EMEA Morning Briefing: Cautious start seen for equities as Nord Stream shutdown continues to weigh

MARKET ENVELOPES

To watch:

OECD CPI; Manufacturing orders in Germany, manufacturing turnover; UK Construction PMI; business updates from Ashtead Group, DS Smith

Opening call:

European stocks face a cautious start on Tuesday as the economic outlook for Europe remains bleak amid energy pressures. In Asia, major equity indices were mixed; Treasury yields and gold rose; the dollar has stabilized; while oil futures were mixed.

Shares:

European stocks look set for a muted open on Tuesday after closing mostly lower on Monday after Russia halted natural gas flows through a major pipeline indefinitely, sending energy prices soaring.

U.S. stock futures rose early on Tuesday, with markets closed Monday for the Labor Day holiday. Major U.S. indexes fell on Friday as strong labor market data bolstered the case for the Fed to continue its pace of policy tightening.

Russia’s decision on Friday to extend the shutdown of flows through the Nord Stream gas pipeline to Germany is expected to exacerbate energy pressures already weighing on households and businesses across the continent.

“It’s inevitable now that Europe is going to be in a recession,” said Craig Erlam, senior market analyst at Oanda. “It’s just a question of what support governments are going to offer in this context and how inflationary it is going to be.”

Forex:

The dollar stabilized in Asia as fears of slowing growth outside of the US continued to support the greenback.

USD/JPY appears to be back to hitting new multi-decade highs as the currency pair continues to be pushed to new highs by a hawkish Fed while the BOJ remains loyal, HSBC said.

“The recent surge in risk aversion is linked to concerns about central banks dragging the global economy into a hard landing.”

HSBC thinks the yen is reacting more to the narrative of hawkish central banks than to recession fears and has pushed back expectations of the Japanese currency’s recovery to 2023.

Obligations :

Treasury yields mostly rose in Asia early on Tuesday.

Morgan Stanley is more confident that bonds have bottomed out. The 10-year Treasury yield was 3.19% on Friday.

“If Friday was a near-term low for long-duration (high-yield) bonds, the S&P 500 and many stocks could once again get some relief as rates fall ahead of the next round of earnings cuts. However, make no mistake, as the weather turns cold this fall, so will growth, which will weigh heavily on stocks given that ERP investors are being paid to take that risk,” said Mike Wilson, strategist. of Morgan Stanley.

Energy:

Oil futures were mixed in Asia after OPEC+ agreed the producer group would cut production by 100,000 barrels a day in October.

The move effectively reverses the production hike of the same volume made in September, ANZ said.

While the cut is unlikely to change supply and demand dynamics, it does indicate the group is serious about price support, ANZ adds.

However, ANZ said the impact of the OPEC+ announcement on Brent may be muted due to growing concerns over demand from China.

Metals:

Gold rose early Tuesday in Asia. The strength of the US dollar has not dampened the attractiveness of the precious metal, which is now trading around a key support level, Oanda said.

Oanda sees $1,680 an ounce as a key barrier for the metal and believes a break below that level could signal further pressure on gold, especially if accompanied by aggressive tightening from central banks.

Jefferies has taken a more optimistic view of lithium markets, increasing its demand projection by 14% in 2023 and 6-10% in 2024-2025 to reflect a stronger outlook for electric vehicles.

The investment bank also raised its lithium carbonate equivalent supply forecast to 80,000 tons in 2023, 200,000 tons in 2024 and 370,000 tons in 2025 to account for aggressive expansion in China and growth. accelerated recycling.

“As prompted by the high price of lithium, recycled production in China has already reached 35,000 tonnes of LCE in July year-to-date (compared to 22,000 tonnes in 2021 according to SMM), indicating around 10% of production mined in 2022,” Jefferies said.

“We are thus increasing the recycled volume to 15% of the production extracted in 2025.”

Chinese iron ore futures rose amid signs of improving demand.

Market sentiment turned somewhat more positive in steel and iron ore markets after China stepped up support for the economy, ANZ said, noting that the PBOC cut the reserve ratio by banks’ mandatory foreign exchange and that Beijing has said it will speed up its stimulus rollout.

