation but an acceleration in core inflation and under such a
scenario, a 75bp rate increase by the Fed in September probably
remains on the table.
Silicon Valley Bank said higher-than-expected CPI will fuel even
higher rate expectations, which could further dampen the mood in
equity markets and send the dollar up. But a weak CPI could signal
to the market that a soft landing is possible, an encouraging sign
for equities that should cause the dollar to sell off.
ING said the dollar should get support from the inflation
report, as it is likely to show that core consumer prices edged
higher in July.
"Stubbornly high core inflation should support the Fed's
position that its work is far from done. It should also support
pricing in the U.S. money market curve that sees the policy rate
taken around 125 basis points higher in this cycle."
Sterling may continue to underperform given the prospect of
organised blackouts in the U.K. this winter resulting from energy
shortages, MUFG Bank said.
The Bank of England has forecast an economic contraction for
five consecutive quarters from the fourth quarter and the baseline
assumptions don't assume energy-supply restrictions that result in
blackouts and potentially major disruptions, which would undermine
confidence in the growth outlook even further.
"The pound is the second worst performing G10 currency so far in
August and we see no reason for that performance to change over the
Oil prices ticked lower after the latest API data showed crude
stocks rose by 2.2 million barrels in the week through Friday, a
second monthly build of that magnitude.
However, the focus Wednesday will be on the latest CPI data. A
higher-than-expected print could send risk assets falling as
investors expect the Fed to ease off interest-rate hikes and vice
versa, said Mediolanum.
Natural gas prices rose but remained below their recent highs as
winter supply concerns continue to keep prices supported. Benchmark
European natural gas prices were recently up 3.6%.
Reduced Russian gas flows to Europe have confounded efforts to
fill the region's gas storage tanks to sufficient levels before the
high-demand winter period. Failure to do so in time could see
European states forced to ration supplies.
"Natural gas imports in Europe continue to exhibit signs of
curtailment, " Marex said. The region's storage levels are
currently between 68% and 71%, below 2020 levels but above 2021
levels. EU states are targeting 80% by winter.
DOW JONES NEWSPLUS
TUI Misses Forecasts After Booking Travel Disruption Charge in
3Q; Shares Fall
Shares of TUI AG fell as much as 4.3% in early trade Wednesday
after the travel company missed earnings forecasts after booking a
charge related to air traffic disruptions.
The London-listed, German travel operator reported an underlying
loss before interest and tax for the quarter ended June 30 of 27
million euros ($27.6 million) compared with a loss of EUR669.8
million the year before and a forecast by UBS analyst Cristian
Nedelcu for a EUR75 million profit.
Ahold Delhaize 2Q Net Profit Beats Forecasts, Pauses Bol.com
Royal Ahold Delhaize NV on Wednesday raised its full-year
guidance after reporting a 12% rise in second-quarter net
profit--beating consensus forecasts--as it benefited from increased
market share and strong customer loyalty.
The Dutch grocer added that it no longer plans an initial public
offering of Bol.com given the current equity market conditions, but
will revisit the plan when conditions improve.
E.ON 2Q Profit Fell; Backs 2022 Guidance
E.ON SE said Wednesday that profit dipped in the second quarter
but confirmed the outlook for the full year.
The German utility company said it booked a quarterly net profit
of 1.43 billion euros ($1.46 billion), down from EUR1.75 billion in
the year-earlier period.
ABN AMRO 2Q Net Profit Rose Above Market Views, 2022 Outlook
ABN AMRO Bank NV on Wednesday reported a rise in net profit for
the second quarter of 2022, which came in significantly above
market views, and said it now expects to close the year with a
stronger net interest income.
The Dutch lender posted a net profit of 475 million euros
($485.1 million), compared with EUR393 million a year earlier. Net
profit had been expected to decline to EUR390 million, according to
a bank-compiled consensus.
Vestas Posts Bigger-Than-Expected 2Q Net Loss But Backs
Vestas Wind Systems AS on Wednesday posted a
bigger-than-expected second-quarter net loss as a delayed U.K.
offshore project hit turbine deliveries while supply-chain
disruptions and cost inflation weighed on earnings.
The Danish wind-turbine maker swung to a second-quarter net loss
of 119 million euros ($121.5 million), from a profit of EUR82
million a year earlier, as revenue fell 6.5% to EUR3.31
Aviva Plans Further Buyback After 1H Operating Profit Rose
Aviva PLC reported on Wednesday an increase in operating profit
for the first half of 2022, backed its dividend guidance for the
full year and outlined further plans for capital returns.
The FTSE 100 insurer posted an operating profit for the
six-month period of 829 million pounds ($1 billion), up from GBP725
million for the year-earlier period, citing the benefits of a
diversified business model in a challenging environment.
