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EMEA Morning Briefing: Tepid Start Seen for Shares; Oil Holds Sharp Gains on OPEC Deadlock

07/06/2021 | 12:25am EDT


Watch For:

Eurozone Retail Sales; Germany Manufacturing Turnover/Orders, ZEW Indicator; U.K. Construction PMI; updates from BMW, Ocado, Sainsbury's, Telenor

Opening Call:

Europe faces a subdued start on Tuesday, lacking direction. In Asia, shares mostly struggled without Wall Street's lead, oil and gold extended gains, while the dollar and Treasury yields wavered.


European shares face minor losses to start on Tuesday as investors weigh mixed leads, including sharply higher oil prices and the lifting of almost all Covid-19 restrictions in the U.K. on July 19.

However, with U.S. markets closed on Monday to mark the Independence Day holiday, trading in Europe may waver until Wall Street reopens.

Stocks to Watch: J. Sainsbury is likely to report slightly higher same-store sales in a first-quarter trading update Tuesday, said Citigroup. The bank expects the U.K. grocer to announce a 1% rise in retail like-for-like sales, with closures of Argos catalogue stores reducing total retail sales by 1%.

"We see moderate upside risk to consensus earnings," said Citi analyst Nick Coulter.

Shares in Sainsbury's rose more than 2% on Monday as investor interest in the sector increased following a recommended $8.7 billion takeover bid for rival Wm. Morrison Supermarkets.


The dollar edged slightly lower in Asia, while the yen strengthened against most G-10 currencies as concerns over the Covid-19 resurgence in the region buoyed the safe-haven allure of the Japanese currency.

EUR/USD was little moved and remained below 1.1900. Rabobank, citing CFTC data, said the Federal Reserve's recent decision to move up the timeline for interest rate rises prompted speculators to trim bets on the euro strengthening in the week to last Tuesday.

"In the wake of the more hawkish Fed, EUR/USD dropped sharply in the spot market setting the tone for positioning data and suggesting that the long EUR trade may have been overcrowded," said Rabobank forex strategist Jane Foley. The Fed brought forward its rate rise expectations into 2023 in a policy decision on June 16.


U.S. government bond yields dipped in Asia trade. Treasury markets were closed on Monday, with trading subdued as a result.

More than two thirds of investors see the European Central Bank tapering the Pandemic Emergency Purchase Programme as the greatest source of volatility for eurozone government bonds over the next six to nine months, said Citi's rates strategists, citing Citi's June readers' survey.

Citi expects the 10-year Italian BTP-German Bund yield spread to start widening after the summer and average 120 basis points in the fourth quarter of 2021 and the second quarter of 2022. The 10-year BTP-Bund spread is currently below 102 basis points, according to Tradeweb. Greek government bonds might be more vulnerable as they are eligible for the PEPP but not for the regular Public Sector Purchase Programme, Citi said.


Oil futures were higher in Asia, adding to Monday's gains, after OPEC+ called off output talks again. "All eyes from now on will be on potential leaks of how behind-closed-doors unofficial negotiations evolve. It could be a wild price ride to either direction," said Rystad Energy.

OPEC called off the meeting scheduled for Monday with Russia-led oil producers after the U.A.E.-typically one of Riyadh's most dependable supporters in the group-refused to agree to a Saudi-backed deal to boost output, according to people familiar with the matter.

The U.A.E. said it is asking for scope to produce more of its oil under any accord. Its unwillingness to compromise comes as Riyadh and Abu Dhabi-neighbors, military partners and traditional OPEC allies-diverge on several fronts, economic and geopolitical.


Gold prices gained in Asia as a slightly weaker dollar boosted the precious metal's appeal.

ANZ said that signs of strong demand from central banks were also supportive, noting a report from the World Gold Council saying that one in five central banks intended to increase their gold reserves over the next year.

Copper was also higher as weakness in China's economic data eased concerns about monetary tightening by the country's central bank.

