MARKET WRAPS

Watch For:

EU Foreign Trade; Germany ZEW Indicator; UK Unemployment; no major corporate updates expected

Opening Call:

Europe is poised for a positive open after U.S. shares reversed course from a lower start to finish Monday's session with solid gains. In Asia, stocks mostly tracked Wall Street's bounce; while the dollar, Treasury yields, oil and metals all edged lower.

Equities:

European equities should extend their winning streak on Tuesday, tracking Wall Street's rebound.

U.S. stocks bounced back from a lower open on Monday, handing the Dow its longest run of gains since late May, as investors looked past soft data out of China and U.S. data that missed forecasts. Asian markets echoed the U.S. gains early Tuesday.

Stocks have been buoyed by recent data showing U.S. inflation was cooling, though still running quite hot.

"The good news on inflation coming on the heels of a very strong July payrolls report has reinvigorated belief in a 'soft landing' for the economy," UBS Global Wealth Management said.

"This is an outcome that we thought was at least as likely as a recession, and now the markets are moving closer to pricing in this scenario. The risk is that the markets get ahead of themselves, especially with investor FOMO starting to kick in."

Economic Insight:

Morgan Stanley said supply-chain pressures continue to ease.

The July Morgan Stanley Supply Chain Index eased due to "improvement in global costs of shipping raw materials, better delivery times and backlogs in some economies, and an incipient drop in containership charter rates."

It added: "Supply chains are still under stress, and we are still far from normal levels, but July's print confirmed the break we saw in June and we do not see signs of a slowing pace of improvement."

Forex:

The dollar eased back slightly in Asia after its strong gains on Monday spurred by China's disappointing economic data.

HSBC said the dollar should remain strong as it's too early for the Federal Reserve to pivot towards cutting interest rates. Even when the Fed eventually does cut rates, it's unlikely to happen in isolation with other central banks following suit.

"As such, it is likely that the USD can remain on the front foot as the U.S. is better to withstand the softening global economic momentum and other central banks appear to have more room to disappoint the markets in the months ahead."

Bonds:

Treasury yields fell further in Asia with the 10-year rate remaining below 2.8%.

In data released on Monday, the New York Fed's Empire State manufacturing index, a gauge of manufacturing activity in the state, plummeted in August, while a home-builder's sentiment index fell 6 points to 49, the first time it's been below break-even since May 2020.

"The front end of the U.S. curve prices 25bp more in Fed hikes than it did at the end of July, but a 3.5-3.75% peak funds rate still seems modest and the turn in rates after 1Q next year will only happen if the yield curve is 100% right in warning of upcoming recession," said Société Générale.

"[The] concern now is that the path of least resistance is for the front end of the U.S. rates market to price in more, as Fed officials have no choice but to sound tough in the face of a very, very tight labour market and far too-high inflation."

Energy:

Oil prices extended their retreat in early Asia trade after China's economic data raised fears that a slowing global economy will reduce demand for energy products.

The data "doesn't bode well for oil demand especially when the country remains so committed to zero-Covid," OANDA said. "And with cases continuing to rise, the downward pressure on oil prices could intensify."

Oil futures settled with a loss of around 3% on Monday with prospects for the revival of the Iran nuclear deal, which could lead to more global crude supplies, also contributing to oil's heavy losses.

Read: Iran Says Some Issues Still Pending as Deadline for Nuclear Deal Looms

Metals:

Gold futures edged lower still in Asia, having dropped below $1,800 on Monday to settle at their lowest level in more than a week. However, losses were contained early Tuesday as the dollar lost some traction.

---

Copper prices were slightly weaker in further reaction to the China economic data.

Meanwhile, supply-side issues in Europe will also likely remain in focus, as rising power prices have led to many smelters running at a loss. "This could see further cuts to capacity over the coming months," ANZ said.

---

Most iron ore futures were a touch lower after data showed crude steel output dropped 6.4% on year in July, weighing on the iron ore market, ANZ said.

Overall, the lack of any sizable pickup in China's infrastructure investment has added to headwinds which the steel industry is likely to face in coming months.

   
 
 

TODAY'S TOP HEADLINES

Freight Demand Is Moderating Heading Toward the Fourth Quarter

   
 
 

Warren Buffett's Berkshire Hathaway Keeps Spending Through Volatile Markets

Warren Buffett's Berkshire Hathaway Inc. scooped up millions more shares of Apple Inc. and doubled down on its energy investments, while the stock market swooned in the second quarter.

The moves were made public in Berkshire's 13F filing, which was released after the stock market closed Monday. Regulations require institutional investors managing more than $100 million to file the form, which lays out firms' equity holdings as of the end of the most recent quarter, as well as the size and market value of their positions.

   
 
 

There Is No Preset Path for Australian Rate Rises, RBA Says

SYDNEY-The Reserve Bank of Australia is staying flexible on the size and pace of future interest-rate rises, underlining in the minutes of its Aug. 2 board meeting the need to respond to a shifting inflation outlook and labor data.

The minutes, published Tuesday, repeated the RBA's warning that the path to reining in inflation while maintaining economic growth is narrow.

   
 
 

Iran Says Some Issues Still Pending as Deadline for Nuclear Deal Looms

Iran on Monday said there were several issues with the nuclear-deal draft text that the U.S. needs to address before Tehran can agree to it, leaving the fate of the nuclear agreement's revival still uncertain.

The European Union had set Monday as the deadline for Iran, the U.S. and the other countries in the 2015 deal to say whether they would accept the deal or not, according to diplomats. The EU last week circulated what it called a "final text" on reviving the accord and sent the draft following four days of talks in Vienna, saying the 16 months of negotiations were now over.

   
 
 

China Restarts Military Drills in Response to Latest U.S. Lawmakers' Visit to Taiwan

TAIPEI-China's military responded to the surprise arrival in Taiwan of a new delegation of U.S. lawmakers by announcing a resumption of military drills around the island, in the latest flare-up of tensions in the region.

The delegation, led by Senate Foreign Relations Committee member Ed Markey (D., Mass.), met with Taiwanese President Tsai Ing-wen on Monday to discuss maintenance of regional stability and deepening U.S.-Taiwan trade, according to Taiwan's presidential office. The group arrived in Taipei on Sunday without having previously announced the two-day visit.

   
 
 

Ukraine Urges Civilians to Leave Kherson as It Prepares Bid to Retake Russian-Held Territory

KYIV, Ukraine-Kyiv is urging residents of the Russian-occupied Kherson region to leave before a winter exacerbated by shortages sets in and ahead of a promised Ukrainian counteroffensive to retake the strategic area.

"Evacuate. A harsh winter is coming. We need to help you, to save you from the cold and the enemy," Deputy Prime Minister Iryna Vereshchuk said Sunday in Zaporizhzhia, a city near the front line.

   
 
 

Write to paul.larkins@dowjones.com

   
 
 

Expected Major Events for Tuesday

06:00/UK: Jul UK monthly unemployment figures

07:00/SVK: Jun New orders in industry

07:00/CZE: Jul PPI

07:00/SVK: 2Q Flash estimate of GDP

07:00/SVK: 2Q Flash estimate of total employment

08:00/BUL: Jul CPI

08:00/POL: Jun Merchandise trade

09:00/GER: Aug ZEW Indicator of Economic Sentiment

09:00/EU: Jun Foreign trade

23:01/UK: Jul Scottish Retail Sales Monitor

All times in GMT. Powered by Onclusive and Dow Jones.

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

 

(END) Dow Jones Newswires

August 16, 2022 00:16 ET (04:16 GMT)

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