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EMEA Morning Briefing: Stocks to Open Higher as Investors Weigh Economic Growth

MARKET WRAPS

Watch For:

UK monthly retail sales figures; Euro area balance of payments; EU Construction output; EU Harmonised CPI.

Opening Call:

Stocks could open higher at open, but uncertainty about economic growth and the impact of the Delta variant continue to weigh on investors. Stocks in Asia mixed, with Chinese stocks down. Dollar rises. Oil declines while gold edges higher.

Equities:

European stocks are set to open higher as investors weighed mixed signals in the latest U.S. economic data and a stock-market pullback in China.

Chinese stocks are broadly lower in early trade, tracking overall declines in other Asian equity markets. Although China's near-term economic prospects appear to be more challenged, partly due to Covid-19 outbreaks in some provinces, Aberdeen Standard Investments expects to see more support for growth via local government bond issuance and fixed asset investment.

Japan's Nikkei was higher as gains in tech and shipping stocks offset losses in steel and energy stocks. Investors are closely watching any developments regarding the ruling-party chief's election set for later this month as another female candidate Seiko Noda joins the race.

In the U.S., major indexes have lost ground this month as investors worry that stocks may be due for a setback after climbing throughout 2021. Analysts also are considering how the spread of the Delta variant of Covid-19 could damp economic growth.

"It can make consumers less confident to spend, for example, if they have some uncertainty about where the economy is headed based on what happens with case loads," said Lisa Erickson, co-head of the public markets group at U.S. Bank Wealth Management.

While many recent sessions have seen losses for stocks, they haven't been large ones: The S&P 500 on Thursday notched its 20th consecutive trading day without a 1% move-its longest stretch without a move of that size since a span from October 2019 to January 2020, according to Dow Jones Market Data.

New data added to the cloudy forecast for the economy. The number of Americans who applied for first-time unemployment benefits rose in the week ended Sept. 11 to 332,000, up from 312,000 in the week prior.

Meanwhile, retail sales rose 0.7% in August, a sign of resilience despite the Delta-driven surge in Covid-19. Economists surveyed by The Wall Street Journal had expected retail sales to decline.

"This summer and then into the fall, it's all been about Delta," said Jim Smigiel, chief investment officer at asset management firm SEI. "We've been in this back and forth and back and forth, and we're seeing more of that today."

In equities, Danish boxship giant AP Moller-Maersk added $4B to its 2021 profit guidance on the back of record volumes and surging container freight rates. Maersk, the world's biggest container ship operator, said it expects a full year Ebitda of $22B to $23B from $18B to 19B previously.

"The strong result is driven by the continuation of the exceptional market situation, which has led to further increases in both long and short-term container freight rates," Maersk said, adding that it upped its guidance because its performance in the first two months of the third quarter was "significantly ahead" of previous expectations

Forex:

The dollar rose after data showed an unexpected rise in U.S. retail sales during August, but Capital Economics says the details of the data "were far less positive."

Senior U.S. economist Michael Pearce notes there were "big downward revisions" to previous months, while a rise in online and grocery store spending suggests "Delta fears are playing a role."

Spending at bars and restaurants was "stagnant," while a pick-up in spending on goods ex-autos could add to widespread shortages in recent months and add to inflationary pressure, he said.

Soaring gas prices could worsen the U.K.'s current account deficit and stop the pound from rising in line with U.K. bond-market trends, Deutsche Bank strategist Shreyas Gopal said.

The U.K. runs a small surplus in oil and a slightly larger deficit in natural gas, and this composition is causing "a larger deterioration in the UK's terms of trade compared to European peers," he said.

High gas prices would feed into inflation, which may increase the likelihood of earlier Bank of England interest-rate rises but supply-linked inflation could concern sterling investors as it would hurt growth, he said. "Any hawkish BOE reaction is only likely to dampen trend-growth and weigh on the UK's terminal rate," Gopal said.

Bonds:

Treasury yields rose to 1.337% from 1.302% Wednesday as August retail sales rose. Inflation concerns remain one of the forces driving investors away from US government debt, according to some economists, amid high expectations of taper discussion in the Fed's meeting next week.

Energy:

Oil declined in early Asia trade, pulling back after the global crude benchmark eked out a fresh, roughly seven-week high. The market appears to be undersupplied now, partly due to still existing OPEC+ production restrictions, Commerzbank said.

There are also lingering concerns over supply disruptions in the Gulf of Mexico in the wake of Hurricane Ida. Commerzbank expects the tight market situation to remain until year's end, despite planned production increases from OPEC+.

It expects Brent crude to end the year at $75/barrel and to fall slightly to $70/barrel next year.

Metals:

Gold nudged higher in a likely technical rebound after suffering its sharpest daily drop in nearly six weeks overnight. The overnight move in gold is short-term oversold, said Pepperstone.

However, the question is whether this gives a signal for trading long gold positions or will rallies be short-lived, where strength of the precious metal could offer entry points for short positions on hopes of a bear-trending market into next week's FOMC meeting, Pepperstone added.

Copper and aluminum were higher in early Asian trade, as supply-chain disruptions exacerbate low base metal inventories, Goldman Sachs said.

"Both aluminum and copper are now seeing synchronized inventory draws both onshore and in the ex-China market, reducing stock buffers just as supply frictions are starting to escalate," the investment bank said, noting that the global copper and aluminum markets are already in deficit.

Prices are therefore likely to remain elevated. The three-month LME copper and aluminum contracts were both 0.4% higher, at $9,400 a ton and $2,890 a ton, respectively.

   
 
 

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September 17, 2021 00:15 ET (04:15 GMT)

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