European markets mostly fell Friday after mixed trading in Asia
and ahead of an expected lower U.S. open.
Concerns about the cost of living and the looming prospects of a
recession remained elevated as investors digested gloomy data.
Data released Friday showed German producer prices posted its
biggest increase ever recorded, driven by higher energy prices,
while U.K. consumer confidence hit a record low in August.
"With inflation set to surge further, we think the worst of the
spending crunch still lies ahead," Capital Economics said.
The Stoxx Europe 600, the CAC 40 and DAX all retreated while the
FTSE 100 was slightly up, pushed higher by drug, consumer and oil
Stocks to Watch:
Luxury-goods makers have scope to up prices in the second half,
UBS said. Pricing power remains, the bank said, a key weapon in
luxury's armory, allowing brands to offset the effects of
It is in Europe that prices are most likely to rise given
current wide premiums in other markets, partly due to currency
effects, UBS said, noting that this would support companies' top
lines and margins in the second half of the year amid a potential
normalization of volumes.
Eurozone inflation was confirmed to have risen to a record high
of 8.9% year-on-year in July, but inflation hasn't peaked yet, HSBC
said. Although petrol prices have softened, the surge in wholesale
gas prices continues and he expects eurozone inflation will peak at
10.0% year-on-year in October.
Looking further ahead, HSBC sees eurozone inflation declining to
3.2% by the end of 2023. "For that to happen, wholesale gas prices
will need to stop rising, goods price inflation needs to soften as
a result of easing supply bottlenecks, and services inflation has
to ease due to weaker demand," the bank said. HSBC said the outlook
is highly uncertain.
U.S. stock futures were headed for a weaker session on Friday,
with technology set to bear the brunt of losses major indexes as
Treasury yields rose on the view Federal Reserve hikes are set to
Friday will be devoid of major data, leaving investors to mull
over the past week's economic updates and hawkish comments from at
least one Fed official on Thursday.
Treasury yields were notably climbing on Friday as investors
returned to the view that Fed hikes were not quite over.
St. Louis Fed President James Bullard told The Wall Street
Journal that he would "lean toward" a 75 basis point hike at the
central bank's next Sept. 20-21 policy meeting. On the same day,
investors heard more cautious comments from Kansas City Fed
President Esther George, who said how fast hikes will happen
remains up for debate.
Richmond Fed President Tom Barkin will speak at 9 a.m. ET.
Investors are also focused on next week's Jackson Hole Symposium,
with Fed Chairman Jerome Powell and other central bank officials
scheduled to speak.
"It is patently clear that the Fed has inflation reduction as
its main aim, even though it acknowledges the knock-on risk of
derailing the economy," said Richard Hunter, head of markets at
"The market is still pricing in a 0.5% interest rate rise in
September, although there are increasing concerns that another
0.75% hike could be on the cards, with rates currently projected to
peak at 3.5%. Separate comments from several Fed officials
suggested that there remains some way to go before victory can be
declared on taming inflation," said Hunter.
Data this week revealed flat retail sales and disappointing
results from some major retailers, such as Target and Kohl's, but
Thursday brought data showing weekly jobless claims falling 2,000
to 250,000, with no signs of mass layoffs.
Economic bellwether and tractor maker Deere & Co. will
report ahead of the market open.
Sterling is undervalued by more than 10%, a level rarely
observed over recent decades, Insight Investment said, adding that
the currency appears to be historically cheap. The average
five-year return following periods when valuations have reached
these levels has been around 17%, it said.
The pound is expected to fall further due to a gloomy economic
outlook, even as data showed U.K. retail sales unexpectedly rose by
0.3% in July, MUFG said.
Record temperatures in the U.K. in July were "very likely"
behind the increased retail sales, which won't change the overall
picture of weak consumer spending, with the GBP/USD looking likely
to slide further in the coming weeks, the bank said.
MUFG points to the latest GfK consumer confidence index for the
U.K., which hit minus 44 in August, a new low for data going back
The dollar rose to a one-month high against a basket of
currencies and the euro, though this may reflect difficulties
facing European and Asian economies rather than U.S.-specific news,
"It is hard to pin down the exact reason for dollar strength...
