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EMEA Morning Briefing: U.S. Losses, Weak China Data to Hold Back European Shares


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Eurozone Industrial Production, Labour Cost Index; France, Italy CPI; U.K. Producer Prices, CPI; House Price Index; OECD Quarterly National Accounts; updates from Inditex, Merck KGaA, HeidelbergCement, Tullow Oil, Dixons Carphone, H&M

Opening Call:

A downbeat U.S. session and some weak China data will likely drag on European stocks on Wednesday. In Asia, shares mostly fell, the dollar held its post-CPI print losses, while Treasury yields nudged up. In commodities, oil made early gains but gold prices were under pressure.


Positive momentum for European shares will likely remain elusive on Wednesday, after losses on Wall Street and as some weak China data reinforced worries over global growth.

U.S. stocks ended lower on Tuesday, with the Dow down nearly 300 points, as an early lift from the inflation reprieve faded.

"There's more uncomfortable sentiment out there than there are positive catalysts," Randy Frederick, managing director of trading and derivatives at Charles Schwab said, though he said expects the stock market to continue to rise higher this year. "We're about three weeks out from the next earnings season."

The U.S. stock market is repeating a pattern of mid month stumbles some analysts tie to options expiration. That dynamic could be amplified this week ahead of "quadruple witching," the simultaneous expiration Friday of individual stock options, stock-index options, stock-index futures and single-stock futures.

"Almost like clockwork, over the past six months the S&P 500 has fallen in the week leading into OpEx, so the risk is we see this flow repeat and come into play this week, which could mean weakness into Friday's expiry - although perhaps it's all too obvious now," said Chris Weston, head of research at Pepperstone.

In Asia, most major stock indexes fell early Wednesday, as a batch of data showed China's economic activity cooled further in August.

Retail sales, a key gauge of China's consumption, grew 2.5% from a year earlier in August, down sharply from July's 8.5% growth. The result was also much lower than the 6.3% growth expected by economists polled by The Wall Street Journal.

Industrial output in August rose 5.3% from a year earlier, decelerating from a 6.4% increase in July and below the 5.6% pace anticipated by the surveyed economists.

And China's fixed-asset investment increased 8.9% in the January-August period, compared with the 10.3% pace recorded in the first seven months of the year. Economists expected FAI to grow 8.8%.


The dollar changed little in Asia, having weakened on Tuesday, after data showed U.S. inflation cooled slightly in August.

The yen strengthened against G-10 and Asian currencies amid global growth worries, partly caused by the mostly worse-than-expected Chinese economic data.

The U.K.'s domestic recovery story is "largely supportive" for the pound, with data showing the U.K.'s unemployment rate inching down to 4.6% in July, but the benefits are limited, ING said.

Investors remain reluctant to believe that the Bank of England "will be able to stick to its upbeat view on the economic outlook," which may be limiting sterling's scope to gain in the short term, ING said.


The 10-year Treasury yield nudged higher in Asia but remained below 1.30%.

The slowdown in U.S. inflation doesn't necessarily mean the Federal Reserve will delay tapering. "Look under the hood and what we see is cyclical inflation pressure continuing to build," Capital Economics said. "The latter is what the Fed should be really worried about, as it means that core inflation will remain above target for the foreseeable future."

Tradeweb said the yield curve is getting flatter throughout. "Flattening is even occurring at the front end of the curve. When yields fall and the curve flattens, it may mean that markets are pricing in less tightening in the next few years."

The Bank of England is unlikely to start sounding more urgent about the timing of when it will raise interest rates at its Sept. 23 policy decision, preferring to wait until more clarity on growth and inflation dynamics emerge, JPMorgan said.

"Inflation pressures are building, raising risks of a more persistent inflation overshoot, however weaker-than-expected growth adds some uncertainty to the BOE's reaction function," JPMorgan analysts said.

Once the central bank starts raising the bank rate from 0.1%, JPMorgan expects "a faster pace of hikes after lift-off than currently priced" in the gilt market. In their view, 10-year gilt yields look cheap versus the Sterling Overnight Indexed Average [Sonia] interest rate swap curve.


Oil prices were back on the rise in Asia after stalling on Tuesday, as concerns eased over the impact of Tropical Storm Nicholas on crude and natural-gas production in the Gulf of Mexico.

Although storm-related power outages briefly shut U.S.'s largest pipeline which sends oil from Houston to the Northeast, its impact on offshore output was relatively limited, ANZ said.