   
 
 

THE BEST TITLES OF THE DAY

OPEC+ agrees to small production cut amid recession fears

OPEC+ on Monday agreed to cut oil production for the first time in more than a year, delegates said, saying it should withdraw around 100,000 barrels a day amid fears of a global recession and the arrival of more Iranian crude on the market in the event of a nuclear revival. OK.

The move shows how worries about an economic slowdown dominate a global oil market that has seen a 25% drop in Brent prices over the past three months. Fears of oil shortages following Russia’s invasion of Ukraine have driven prices above $100 a barrel for months this year, but the recent market plunge prompted the Organization of Exporting Countries oil and its Moscow-led allies, collectively known as OPEC+, to support a market. who had shifted the savings of the oil states from Moscow to Riyadh.

   
 
 

The closure of the Nord Stream gas pipeline in Russia is an economic blow to Europe

Electricity prices surged, European currencies hit multi-decade lows and governments scrambled to contain the economic blow after Russia cut its main gas pipeline to Europe.

The cut, which the Kremlin blamed on Western sanctions on Monday and said it would be long-lasting, achieves the worst-case scenario Europe has been considering since Russia invaded Ukraine in February.

   
 
 

Japan should consider new gas consumption rules, ministry says

TOKYO-Japan should consider new rules that would allow the government to order large users of natural gas to reduce consumption in an emergency, the Ministry of Economy, Trade and Industry said on Monday.

The proposed new regulations reflect heightened concerns about gas shortages in Europe and how they could affect Japan, which depends on imported liquefied natural gas to generate much of its electricity. In addition, many homes use gas for cooking.

   
 
 

Volkswagen will list Porsche in one of the biggest IPOs in years

BERLIN-Volkswagen AG said on Monday it would list its iconic sports car maker Porsche AG in one of the biggest initial public offerings in years and a crucial test of investor confidence amid high inflation and the war in Ukraine is putting a damper on the global economy. .

The offer could value Porsche as much as 85 billion euros ($84 billion), analysts estimate, pumping fresh cash into VW’s coffers that executives say will help the company finance its transition to electric vehicles and self-driving cars.

   
 
 

Rio Tinto reaches binding agreement to acquire Turquoise Hill

SYDNEY – Rio Tinto PLC said it has entered into a binding agreement with Turquoise Hill Resources Ltd. to acquire the remaining shares of the Mongolia-focused copper mine that it does not already own.

Rio Tinto said Turquoise Hill’s independent directors unanimously recommended its cash offer of C$43.00 (US$32.72) per share for all shares outstanding. It was previously offering CA$40.00 per share.

   
 
 

Ernst & Young executives expected to approve plan to split accounting firm

Ernst & Young executives are expected to give the go-ahead this week to spin off its audit and advisory businesses, paving the way for the biggest upheaval in the accountancy profession in more than 20 years, according to people familiar with the matter. .

The accounting giant’s Global Executive Committee, which oversees the company’s global network of 312,000 people, met on Labor Day to put the finishing touches on the global disruption plan, the people said. close to the file. The committee is expected to approve the plan later this week, which will trigger votes on the deal by EY’s roughly 13,000 partners, who are expected to earn an average of more than $1 million each.

   
 
 

Instagram fined $402m in EU for allegedly mishandling children’s data

Instagram is hit with the European Union’s second-biggest privacy fine for allegedly mishandling children’s data, stepping up the bloc’s enforcement of its privacy law against big tech companies.

Ireland’s Data Protection Commission said on Monday it had fined Instagram owner Meta Platforms Inc €405 million for operating a personal account.

   
 
 

Write to [email protected]

   
 
 

Major events expected for Tuesday

04:30/NED: August IPC

06:00/GER: July Production orders

06:00/GER: Manufacturing turnover in July

06:00/END: July Foreign trade

07:00/SVK: GDP 2T

07:00/CZE: Jul Industry, Construction

07:00/CZE: July Foreign trade

08:30/UK: August S&P Global / CIPS UK Construction PMI

10:00/FRA: July OECD CPI

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 Newswire

September 06, 2022 00:16 ET (04:16 GMT)

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