However, the move suits our generally positive stance on the dollar
at a time when European and Asian growth prospects remain
challenged," the Dutch bank said.
Barring "very poor" upcoming U.S. data, the dollar is likely to
"consolidate near the recent highs."
The current strong gains for the dollar may start to fade as the
Fed could slow the pace of policy tightening, Insight Investment
"With the U.S. economy having experienced a 'technical'
recession in the first half of 2022 it is clear that monetary
tightening is working," it said.
This makes it unlikely that the Fed will need to increase rates
meaningfully beyond what markets are already pricing in, and the
pace of interest-rate rises is likely to become less aggressive,
Insight Investment said.
Eurozone sovereigns have completed around 70% of total gross
bond supply expected for 2022, broadly in line with 2021, but some
peripheral states lag behind, Societe Generale said, nonetheless,
not worrying too much about this lagging.
"While some peripheral countries are behind last year's
progress, we are not overly concerned by supply-led pressures,
given relatively healthy cash balances and supportive European
Central Bank," the French bank said.
After the seasonal slowdown in government bond issuance in
August, supply is expected to pick up in September, Societe
Generale said. The bank expect issuance via syndications
alone--auctions not included--to amount to EUR30 billion-EUR40
billion next month.
Eurozone peripheral government bond yield spreads have been
under some widening pressure this week, with a shift higher in bond
yields, low August liquidity and nervousness about next month's
Italian elections playing a role, Barclays said.
"We think peripheral spread widening has likely in part
reflected the broad moves higher in EUR yields, with poor August
liquidity likely also contributing," the bank said.
Beyond this, "nervousness ahead of Italy's 25 September
elections has likely encouraged the relative underperformance of
Italian spreads on the week, in our view."
Also read: Spreads Expected to Remain on Widening Path in Almost
All Bond Segments
All Bond Segments Seen Performing Broadly Similarly Over 6-Month
Oil prices were down after finishing higher overnight on data
which showed a sharp drop in U.S. inventories.
"Recession fears remain elevated for key markets, including the
U.S. and EU, raising concerns over the strength of future oil
demand," Fitch Solutions said.
Meanwhile, developments relating to a potential renewed nuclear
deal with Iran will also likely be closely watched.
Oil prices should recover despite recent losses as OPEC+ supply
constraints are likely to continue while Chinese demand should
recover, UBS said.
"We continue to believe that the recent decline in oil prices
doesn't fully account for constraints on global supply," the bank
said, adding that prices are expected to rebound to $125 a barrel
by the end of the year.
Any OPEC+ supply increase are likely to be undermined by
declining Russian output, while economic stimulus in China is
likely to support the nation's rebound and boost its demand for
oil, UBS said.
Gold prices lost further ground after suffering a fourth
straight session loss overnight due to a stronger USD. "The U.S.
dollar might continue to strengthen if U.S .economic data continues
to surpass expectations," Oanda said. "After breaking below $1,800,
gold has been struggling to regain its footing," the broker
Metals prices were down as a stronger dollar continues to weigh
on commodity prices. Marex said the rising dollar "is a drag on
commodities, " with sentiment still "risk-off."
Data showed U.K. consumer confidence fell to a record low this
month, pushed by recession and inflation worries. That said, zinc
is moving higher. Marex noted that zinc is a "standout," being the
only metal down in terms of Chinese production, while other base
DOW JONES NEWSPLUS
Starbucks Replacement Opens in Russia With Similar Look
Starbucks Corp.'s former flagship store in Moscow reopened under
new ownership but with similar branding, months after the
Seattle-based coffee giant pulled out of Russia.
On Friday, Russians lined up for drinks at Stars Coffee,
operating under a new logo similar to Starbucks's. Instead of
Starbucks's siren with a star-topped crown, the new Russian chain's
logo sports a woman wearing a star-emblazoned kokoshnik, a
traditional Russian headdress. On its website, which went live
Thursday, Stars Coffee posted, "Bucks left. Stars have stayed."
Europe's Gas Crunch Will Squeeze BASF
This column is part of the sixth annual Heard on the Street
Chemical giant BASF is at the sharp end of Europe's energy
German Producer Prices Post Highest Increase on Record
Germany's producer prices rose strongly in July, driven by
higher energy prices, posting the biggest increase ever recorded,
the German statistics office Destatis said.
