UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European equities edged higher on Wednesday, but with traders wary of making bold bets ahead of the U.S. inflation report deemed crucial to the market's short-term trajectory.

Stocks have been roiled in 2022, with sharp moves driven by fears that 40-year high U.S. inflation will batter consumer confidence, cause the Federal Reserve to hike borrowing costs aggressively and tip the U.S. economy into recession.

Consequently, investors are eager to see that inflation has peaked. Economists forecast headline year-over-year CPI growth will dip from 9.1% in June to 8.7% last month, mostly the result of lower energy costs.

But many traders fear that if the data shows "core" inflation--5.9% in June--remains stubbornly high, then the more optimistic tone in stocks seen over much of the past two months will be challenged.

"Markets seems to be going into today's all important U.S. CPI a little on the apprehensive side," said strategists at Deutsche Bank.

"The nervousness is hardly surprising when you consider that these prints have coincided with some of the most volatile market reactions over the past year. Indeed, it was only two months ago that the release sent the S&P 500 to its lows for the year and contributed to the Fed accelerating its hiking pace to 75bps," Deutsche added.

Economic Insight:

The increase in Norwegian July CPI-ATE to a record high will have raised eyebrows at Norges Bank, said Capital Economics.

Norges Bank's target measure, CPI-ATE, which excludes energy prices and tax changes, jumped to a record high of 4.5% in July. A tight labor market and high agricultural prices are likely to keep CPI-ATE way above Norges Bank's target for some time.

"We expect the core rate to stay between 3.5% and 4.0% until early 2023." Norges Bank has all but confirmed it will hike interest rates at next week's meeting. "We think it is increasingly likely that the bank will increase rates by another 50bp next week."

U.S. Markets:

Stock futures inched higher, but the mood remained cautious as traders awaited the consumer-price index report due at 1230 GMT.

Also damping sentiment was a recent rash of poorly-received corporate news. There is particular concern about the health of the semiconductor sector after Micron followed Nvidia with a warning about revenues.

In addition, a recent rally in badly battered former bull market darlings has come to a juddering halt in the past few sessions--also hurting retail investor confidence. And some are due for more pain on Wednesday.

Shares in crypto exchange Coinbase were down a further 5.5% in premarket action after reporting a $1 billion second quarter loss, and Roblox plunged 17.4% after a key sales metric declined for the second consecutive quarter.

Forex:

The dollar continued to weaken in cautious trading ahead of the CPI report.

MUFG Bank said the consensus is for a slight slowing in headline inflation but an acceleration in core inflation and under such a scenario, a 75bp rate increase by the Fed in September probably remains on the table.

Silicon Valley Bank said higher-than-expected CPI will fuel even higher rate expectations, which could further dampen the mood in equity markets and send the dollar up. But a weak CPI could signal to the market that a soft landing is possible, an encouraging sign for equities that should cause the dollar to sell off.

ING said the dollar should get support from the inflation report, as it is likely to show that core consumer prices edged higher in July.

"Stubbornly high core inflation should support the Fed's position that its work is far from done. It should also support pricing in the U.S. money market curve that sees the policy rate taken around 125 basis points higher in this cycle."

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Sterling may continue to underperform given the prospect of organised blackouts in the U.K. this winter resulting from energy shortages, MUFG Bank said.

The Bank of England has forecast an economic contraction for five consecutive quarters from the fourth quarter and the baseline assumptions don't assume energy-supply restrictions that result in blackouts and potentially major disruptions, which would undermine confidence in the growth outlook even further.

"The pound is the second worst performing G10 currency so far in August and we see no reason for that performance to change over the coming weeks."

Energy:

Oil prices ticked lower after the latest API data showed crude stocks rose by 2.2 million barrels in the week through Friday, a second monthly build of that magnitude.

However, the focus Wednesday will be on the latest CPI data. A higher-than-expected print could send risk assets falling as investors expect the Fed to ease off interest-rate hikes and vice versa, said Mediolanum.

