European Midday Briefing: China Data Drags on Mood

MARKET WRAPS

Stocks:

Stocks edged lower on Monday after more disappointing data from China provided further evidence of a fading recovery that risks leaving the global economy underpowered this year.

However, the stock market's losses were capped on hopes that the PBOC will need to do more to revive household and business confidence and get the economy back on track.

"...weak growth means that the government and the PBOC will step up efforts to further ease the financial conditions and pave the way for a quicker recovery....however, supportive policies put in place so far have had little impact," Swissquote Bank said.

Stocks to Watch

Eurozone banks have considerable protection against credit losses, with loan non-repayments to rise due to high borrowing costs, UniCredit Research said, expected them to report strong earnings in the upcoming results season supported by high interest income while non-financial corporates are seen posting weak earnings. Read more.

Continental's slow start to the year in its automotive division doesn't spell doom for its 2023 guidance, Berenberg said, since the disappointing performance partly stemmed from unfortunate contract timing, plus the tires business is doing well. Read more.

Forvia's first-half earnings should imply upside for upgraded guidance, Berenberg said, adding that pricing and margin seasonality and better volumes, particularly in China, could very well propel new sales and net cash flow guidance. Read more.

U.S. Markets: Markets:

Stock futures pointed to a lackluster start for Wall Street following the China data and as traders geared up for a busy week of corporate earnings.

U.S. government bond yields ticked up, with the yield on the benchmark 10-year Treasury note at 3.832%, while the yield on the two-year note rose to 4.757%.

Up ahead: Data on manufacturing activity in New York is due before the market opens.

Stocks to Watch

Microsoft and Sony agreed to keep Activision Blizzard's Call of Duty videogame on Sony's PlayStation system after Microsoft completes its acquisition of Activision. Microsoft shares rose 0.7%, while U.S.-listed Sony rose 0.1%, and Activision jumped 4.7%.

Tesla rose 1.7% in premarket trading after its first Cybertruck rolled off the assembly line over the weekend.

Shares of United Airlines rose 1.1% after it and its pilots' union reached a contract agreement that includes increases in pilot pay of up to 40% over four years.

Follow WSJ markets coverage here .

Forex:

Signs of U.S. disinflation and skepticism about whether the Federal Reserve can raise interest rates beyond July should keep the dollar weak in the near term but it could pick up later in the year, Rabobank Research said.

The safe-haven dollar could benefit if U.S. recession fears increase into year-end, while the euro could struggle beyond the summer due to signs that the European Central Bank's rate-rising cycle "is moving towards its peak," Rabobank said.

Rabobank expects EUR/USD to fall to 1.08 in three months and to 1.06 in six months, versus 1.1232 currently.

Read Dollar Could Regain Support Ahead of Next Week's Fed Decision

Bonds:

The interplay between monetary policy and inflation developments is likely to remain formative for the relative performance of eurozone inflation-linked bonds compared with the government bond market as a whole, LBBW said,

With substantial further easing in store for headline inflation over the summer and into the fall, "hopes of continued disinflation are likely to receive a boost," LBBW said, but added that for inflation-linked bonds, this is not good news.

"Their valuation is already significantly elevated in longer-term historical comparisons."

LBBW said the hurdles for an increase in valuation are relatively high in an environment of falling inflation rates.

Read Spanish Government Bond Underperformance Expected to Fade in 2H

Read Irish Bonds Move in Line With Bunds After Fitch Raises Outlook on Rating

Energy:

Oil prices declined for a second straight session as the Chinese GDP data weighed.

As the world's second largest economy and a major consumer of commodities China's weaker-than-expected GDP numbers are "likely to continue to cause concern for markets," ING said.

Also weighing on prices were reports that some shuttered oil wells in Libya reopened.

Read EU Gas-Burning Car Regulations Come With More Stick Than Carrot

Metals:

Base metals fell on the disappointing Chinese economic data.

The GDP figures highlight that "the post-Covid momentum is faltering rapidly in the world's second-biggest economy," Deutsche Bank said. However, it could boost expectations of additional stimulus measures to support China's economy, it added.

DOW JONES NEWSPLUS

EMEA HEADLINES

Richemont Sales Grew in 1Q, Driven by Jewellery Business

Compagnie Financiere Richemont on Monday posted higher sales for the first quarter of its financial year, which it said were driven by its jewellery business and retail channel.

The Swiss-based luxury company reported sales of 5.32 billion euros ($5.97 billion) for the quarter ending March 31, up from EUR4.65 billion in the same quarter a year prior.