A private gauge released on Monday showed China's services sector expanded at the slowest pace in 14 months in June as an uptick in Covid-19 cases hit travel demand. A virus outbreak in Yunnan province, where one of China's largest copper producers is located, may lead to restrictions and raise supply concerns, said ANZ.

Nonetheless, there are signs of lower demand, as Monday's auctions of the first batch of copper released from China's national stockpile saw bids coming in below current spot prices.

Recently, the three-month LME copper contract was up 0.5% at $9,553.50 a ton.

Stocks to Watch: Morgan Stanley said BHP may spend more than $37 billion on shareholder returns during 2021-2023, calculated on its base-case commodity price forecasts.

If today's high prices for commodities such as iron ore and copper persist, that figure would be materially higher, said the bank.

At spot prices, it estimates BHP's shareholder returns would total $48 billion during 2021-2023. BHP spent $36 billion on shareholder returns in 2016-2020.


In OPEC Deadlock, U.A.E. Steps Out of Saudi Shadow

OPEC failed in its third attempt to resolve a deadlock over oil production after divisions between allies Saudi Arabia and the United Arab Emirates spilled into public and into global financial markets.

The group called off a meeting scheduled for Monday with Russia-led oil producers after the U.A. E.-typically one of Riyadh's most dependable supporters in the group-refused to agree to a Saudi-backed deal to boost output, according to people familiar with the matter. The deal, tentatively approved by the rest of the Organization of the Petroleum Exporting Countries and the Russia-led group, together known as OPEC+, calls for unleashing millions of barrels a day of bottled-up crude to help tame steadily rising oil prices.

As Delta Variant Surges in U.K., Boris Johnson Says England Will Lift Most Covid-19 Curbs

LONDON-U.K. Prime Minister Boris Johnson said England was on track to lift almost all Covid-19 restrictions as planned on July 19, even as the highly transmissible Delta variant of coronavirus drives a new surge in infections.

The move puts the U.K. in the vanguard of countries betting that vaccines will provide a durable route back to normalcy, despite the circulation of dangerous new variants. Mr. Johnson said the U.K.'s experience of Delta shows the shots have weakened, though not eliminated, the link between rising caseloads, swelling hospital numbers and spiraling deaths that characterized earlier stages of the pandemic.

Volkswagen Ejects Supercar Bugatti as It Shifts to Electric Vehicles

BERLIN-Volkswagen AG is selling the Bugatti hypercar business to create a new company jointly owned by the Croatian electric car startup Rimac Automobili and VW's sports car unit Porsche AG, as the auto industry's pivot to electric vehicles transforms the elite world of super high-performance sports cars.

The deal marks the end of an era for Bugatti, one of the most recognizable names in the world of super luxury vehicles, after two decades spent under ownership of the German auto giant, which is now shifting to electric vehicles.

Israeli Vote on Citizenship for Palestinians Tests New Government

TEL AVIV-Israel's parliament remained deadlocked late Monday over a temporary law that bars citizenship for Palestinians from the occupied West Bank and Gaza who are married to Israelis, the latest issue to challenge the new fragile coalition government.

The law, which was first enacted in 2003 and has since been renewed every year, expires Tuesday at midnight. Lawmakers were debating the law before a vote, which was likely to take place in the early hours of Tuesday morning.

Ransomware Hackers Demand $70 Million to Unlock Computers in Widespread Attack

The boss of the company at the heart of a widespread hack that has affected hundreds of businesses said he briefed the White House and that attackers are demanding a single $70 million ransomware payment.

The cyberattack that started to unfold Friday is estimated to have hit hundreds of mostly small and medium-size businesses and tens of thousands of computers. It quickly set off alarms in U.S. national security circles over concern that it could have far-reaching effects.

Chinese Regulators Suggested Didi Delay Its U.S. IPO

Weeks before Didi Global Inc. went public in the U.S., China's cybersecurity watchdog suggested the Chinese ride-hailing giant delay its initial public offering and urged it to conduct a thorough self-examination of its network security, according to people with knowledge of the matter.