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Natural gas prices rose but remained below their recent highs as winter supply concerns continue to keep prices supported. Benchmark European natural gas prices were recently up 3.6%.

Reduced Russian gas flows to Europe have confounded efforts to fill the region's gas storage tanks to sufficient levels before the high-demand winter period. Failure to do so in time could see European states forced to ration supplies.

"Natural gas imports in Europe continue to exhibit signs of curtailment, " Marex said. The region's storage levels are currently between 68% and 71%, below 2020 levels but above 2021 levels. EU states are targeting 80% by winter.

DOW JONES NEWSPLUS

EMEA HEADLINES

TUI Misses Forecasts After Booking Travel Disruption Charge in 3Q; Shares Fall

Shares of TUI AG fell as much as 4.3% in early trade Wednesday after the travel company missed earnings forecasts after booking a charge related to air traffic disruptions.

The London-listed, German travel operator reported an underlying loss before interest and tax for the quarter ended June 30 of 27 million euros ($27.6 million) compared with a loss of EUR669.8 million the year before and a forecast by UBS analyst Cristian Nedelcu for a EUR75 million profit.

Ahold Delhaize 2Q Net Profit Beats Forecasts, Pauses Bol.com IPO

Royal Ahold Delhaize NV on Wednesday raised its full-year guidance after reporting a 12% rise in second-quarter net profit--beating consensus forecasts--as it benefited from increased market share and strong customer loyalty.

The Dutch grocer added that it no longer plans an initial public offering of Bol.com given the current equity market conditions, but will revisit the plan when conditions improve.

E.ON 2Q Profit Fell; Backs 2022 Guidance

E.ON SE said Wednesday that profit dipped in the second quarter but confirmed the outlook for the full year.

The German utility company said it booked a quarterly net profit of 1.43 billion euros ($1.46 billion), down from EUR1.75 billion in the year-earlier period.

ABN AMRO 2Q Net Profit Rose Above Market Views, 2022 Outlook Upgraded

ABN AMRO Bank NV on Wednesday reported a rise in net profit for the second quarter of 2022, which came in significantly above market views, and said it now expects to close the year with a stronger net interest income.

The Dutch lender posted a net profit of 475 million euros ($485.1 million), compared with EUR393 million a year earlier. Net profit had been expected to decline to EUR390 million, according to a bank-compiled consensus.

Vestas Posts Bigger-Than-Expected 2Q Net Loss But Backs Guidance

Vestas Wind Systems AS on Wednesday posted a bigger-than-expected second-quarter net loss as a delayed U.K. offshore project hit turbine deliveries while supply-chain disruptions and cost inflation weighed on earnings.

The Danish wind-turbine maker swung to a second-quarter net loss of 119 million euros ($121.5 million), from a profit of EUR82 million a year earlier, as revenue fell 6.5% to EUR3.31 billion.

Aviva Plans Further Buyback After 1H Operating Profit Rose

Aviva PLC reported on Wednesday an increase in operating profit for the first half of 2022, backed its dividend guidance for the full year and outlined further plans for capital returns.

The FTSE 100 insurer posted an operating profit for the six-month period of 829 million pounds ($1 billion), up from GBP725 million for the year-earlier period, citing the benefits of a diversified business model in a challenging environment.

Deliveroo 1H Pretax Loss Widened on Consumer Headwinds; Begins GBP75 Mln Share Buyback

Deliveroo PLC said Wednesday that its first-half pretax loss widened due to increased consumer headwinds, and began a 75 million-pound ($90.6 million) share buyback program.

The U.K. food-delivery company posted a pretax loss of GBP147.3 million for the half year compared with a loss of GBP95.4 million a year earlier, reflecting higher cost of sales and administrative expenses.

Europe Withstands Venture-Capital Funding Drop Better Than U.S., Asia

European venture-capital investment lost less ground than the U.S. and Asia in the second quarter as deals everywhere took a nose dive in the wake of surging inflation, higher interest rates and macroeconomic uncertainty. But the advantage could be short-lived, analysts said.

