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EUROPEAN MIDDAY BRIEFING: Stocks Struggle for Momentum

08/12/2021 | 06:11am EDT

MARKET WRAPS

Stocks:

Europe stocks were broadly flat in morning trade Thursday as gains in utilities and healthcare sectors were tempered by losses in materials and energy sectors. However, the pan-continental Stoxx Europe 600 was on track for a fresh high after hitting records for eight consecutive trading sessions on Wednesday.

Shares on the move:

Aviva said it plans to return at least GBP4 billion to investors by the end of the first half of 2022, starting with a share buyback, after the insurer posted higher operating profits and gross premiums.

Cineworld reported a narrower loss in the first-half after encouraging and increasingly improving recent trading and said it was considering a U.S. listing of itself or partial listing of Regal.

Delivery Hero raised its revenue outlook for the full year following a strong second-quarter performance but said its adjusted earnings margin was expected to be minus 2%, compared with previous estimates of minus 1.5% to minus 2%.

Hapag-Lloyd posted first-half earnings that were in line with its preliminary results but cautioned that supply chain issues continued to bite, with a return to normality not likely before the first quarter of next year at the earliest.

Henkel said it now expected organic sales growth in 2021 of 6%-8% while also raising its earnings targets, but its shares fell after it warned that raw-material costs and supply-chain issues would weigh heavily on the second half of the year.

TUI said it returned to cash flow for the first time since the coronavirus pandemic as it reported a sharply-narrowed underlying loss of EUR669.8 million for the third quarter.

Zurich Insurance posted a 60% rise in first-half operating profit, lifted by strong growth in new premiums and said it was on track to meet its 2022 targets.

Data in focus:

Eurozone industrial production declined again in June, missing expectations of an increase as supply-chain bottlenecks hindered activity, Eurostat data released Thursday showed.

Output from factories, mines and utilities across the single-currency area in June fell 0.3% from the previous month, the EU statistics agency said. Economists polled by The Wall Street Journal had forecast a 0.2% increase. Eurostat revised down month-on-month industrial output growth for May to a 1.1% drop from a 1.0% decline in the first estimate.

Production fell 1.5% on the month for capital goods and 0.6% for energy, while production rose 0.1% for both durable consumer goods and intermediate goods, and rose 1.6% for non-durable consumer goods, Eurostat said.

On an annual basis, industrial production rose 9.7% in June, less than the 10.5% increase forecast by economists. This surge was partly due to a base effect owing to very weak data in June 2020.

---

The U.K. economy grew in the second quarter after the easing of some coronavirus restrictions. Gross domestic product expanded 4.8% on quarter, the Office for National Statistics said Thursday, fueled by consumer spending.

The economy ended the quarter 4.4% smaller than its pre-pandemic size, the ONS said. Growth is expected to have slowed in the third quarter as the Delta virus variant swept across the country. The Bank of England expects the U.K. economy to reach its pre-pandemic size in the final quarter of the year.

U.S. Markets:

U.S. stock futures wavered ahead of a series of earnings reports and fresh data on the labor market that is expected to provide insight into the pace of the recovery.

A clutch of technology companies are scheduled to report earnings Thursday. Palantir Technologies is slated to post results in the morning ahead of the opening bell. Airbnb and DoorDash are expected to report after markets close, as well as Walt Disney.

The latest data on jobless claims, a proxy for layoffs, is set to go out at ahead of the opening bell. Analysts are forecasting a small decline for the week that ended Aug. 7. Also expected at the same time is the U.S. producer-price index for July, which will be closely scrutinized by investors for more clues on inflation at the wholesale level.

Forex:

The dollar was little changed in Europe after softening Wednesday, with the CPI data assuaging investors that inflation isn't running away, said Commerzbank. The USD Index remained below 93.00.

TD Securities said the dollar's decline was likely triggered by core consumer prices rising by less than expected month-on-month but it doesn't expect the currency's depreciation to last.

Softer core inflation perhaps reduced market bets of monetary policy normalization, said TD forex strategist Mazen Issa. "While the market may view this as relief on the inflation front, it's not likely to really shift the balance of risk for the USD beyond intra-day noise."

Payrolls data matter more for the Fed's discussions about tapering asset purchases than expected transitory price pressures, he said.

Commerzbank said the dollar's depreciation Wednesday provides an insight into what will happen to the currency once inflation starts easing more significantly towards year-end.

Currency analyst Esther Reichelt said monthly rate of inflation fell to 0.5% in July from 0.9% in June, which confirmed the Federal Reserve's view that high inflation is temporary. "That makes it more likely that inflation will ease back to the 2% target by itself and less likely that the Fed will have to hike interest rates more aggressively than so far assumed."

Currencies of commodity exporters will depreciate further against the dollar even though they appear undervalued following this year's rise in commodity prices, said Capital Economics.

"Prices of most commodities have faltered recently and we expect them to decline further over the next few years--primarily due to slower growth in China."

Commodity currencies failed to benefit from higher commodity prices this year but the correlation between the two should re-establish itself, causing commodity currencies to drop as prices fall, said Capital Economics. The currencies will also be hit by higher long-term Treasury yields and country-specific factors such as concerns about fiscal sustainability.

Sterling edged slightly lower after data showed U.K. gross domestic product expanded 4.8% in the second quarter versus the previous three months. Strong growth was expected after the easing of some coronavirus restrictions, but the outlook for the third quarter may not be so rosy, said ING.

