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EMEA Morning Briefing: Stocks to Struggle as Investors Weigh Inflation and Fed Paths


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EU Industrial Production; France ILO Unemployment, CPI; Italy Foreign Trade EU; UK First Quarterly Estimate of GDP, Index of Services, Monthly GDP Estimates, Index of Production, Trade, Business Investment in the UK, NIESR Monthly GDP Tracker; updates from Flutter Entertainment, Sasol, Pandora

Opening Call:

Europe is poised for a subdued open after U.S. stocks ended mixed on Thursday, as the recent rally tied to cooler inflation data takes a breather. In Asia, major stock benchmarks struggled for direction, with the exception of a strong rally in Japan; the dollar was firmer; while Treasury yields, oil and gold all weakened.


European shares are likely to struggle for momentum at Friday's open, after Wall Street's rally faded despite additional data suggesting that U.S. inflation might be peaking.

U.S stocks slumped into the closing bell, reversing an early morning surge that pushed the major indexes to their highest levels since early May, after the July producer-price index fell 0.5%, compared with expectations for a 0.2% rise.

Some analysts are urging caution as rising housing costs could keep core inflation elevated, even as a drop in oil prices and other commodities has helped to reduce inflation expectations.

"Our view is that this is a rally that really deserves a lot of scrutiny because when we think about what has happened since the mid-June low, the market outlook hasn't really changed," said BNY Mellon Investment Management.

"Historically, the Fed delivers more hikes than the market anticipates. And this is clearly a hiking cycle that is far from over."

U.S. Economic Insight:

Markets are rallying on hopes the Fed will pivot away from steep rate increases, but a more dovish approach could lead to higher inflation and "potentially [to] a more significant recession in 2023," Guild Investment Management said.

Guild sees inflation sticking at 5% to 6%, which is higher than the Fed's target. It sees discrepancies in labor data indicating the economy isn't as strong as July payrolls indicated. Guild said that "company estimates for second-half and 2023 earnings need to decline further, that happens, the current rally will be challenged."


The U.S. economy "is experiencing a healthy deceleration, not a recession," Goldman Sachs said, after looking into historical patterns of revisions of data used to guide monetary policy.

"We find that the initial estimates of payrolls, household employment, and consumption growth at the start of recessions tend to be revised down. Even if current employment and consumption figures were revised down by the average amount at the start of recessions, most indicators that are used to determine whether the economy is in a recession would still suggest that economic activity is expanding."


The dollar was slightly higher in Asia against a basket of currencies but may weaken again as "Fed pivot" bets grow, analysts said.

If the Fed meets market expectations to raise rates by only 50 basis points in September, this will likely mark the peak of its aggressive rate-increase cycle, according to CMC Markets.

However, other central banks may keep pace on tightening, especially the European Central Bank which appears to have just begun its aggressive rate-increase cycle and which may cause further dollar weakness.

TD Securities said the euro could fall to parity against the dollar again over the coming month after receiving a boost from Wednesday's lower-than-forecast U.S. CPI data.

U.S. inflation may have peaked but TD said risk assets aren't "out of the woods yet, suggesting it could be a bit more time to expect a persistent, positive boost in growth expectations and financial conditions." The dollar's safe-haven status means it may benefit from the weak global growth outlook.

TD has advised selling EUR/USD, targeting 1.0000 and placing a stop loss at 1.0550.


Treasurys gained in Asia, reversing some of Thursday's steep losses, as investors continue to weigh the latest signs of easing U.S. inflation.

Investors are now back to pricing in a softer, 50-basis point interest rate increase by the Fed next month.

However, Deutsche Bank economists said that, despite the "batch of goldilocks data" Fed officials could still turn out more hawkish than markets expect.

Markets are pricing in a 59.5% probability that the Fed will raise interest rates by another 50 basis points to a range between 2.75% and 3% at its Sept. 20-21 meeting. The central bank is mostly expected to lift borrowing costs to at least a range of 3.5% to 3.75% by March, according to fed funds futures traders.


Oil eased lower having settled at more than 2% on Thursday.

OANDA said prices are likely to remain supported above the $90.00/bbl level as demand is expected to remain strong on easing recession fears.

"WTI is back above $90 but that could change if we see progress on the Iran nuclear deal. It's seen plenty of support around $87-88 over the last month though as the tight market continues to keep the price very elevated," OANDA said.