But for Didi, waiting would be problematic. In the absence of an outright order to halt the IPO, it went ahead.

Write to paul.larkins@dowjones.com

Expected Major Events for Tuesday

06:00/ROM: May Retail trade

06:00/GER: May Manufacturing orders

06:00/GER: May Manufacturing turnover

07:00/HUN: May Retail Sales

07:00/SVK: May Internal trade, incl Wholesale & Retail

07:00/SPN: May Industrial Production

07:00/AUT: Apr Foreign Trade

08:30/UK: Jun CIPS / Markit Construction PMI

09:00/EU: May Retail trade

09:00/GER: Jul ZEW Indicator of Economic Sentiment

All times in GMT. Powered by Kantar Media and Dow Jones.

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

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

(END) Dow Jones Newswires

07-06-21 0024ET

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.37% 0.61672 Delayed Quote.-1.68%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) -0.54% 78.987 Delayed Quote.0.58%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.36% 0.7233 Delayed Quote.-5.59%
BHP GROUP 0.59% 37.75 End-of-day quote.-11.03%
BMW AG 1.32% 78.92 Delayed Quote.7.84%
BRITISH POUND / EURO (GBP/EUR) 0.00% 1.16496 Delayed Quote.4.61%
BRITISH POUND / JAPANESE YEN (GBP/JPY) -0.18% 149.228 Delayed Quote.7.01%
BRITISH POUND / US DOLLAR (GBP/USD) 0.01% 1.3661 Delayed Quote.0.39%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.06% 0.665624 Delayed Quote.3.77%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) -0.27% 85.219 Delayed Quote.6.20%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.10% 0.78024 Delayed Quote.-0.25%
CITIGROUP INC. -0.53% 66.94 Delayed Quote.9.15%
DIDI GLOBAL INC. -1.81% 7.61 Delayed Quote.0.00%
DJ INDUSTRIAL -0.15% 33919.84 Delayed Quote.13.00%
EURO / JAPANESE YEN (EUR/JPY) -0.19% 128.085 Delayed Quote.2.40%
EURO / US DOLLAR (EUR/USD) -0.02% 1.17257 Delayed Quote.-3.97%
GOLD 0.60% 1774.71 Delayed Quote.-7.58%
INDIAN RUPEE / EURO (INR/EUR) -0.10% 0.011564 Delayed Quote.3.25%
INDIAN RUPEE / JAPANESE YEN (INR/JPY) -0.27% 1.482008 Delayed Quote.5.61%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.10% 0.013567 Delayed Quote.-0.89%
J SAINSBURY PLC 1.95% 292.5 Delayed Quote.27.23%
JAPANESE YEN / SWISS FRANC (JPY/CHF) -0.27% 0.8453 Delayed Quote.-1.26%
LONDON BRENT OIL 0.42% 74.68 Delayed Quote.45.09%
MORGAN STANLEY -0.33% 98.3 Delayed Quote.43.92%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) -0.33% 76.501 Delayed Quote.4.35%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.17% 0.7004 Delayed Quote.-2.06%
PORSCHE AUTOMOBIL HOLDING SE 2.35% 81.82 Delayed Quote.41.74%
S&P 500 -0.08% 4354.19 Delayed Quote.18.02%
TELENOR ASA 0.69% 146.3 Real-time Quote.-0.41%
US DOLLAR / EURO (USD/EUR) 0.01% 0.852828 Delayed Quote.4.13%
US DOLLAR / JAPANESE YEN (USD/JPY) -0.19% 109.22 Delayed Quote.6.57%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -0.42% 72.9557 Delayed Quote.-1.33%
VOLKSWAGEN AG 1.22% 183.2 Delayed Quote.18.75%
WM MORRISON SUPERMARKETS PLC 0.31% 293 Delayed Quote.64.70%
WTI 0.24% 70.779 Delayed Quote.48.70%
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