Deliveroo 1H Pretax Loss Widened on Consumer Headwinds; Begins
GBP75 Mln Share Buyback
Deliveroo PLC said Wednesday that its first-half pretax loss
widened due to increased consumer headwinds, and began a 75
million-pound ($90.6 million) share buyback program.
The U.K. food-delivery company posted a pretax loss of GBP147.3
million for the half year compared with a loss of GBP95.4 million a
year earlier, reflecting higher cost of sales and administrative
Europe Withstands Venture-Capital Funding Drop Better Than U.S.,
European venture-capital investment lost less ground than the
U.S. and Asia in the second quarter as deals everywhere took a nose
dive in the wake of surging inflation, higher interest rates and
macroeconomic uncertainty. But the advantage could be short-lived,
Funding for European startups dropped by 13% in the second
quarter from the first three months of the year, compared with a
25% quarter-to-quarter drop in both the U.S. and Asia, according to
analytics firm CB Insights. The U.S. still accounted for almost
half of the $108.5 billion in worldwide funding rounds in the
second quarter, with Asia and Europe together accounting for most
of the other half.
EU Court Expands Definition of Sensitive Data, Prompting Legal
Concerns for Companies
Ukraine Mocks Russia After Explosions at Crimean Air Base
Ukrainian officials seized on explosions that hit a Russian
military base as fodder to boost Ukraine's morale as its forces
stepped up a counteroffensive to reverse Moscow's territorial gains
in over five months of war.
Ukrainian officials welcomed the blasts as a symbolic blow to
Russia's grip on the area but stopped short of claiming
responsibility. Kyiv has vowed to liberate the peninsula, which
Moscow annexed in 2014. Ukrainian President Volodymyr Zelensky said
in a speech late Tuesday that the war had begun in Crimea and would
only end when it was retaken.
In China, Higher Consumer Inflation Masks Weak Demand
HONG KONG-China's headline consumer inflation rate surged to its
fastest pace in two years in July, but a drop in core inflation
points to a different problem: weak domestic demand.
After edging up just 0.9% in 2021 and staying largely within the
government's comfort zone since the start of the pandemic, headline
consumer prices in the world's second-largest economy rose by 2.7%
in July from a year earlier, accelerating from June's 2.5% gain, as
food prices soared, China's National Bureau of Statistics said
Thailand's Central Bank Raises Rate to Help Control
Thailand's central bank raised its policy rate for the first
time in nearly four years in a bid to help control inflation.
The Bank of Thailand said Wednesday that its policy committee
voted six to one to increase its one-day repurchase rate by 25
basis points to 0.75%, effective immediately. It was the first
increase since December 2018. One member voted to raise the policy
rate by 50 basis points, the central bank said.
Chip Makers Expect Demand Slowdown to Expand Beyond PCs,
The chip industry that was bracing for a difficult period with
laptop sales slumping is adjusting to a wider and sharper slowdown
even as semiconductor companies prepare to spend billions of
dollars on new factories.
"The market is worse than we thought it would be," Mark Murphy,
chief financial officer at memory maker Micron Technology Inc.,
said Tuesday. On the same day, President Biden signed an investment
plan that allocates more than $50 billion to finance future U.S.
chip development and production.
Rapid Wage Growth Keeps Pressure on U.S. Inflation
Workers' wages are rising briskly, a factor contributing to
four-decade high U.S. inflation.
Average hourly earnings grew 5.2% in July from a year earlier,
and annual wage gains have exceeded 5% each month this year, the
Labor Department said Friday. The rapid earnings growth adds to
other evidence that employers are continuing to increase pay as
they try to find and keep workers in a tight job market.
Pelosi's Taiwan Visit Threatens China-Australia Reset
SYDNEY-China's ambassador to Australia said relations between
the two countries are at a critical juncture and that the U.S. ally
must approach the Taiwan issue cautiously, another example of how
House Speaker Nancy Pelosi's visit to Taipei has raised tensions in
The center-left government led by Australian Prime Minister
Anthony Albanese, whose Labor Party came to power after an election
in May, has sought a less-confrontational tone with China, a major
trading partner that buys much of Australia's iron ore. Top-level
contacts, suspended after Australia's previous right-leaning
government took a hard line on China, recently resumed, including
meetings between the defense ministers and foreign ministers of
Trump-Backed Candidate Wins Wisconsin Primary for Governor to
Take on Evers
The businessman former President Donald Trump backed in
Wisconsin's Republican primary for governor won the right to take
on Democratic Gov. Tony Evers in November's election, a race that's
expected to be one of the nation's most hotly contested.
Tim Michels, co-owner of the state's largest construction
company, was declared the winner Tuesday evening by the Associated
Press. He beat former Wisconsin Lt. Gov. Rebecca Kleefisch, a
onetime television reporter and anchor.
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(END) Dow Jones Newswires
August 10, 2022 05:56 ET (09:56 GMT)
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