Read: EU Proposes Significant Concession to Iran to Revive Nuclear Deal


Gold futures extended their recent retreat but have managed to hold above $1,800.

Goldman Sachs expects trading to remain rangebound as investors continue to weigh worries over economic growth, while watching for shifts in the Fed's rate policy. said "bulls' next upside price objective is to produce a close above solid resistance at $1,850," while also pegging the "next near-term downside price objective" at $1,686.30.


Copper also stalled but is likely to be supported by positive sentiment on signs of a peak in U.S. inflation, while iron-ore futures were dented by the mild dollar strength.

CMC Markets said metals losses may be limited, however, due to optimism over China's economic recovery and other factors such as faded recession fears.



U.S. Home Prices Jumped to Record High in Second Quarter

Home prices continued to climb across nearly all the U.S. in the second quarter, when buyer demand started to fade due to higher mortgage rates but still exceeded the housing market's unusually low supply.

The median sales price was higher in the quarter compared with a year ago for 184 of the 185 metro areas tracked, the National Association of Realtors said Thursday. The only metro area to post a decline was Trenton, N.J., where median prices fell 0.7%, NAR said.


EU Proposes Significant Concession to Iran to Revive Nuclear Deal

BERLIN-European Union diplomats trying to break a deadlock in talks over an Iran nuclear accord have proposed a significant new concession to Tehran aimed at speedily ending a U.N. investigation into the Islamic Republic's past atomic activities.

A key sticking point in 16-month-old talks to revive the 2015 deal, which put limits on Iran's nuclear programs in exchange for sanctions relief, has been a probe by the International Atomic Energy Agency into undeclared nuclear material found in Iran in 2019.


The Bursting Chinese Housing Bubble Compounds Beijing's Economic Woes

China's deflating property bubble is imperiling the world's second-largest economy with effects that could ripple for years.

Home prices are dropping in many cities after a long period of increases, data from Chinese real-estate developers and official statistics show. Sales of apartments nationwide by the country's largest developers have slumped annually for 13 consecutive months, according to industry-data provider China Real Estate Information Corp.


Bill to Speed Energy Infrastructure Faces Resistance

WASHINGTON-Legislation to speed the approval process for energy infrastructure projects is facing political headwinds, including from Republicans who are skeptical of assurances it will help the fossil-fuel industry and don't like how it was tied to the tax-and-climate bill passed by Senate Democrats.

Sen. Joe Manchin (D., W.Va.) negotiated the deal as companion legislation to the climate bill, dubbed the Inflation Reduction Act, saying it would include measures to reduce yearslong delays common in permitting both clean-energy and fossil-fuel infrastructure, especially pipelines.


Deutsche Telekom Nearing Majority Ownership of T-Mobile

German telecommunications giant Deutsche Telekom AG reiterated plans to build its stake in T-Mobile US Inc. and said it is nearing majority ownership of the U.S.'s second-largest wireless carrier by customers.

Deutsche Telekom has been looking to retake a majority stake in T-Mobile since the unit's 2020 merger with Sprint, which SoftBank Group Corp. previously controlled. The German company already has majority voting power in the U.S. wireless carrier.


Shell Working to Fix Leak That Halted Gulf of Mexico Oil Output

Shell said Thursday it halted activity at several of its offshore oil production platforms in the Gulf of Mexico due to leaky pipelines, but said it expects to have the pipelines fixed by Friday.

"Shell can confirm that the Mars and Amberjack Pipelines have been shut-in due to a flange leak at the Fourchon booster station," it said in an emailed statement, noting about two barrels of oil leaked, and they have been contained. The Fourchon station is on land along the Louisiana coast.


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Expected Major Events for Friday

05:00/FIN: Jun Balance of Payments

05:30/FRA: 2Q ILO Unemployment and Labour Market-related indicators

06:00/UK: Jun Index of Production

06:00/UK: Jun UK trade

06:00/UK: Jun Index of services

06:00/ROM: Jun Industrial production

06:00/UK: 2Q First quarterly estimate of GDP

06:00/UK: Jun Monthly GDP estimates

06:00/SWE: Jul CPI

06:45/FRA: Jul CPI

07:00/TUR: Jun Industrial Production Index

07:00/SPN: Jul CPI

08:00/ITA: Jun Foreign Trade EU

08:00/CZE: Jun Monthly Balance of Payments

08:00/POL: Jul CPI

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August 12, 2022 00:19 ET (04:19 GMT)

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