"We think the July and August GDP readings will average at roughly 0.2-0.3%, which translates into overall third-quarter growth in the region of 1.5%--quite a bit lower than the 3% figure the Bank of England is penciling in," ING said.

The impact of the data was limited, however, and ING currency analysts said EUR/GBP could edge toward 0.8400 as the euro weakens.

Bonds:

10-year Bund yields edged slightly lower, as eurozone bonds mirrored moves in Treasurys which "quickly stabilized" following data Wednesday showing U.S. inflation remained elevated in July, said Commerzbank. Bond markets look to be consolidating and the bank recommends buying any dips. "With the data/supply calendar cooling down markets should remain in consolidation mode," it said.

Investor appetite for euro corporate bonds remains strong and is likely to drive credit spreads tighter, said Mizuho. "With risk appetite remaining strong, we expect to see euro credit spreads tightening, supported by the supply picture and the European Central Bank's continued commitment towards qunatitative easing," analysts at the bank said. This would mark a reversal in the recent trend. "Following a short period of widening, there is room for tightening to resume."

Commodities:

Oil wavered between minor losses and gains after the IEA said the rapidly-spreading coronavirus Delta variant and its effect on the global economy mean the world will consume less oil this year than previously thought.

The timing of the variant's spread has coincided with planned supply increases from OPEC and its allies, "stamping out lingering suggestions of a near-term supply crunch or supercycle," the IEA said. While the market will remain slightly undersupplied for the remainder of 2021, the scale could tilt back to surplus in 2022.

Gold gained in Europe in reaction to a weaker dollar after inflation moderated but HSBC cautioned that a possible negative for bullion going forward might be a fast-paced Fed tapering.

James Steel, chief precious metals analyst at HSBC said: "It is perfectly possible that gold has heavily factored in tapering as inevitable. What may be a negative going forward might be a fast-paced tapering. The exact date of the beginning of tapering may be less important."

Copper also gained thanks to the weaker dollar. The red metal has also found support from supply concerns, though the threat of a strike at the world's biggest copper mine in Chile appears to have eased. "As the world exits the pandemic-regime, supply-side pressures should also begin to ease, which argues that the path of least resistance ultimately remains to the downside," said TD Securities.

EMEA HEADLINES

Delta Variant Has Dented 2021 Recovery in Oil Demand, IEA Says

The rapidly spreading coronavirus Delta variant and its impact on the global economy mean the world will consume less oil this year than previously thought, the International Energy Agency said Thursday.

In its closely-watched monthly market report, the Paris-based organization said that the worsening of the pandemic, as well as revisions to historical data, mean its global oil demand outlook has been "appreciably downgraded," with some of this year's forecast recovery shifted to 2022.

Eurozone Industrial Production Unexpectedly Fell Again in June

Eurozone industrial production declined again in June, missing expectations of an increase as supply-chain bottlenecks hindered activity, Eurostat data released Thursday showed.

(MORE TO FOLLOW) Dow Jones Newswires

08-12-21 0610ET

Stocks mentioned in the article
ChangeLast1st jan.
AIRBNB, INC. 0.44% 170.5 Delayed Quote.16.14%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.13% 0.64275 Delayed Quote.2.38%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.15% 0.7476 Delayed Quote.-2.32%
BRITISH POUND / EURO (GBP/EUR) 0.01% 1.18639 Delayed Quote.6.00%
BRITISH POUND / US DOLLAR (GBP/USD) 0.03% 1.37955 Delayed Quote.1.08%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.16% 0.696481 Delayed Quote.8.18%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.13% 0.80966 Delayed Quote.3.27%
CINEWORLD GROUP PLC 2.26% 64.16 Delayed Quote.0.37%
DJ INDUSTRIAL -0.02% 35603.08 Delayed Quote.15.85%
DOORDASH, INC. 1.46% 218.82 Delayed Quote.53.29%
EURO / US DOLLAR (EUR/USD) 0.03% 1.16276 Delayed Quote.-4.60%
GOLD 0.18% 1787.695 Delayed Quote.-6.14%
HENKEL AG & CO. KGAA -0.10% 76.42 Delayed Quote.-17.20%
HSBC HOLDINGS PLC 0.17% 434.75 Delayed Quote.14.76%
INDIAN RUPEE / EURO (INR/EUR) -0.03% 0.011486 Delayed Quote.2.39%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.02% 0.013362 Delayed Quote.-2.34%
LONDON BRENT OIL -0.32% 84.21 Delayed Quote.64.56%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.12% 0.7163 Delayed Quote.0.26%
PALANTIR TECHNOLOGIES INC. 2.31% 24.78 Delayed Quote.2.85%
S&P 500 0.30% 4549.78 Delayed Quote.20.33%
S&P GSCI GOLD INDEX 0.38% 1041.337 Delayed Quote.-5.82%
SILVER 0.18% 24.169 Delayed Quote.-7.79%
TUI AG 1.70% 2.751 Delayed Quote.7.41%
US DOLLAR / EURO (USD/EUR) -0.02% 0.860023 Delayed Quote.4.82%
WALT DISNEY COMPANY (THE) 0.46% 171.34 Delayed Quote.-5.43%
WTI -0.08% 82.206 Delayed Quote.71.24%
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