TomTom Shares Rise as 2Q Revenue Growth Prompts 2023 Guidance Hike

TomTom shares rose Monday after it said its second quarter revenue grew on a good performance from its location technology business, and raised revenue guidance for the full-year.

Shares at 0723 GMT were up EUR0.57, or 8% at EUR7.77.

Nordea Raises Guidance After Beating 2Q Net Profit Views

Nordea Bank on Monday raised guidance and posted a forecast-beating second-quarter net profit as net-interest margins improved and corporate lending grew.

The Helsinki-based bank posted net profit attributable to shareholders of 1.34 billion euros ($1.5 billion), from EUR1.06 billion in the same period a year earlier, as net-interest income rose 40% to EUR1.83 billion.

Anglo American Platinum Warns of 1H EPS Falling by Up to 75%

Anglo American Platinum said Monday that it expects to report that first-half basic earnings and headline earnings to have fallen between 65% and 75% on year, as lower palladium prices hit revenue, the exchange rate weakened and sales slipped.

The South African precious-metals company, which is majority owned by Anglo American PLC, said it expects headline earnings to be between 6.7 billion and 9.4 billion South African rand ($370.1 billion-$519.3 billion), down from ZAR26.7 billion a year prior. Headline earnings per share are expected to slip to between 2,544 and 3,569 South African cents per share, compared with 10,140 cents in the first half of 2022.

Spanish Government Bonds Set to Outperform Peers; Election Could Help Too - Talking Markets

Spanish government bonds are set to outperform some of their eurozone peers in the coming quarters and an expected victory for the conservative People's Party [PP] in next weekend's snap election could lend an additional boost, analysts said.

Socialist Prime Minister Pedro Sanchez called snap elections for July 23 after the opposition's victory in local elections in May.

Bridge Between Crimea and Russia Disabled in Presumed Ukrainian Attack

A presumed Ukrainian strike disabled the only road bridge connecting Russia with the occupied Crimean Peninsula, hitting once again a major symbol of President Vladimir Putin's rule and constricting Russian supplies to its troops in southern Ukraine.

Russia's National Antiterrorism Committee blamed Ukraine for the attack, saying that Kyiv used two naval drones against the bridge. Ukrainian media, citing government sources, also said that naval drones were involved.

Europeans Are Becoming Poorer. 'Yes, We're All Worse Off.'

Europeans are facing a new economic reality, one they haven't experienced in decades. They are becoming poorer.

Life on a continent long envied by outsiders for its art de vivre is rapidly losing its shine as Europeans see their purchasing power melt away.

A Buoyant Global Economy Is Starting to Sag

The global economy's brief run of good luck may be ending.

Manufacturing activity is weakening across the world. Europe slid into a mild recession earlier this year. China's much-anticipated rebound from Covid-19 lockdowns is sputtering. Many emerging markets continue to struggle with heavy debt burdens and high interest rates.

GLOBAL NEWS

China's Economy Barely Grows as Recovery Fades

SINGAPORE-China's economy barely grew in the second quarter from the first and youth unemployment hit a record high in June, providing evidence of a fading recovery that risks leaving the global economy underpowered this year as recession stalks the U.S. and Europe.

The sluggish pace of growth in 2023 is piling pressure on Beijing to reignite an expansion that is in danger of fizzling out as consumers refrain from spending and exports slump. A drawn-out real estate crunch and shaky local-government finances are compounding the gloom. More than a fifth of Chinese age 16 to 24 are out of work.

China PBOC Adds Liquidity at Unchanged Policy Rates

China's central bank on Monday injected liquidity into the nation's financial system via its monetary instruments at unchanged interest rates, signaling a hold on benchmark lending rates this month after June's cuts.

The People's Bank of China injected 103 billion yuan ($14.42 billion) of liquidity via the one-year medium-term lending facility at an interest rate of 2.65%. It also provided CNY33 billion of funds through seven-day reverse repurchase agreements at an interest rate of 1.90%.

Markets Appear Convinced the Fed Can Pull Off a Soft Landing

Wall Street is more convinced than ever that inflation is subsiding.

That's giving investors hope that the Federal Reserve might be able to pull off what once seemed impossible: containing pricing pressures without tipping the economy into recession.

Economists Are Cutting Back Their Recession Expectations

(MORE TO FOLLOW) Dow Jones Newswires

July 17, 2023 05:29 ET (09:29 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.