U.S. crude-oil stockpiles are expected to decrease from the previous week in data due Wednesday from the Energy Department, according to a survey of analysts and traders by The Wall Street Journal. Estimates showed inventories are projected to have fallen by 2.5 million barrels in the week ended Sept. 10.

The API said late Tuesday its data for the week showed a 5.4 million-barrel decrease in crude supplies, a 2.8 million-barrel fall in gasoline stocks and a 2.9 million-barrel drop in distillate inventories, according to a source.


Gold eased lower but remained firmly above $1,800, finding support from a weaker dollar.

Although bullion has been riding on the lower-than-expected U.S. CPI print and is back above the key $1,800 level, it remains to be seen if the dollar will regain strength, capping gold's gains, IG said. "This may also come as the timeline for Fed tapering may remain unchanged."

Aluminum rose on expectations the cuts to Chinese production due to environmental reasons and to conserve energy will remain, ANZ said.

It bank doesn't expect the output cuts to ease, with power shortages likely remaining an issue leading into the winter. This should support aluminum prices. However, ANZ noted that investor bullishness may be fading, with the metal having retreated from its earlier $3,000 a ton high.



China's Economic Activity Cooled Further in August

China's economic activity cooled further in August, as coronavirus outbreaks and stringent control measures hurt consumer demand and factory production.

Retail sales, a key gauge of China's consumption, grew 2.5% from a year earlier in August, down sharply from July's 8.5% growth, according to data released Wednesday by the National Bureau of Statistics. The result was also much lower than the 6.3% growth expected by economists polled by The Wall Street Journal.


Democrats Put Off Hard Decisions on $3.5 Trillion Spending Plan for Now

WASHINGTON-Democrats on Capitol Hill have hard choices to make if they want to pass a sprawling package of healthcare, education and climate-change programs without any GOP support. So far, they have avoided making them.

Centrist Senate Democrats are raising concerns over Democratic leaders' plans to assemble a package of $3.5 trillion in spending and tax cuts, even if offset by other sources of revenue and savings. Because Democrats cannot afford to lose a single vote from their own caucus in the evenly-split Senate, that means that overall spending level will likely have to come down, either by excluding or shortening the length of some proposed programs.


U.S., EU Seek Global Pledge to Slash Methane Emissions by 2030

Officials in the U.S. and European Union are crafting a pledge to reduce global methane emissions by nearly a third by 2030, and pushing several of the world's largest economies to join them, according to people familiar with the effort.

The agreement would mark the first global commitment to cut emissions of methane, a gas less prevalent than carbon dioxide in the atmosphere but far more potent at trapping heat. Dubbed the Global Methane Pledge, the agreement doesn't call for country-specific targets, but rather for the signatories to support an effort to reduce global, human-caused methane emissions by at least 30% by 2030 compared with 2020 levels, one of the people said.


U.K. Bets on Covid-19 Booster Shots to Avoid Winter Lockdowns

LONDON-British Prime Minister Boris Johnson presented a suite of measures including booster Covid-19 vaccinations for people over 50 as he aims to avoid new lockdowns this fall while keeping social-distancing restrictions to a bare minimum.

In contrast with other European countries that are taking a more interventionist approach to squash infection rates, Mr. Johnson plans instead to lean heavily on vaccines to protect the British population should the virus rapidly spread in the fall.


BHP Says Memorandums of Understanding in Place With Importers for Jansen Output

SYDNEY--BHP Group Ltd., the world's largest mining company, said it has non-binding memorandums of understanding with major importers for up to 100% of future production from its Jansen project in Canada's Saskatchewan province.

BHP last month approved the first phase of the Jansen project, which is estimated to cost $5.7 billion to build. Potash is one of three major fertilizer ingredients, alongside nitrogen and phosphate, and BHP thinks mining at Jansen could last about 100 years.


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Expected Major Events for Wednesday

06:00/NOR: Aug External trade in goods

06:00/UK: Aug UK producer prices

06:00/UK: Aug UK monthly inflation figures

06:45/FRA: Aug CPI

07:00/HUN: Jul Construction

08:00/POL: Jul Merchandise trade

08:00/POL: Aug CPI

08:00/BUL: Aug CPI

08:00/ITA: Aug CPI

08:30/UK: Jul UK House Price Index

09:00/EU: Jul Industrial Production

09:00/EU: 2Q Labour Cost Index

(MORE TO FOLLOW) Dow Jones Newswires

September 15, 2021 00:39 ET (04:39 GMT)

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