Producer prices rose 37.2% on year in July, the German
statistics office Destatis said Friday. This follows a 32.7%
increase in June and a 33.6% rise in May.
Just Eat Takeaway.com to Sell Around 33% Stake in iFood JV to
Just Eat Takeaway.com NV said Friday that it has agreed to sell
its around 33% stake in the iFood joint venture to Prosus NV for up
to 1.8 billion euros ($1.82 billion) as it looks to focus on
improving profitability and on a disciplined capital
The Amsterdam-based food-delivery group said the amount
comprises EUR1.5 billion in cash on closing and a deferred
consideration based on the performance of the online food delivery
sector over the next year of up to EUR300 million.
U.K. Consumer Confidence Hits Record Low in August
British consumer confidence fell to a record low in August as
cost-of-living pressures and dim economic prospects continued to
The consumer-confidence barometer compiled by research firm GfK
declined to minus 44 in August from minus 41 in July, the lowest
level since the survey began in 1974 and below economists'
expectations of consumer confidence remaining unchanged from the
U.K. Retail Sales Rose Modestly in July, Beating Expectations
for a Decline
U.K. retail sales rose in July, boosted by strong online sales,
even as the cost-of-living crisis intensifies.
Retail sales volumes increased 0.3% in July on month, after a
revised 0.2% monthly fall registered in June, the Office for
National Statistics said Friday.
Ride-Hailing Stocks Reverse After Recent Rally
Ride-hailing firms Uber, Lyft and Grab have recovered some of
their lost market value over the past month, but a selloff this
week has undermined the rally.
The shares of Uber Technologies Inc. and Lyft Inc. have risen
more than 35% since mid-July, aided by their stronger-than-expected
results earlier this month. Singapore-based Grab Holdings Ltd.,
which is set to report its second-quarter performance on Aug. 25,
has jumped 41%.
Investors Should Go Where the Float Is
The check is never really "in the mail."
As trillions of dollars move between two places, or when they
just sit in the middle, the sum is often called "float." In the
long era of easy money and superlow rates, those vast sums didn't
matter much. Now they do. With rates rising and the Federal Reserve
fighting to restrain inflation, merely a percentage of that
mountain of money is in and of itself serious money. That will
change things for companies and individuals, for better or
Biotech Rebounds on Optimism and Deal Making
Biotech stocks, some of the biggest losers in the selloff, are
The speculative sector is getting a boost from renewed optimism
among investors. Fundamental drivers like deal making, new drug
approvals and buying by big investors provide confidence that the
rally could persist.
What Biotech ETFs Might Be Right for Your Portfolio?
Biotech is back. For those who want to invest through
exchange-traded funds, here are some choices.
An exchange-traded fund, or ETF, invests in numerous stocks,
quickly conferring exposure to a sector or theme and making ETFs a
popular tool for diversifying portfolios. Many offer low expense
ratios, reflecting the fees that investors pay each year.
North Korea Berates South Korean President: 'We Don't Like Yoon
SEOUL-On Monday, South Korean President Yoon Suk-yeol sought to
shake up frothy inter-Korean ties with what he called an "audacious
plan." He offered food aid and economic assistance that could
modernize North Korea's airports and hospitals-only if Pyongyang
showed some commitment to denuclearize.
By the end of the week, North Korea gave its answer: "We don't
like Yoon Suk-yeol himself."
Vanished Chinese-Canadian Billionaire Sentenced to 13 Years in
Xiao Jianhua, a Canadian-Chinese billionaire whose abduction
from Hong Kong five years ago sent shock waves through China's
business community, was sentenced to 13 years in prison by a
Shanghai court after pleading guilty to charges including graft and
illegal handling of funds.
Mr. Xiao used the company he founded, Tomorrow Group, to pay
bribes to unnamed government officials totaling around $100 million
over 20 years, according to a statement from the Shanghai No. 1
Intermediate People's Court released on Friday through state media.
It said Mr. Xiao used companies he controlled to illegally collect
more than more than $45 billion in public deposits.
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(END) Dow Jones Newswires
August 19, 2022 07:08 ET (11:08 GMT)
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