Funding for European startups dropped by 13% in the second quarter from the first three months of the year, compared with a 25% quarter-to-quarter drop in both the U.S. and Asia, according to analytics firm CB Insights. The U.S. still accounted for almost half of the $108.5 billion in worldwide funding rounds in the second quarter, with Asia and Europe together accounting for most of the other half.

EU Court Expands Definition of Sensitive Data, Prompting Legal Concerns for Companies

Ukraine Mocks Russia After Explosions at Crimean Air Base

Ukrainian officials seized on explosions that hit a Russian military base as fodder to boost Ukraine's morale as its forces stepped up a counteroffensive to reverse Moscow's territorial gains in over five months of war.

Ukrainian officials welcomed the blasts as a symbolic blow to Russia's grip on the area but stopped short of claiming responsibility. Kyiv has vowed to liberate the peninsula, which Moscow annexed in 2014. Ukrainian President Volodymyr Zelensky said in a speech late Tuesday that the war had begun in Crimea and would only end when it was retaken.

GLOBAL NEWS

In China, Higher Consumer Inflation Masks Weak Demand

HONG KONG-China's headline consumer inflation rate surged to its fastest pace in two years in July, but a drop in core inflation points to a different problem: weak domestic demand.

After edging up just 0.9% in 2021 and staying largely within the government's comfort zone since the start of the pandemic, headline consumer prices in the world's second-largest economy rose by 2.7% in July from a year earlier, accelerating from June's 2.5% gain, as food prices soared, China's National Bureau of Statistics said Wednesday.

Thailand's Central Bank Raises Rate to Help Control Inflation

Thailand's central bank raised its policy rate for the first time in nearly four years in a bid to help control inflation.

The Bank of Thailand said Wednesday that its policy committee voted six to one to increase its one-day repurchase rate by 25 basis points to 0.75%, effective immediately. It was the first increase since December 2018. One member voted to raise the policy rate by 50 basis points, the central bank said.

Chip Makers Expect Demand Slowdown to Expand Beyond PCs, Smartphones

The chip industry that was bracing for a difficult period with laptop sales slumping is adjusting to a wider and sharper slowdown even as semiconductor companies prepare to spend billions of dollars on new factories.

"The market is worse than we thought it would be," Mark Murphy, chief financial officer at memory maker Micron Technology Inc., said Tuesday. On the same day, President Biden signed an investment plan that allocates more than $50 billion to finance future U.S. chip development and production.

Rapid Wage Growth Keeps Pressure on U.S. Inflation

Workers' wages are rising briskly, a factor contributing to four-decade high U.S. inflation.

Average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year, the Labor Department said Friday. The rapid earnings growth adds to other evidence that employers are continuing to increase pay as they try to find and keep workers in a tight job market.

Pelosi's Taiwan Visit Threatens China-Australia Reset

SYDNEY-China's ambassador to Australia said relations between the two countries are at a critical juncture and that the U.S. ally must approach the Taiwan issue cautiously, another example of how House Speaker Nancy Pelosi's visit to Taipei has raised tensions in the region.

The center-left government led by Australian Prime Minister Anthony Albanese, whose Labor Party came to power after an election in May, has sought a less-confrontational tone with China, a major trading partner that buys much of Australia's iron ore. Top-level contacts, suspended after Australia's previous right-leaning government took a hard line on China, recently resumed, including meetings between the defense ministers and foreign ministers of both countries.

Trump-Backed Candidate Wins Wisconsin Primary for Governor to Take on Evers

The businessman former President Donald Trump backed in Wisconsin's Republican primary for governor won the right to take on Democratic Gov. Tony Evers in November's election, a race that's expected to be one of the nation's most hotly contested.

Tim Michels, co-owner of the state's largest construction company, was declared the winner Tuesday evening by the Associated Press. He beat former Wisconsin Lt. Gov. Rebecca Kleefisch, a onetime television reporter and anchor.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

August 10, 2022 05:56 ET (09:56 GMT)

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