MARKET WRAPS

Watch For:

EU GDP, Unemployment; UK Producer Prices, Monthly Inflation, House Price Index; France New Home Sales; FOMC Meeting Minutes; no major corporate updates expected

Opening Call:

Solid gains on Wall Street, fueled by a rally in retail stocks, should support a firmer European start on Wednesday. In Asia, shares advanced; the dollar dipped; Treasury yields were little changed; and oil and gold moved higher.

Equities:

European stocks should start Wednesday's session with further gains after Wall Street closed solidly higher with retail earnings in focus.

A rally in retailer shares drove the Dow Industrials to a fifth day of gains on Tuesday, with both the Dow and S&P 500 closing at their highest levels since late April.

Joe Saluzzi, co-head of equity trading at Themis Trading, pointed out that Wal-Mart and Home Depot were responsible for more than half of the Dow's gain.

"Any sign that the consumer is still strong is a good thing. The market is shaking off a lot of the recessionary concerns and saying 'well maybe inflation has peaked. Maybe the economy has achieved the soft landing that people were hoping for.'"

Stocks to Watch:

While mining shares are likely to be volatile in the near term, the general trend over the next six-to-12 months should be higher, according to Jefferies analysts.

They predict Chinese policies will cause a gradual recovery in commodity demand that will offset a slowdown in the U.S. and Europe.

"Recent comments from the CEOs of BHP and Glencore indicate that they share this view about a gradual China recovery as well. It is clear, however, that the macro environment is very fragile."

Economic Insight:

Evercore ISI analysts do not believe that Jerome Powell will signal a new monetary policy path at the upcoming Jackson Hole gathering even as signs of easing inflation are causing market participants to expect just such a move.

"We think Powell will argue that policy is entering a more data-dependent phase as it moves to restrictive territory and the Fed is open-minded as to how this cycle may evolve, but the FOMC is sharply focused on restoring price stability, judges that recent data overall suggests it is still in the early stages of this process with plenty of wood left to chop, and is resolved to stay the course and finish the job."

Evercore ISI added that Powell will appear "resolutely hawkish."

Forex:

The dollar was slightly lower in Asia, with the release of the FOMC meeting minutes the focus of attention in currency markets.

Given Jerome Powell's post-FOMC meeting comments that it will be "appropriate to slow the pace of rate increases", the minutes may also give the same signal and reinforce market expectations of a smaller rate increase next month versus another over-sized 75bps increase, MUFG Bank said. It expects the dollar to range trade in view of the flattish profile of the USD Index.

Silicon Valley Bank said there's been an uptick in the dollar since last week's encouraging inflation data but highlighted the recent Chinese data--which has raised concerns globally of a hard landing--and the poor U.S. housing data.

"There's some risk aversion setting in but this is primarily driven by growth concerns as opposed to inflation."

Bonds:

Treasury yields barely moved in Asia having nudged higher on Tuesday, pushing the 10-year rate back above 2.8%.

Bond buyers have been on the back foot, as the rally on Monday--bolstered by a very weak U.S. East Coast manufacturing survey and signs of a slowing Chinese economy--has faded.

"After U.S. activity and inflation data last week had an air of 'goldilocks' feel to them, economic data out of China and the U.S. to start the week came in clearly on the 'too cold' side for global growth, " NatWest Markets said.

Energy:

Oil futures edged higher in Asia after they settled around 3% lower on Tuesday.

The weak economic data out of China and developments tied to a draft Iran nuclear deal weighed on prices, pulling WTI to its lowest settlement since late January.

Other News:

The API reported U.S. inventories of crude oil fell by 448,000 barrels in the latest week, while gasoline supplies dropped by 4.5 million barrels.

The mixed-to-slightly-bullish results were released ahead of official inventory data from the EIA due later Wednesday. Average forecasts in a WSJ survey indicate the EIA report will show crude inventories rose by 100,000 barrels and that gasoline supplies decreased by 900,000 barrels.

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The climate risk-disclosure rules proposed by the SEC, if approved, would require publicly traded private-capital firms like Blackstone, Carlyle and KKR to report the carbon footprint of their portfolio companies, according to MSCI. Using data from Burgiss, MSCI estimates that 11% of global privately held capital would be affected.

"That's a small but meaningful share of the world's estimated $5.4 trillion in privately held assets. The [new rules] may represent the camel's nose under the tent as the SEC indirectly brings climate transparency to private companies--albeit for a limited subset."

Metals:

Gold futures were a few cents higher, recovering from early losses as the dollar dipped.

Near-term demand for precious metals like gold may be dented by concerns over further rate increases by the Fed to cool down inflation, ICICI Securities said. It said investors will remain cautious ahead of a series of upcoming macroeconomic data from the U.S.

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Zinc declined, pulling back after rising on Tuesday.

The metal's sharp gains had followed news that Dutch metals producer Nyrstar will be closing its Budel smelter in the Netherlands until further notice from Sept. 1, ANZ analysts said.

"Zinc production in Europe has been on a steady decline over the past 18 months as high energy costs have curtailed output. This has left LME's European warehouses virtually empty of metal," ANZ said, adding that such supply issues may push the zinc market into deficit this year.

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Iron-ore futures were slightly weaker on demand concerns.

The latest data from China's National Bureau of Statistics showed that crude steel output fell 6.4% on year in July, as demand from the property sector continues to worsen, ING said.

Shandong province, the country's third-largest steel-producing hub, plans to cap steel output at around 76 million tons in 2022, slightly below the 76.5 million tons produced last year, ING added.


TODAY'S TOP HEADLINES

Heat Wave Intensifies Energy Crisis in Europe

Natural-gas prices in Europe closed at a new record Tuesday, with hot summer weather boosting fuel demand and Russia throttling back supplies.

Europe has contended since June with drastically lower imports of gas from Russia, until recently its biggest supplier by far. Moscow cut flows through the Nord Stream pipeline by 80% to punish Germany and others for supporting Ukraine. Fearing President Vladimir Putin will order a full cutoff, the European Union has embarked on a plan to conserve gas now to burn it over the winter.


New Zealand Central Bank Raises Cash Rate, Sees More Tightening

WELLINGTON, New Zealand-The Reserve Bank of New Zealand raised its benchmark interest rate by 50 basis points for a fourth consecutive time and said more monetary tightening is needed to control high inflation.

The central bank's decision on Wednesday increased the official cash rate to 3.0% from 2.5%. The RBNZ's cash rate is now at its highest in seven years and has been raised by 275 basis points since October, when it was at a record-low 0.25%.


Japan Exports Grew for 17th Consecutive Month in July

Japan's exports rose for the 17th month in a row in July, driven by strong demand for autos and mineral fuels, Ministry of Finance data showed Wednesday.

Exports rose 19% in July from a year earlier, which was slightly stronger than the 18.2% increase expected by economists surveyed by FactSet. Exports rose 19.4% in June.


Home Building Fell Sharply in July as Costs Increased

House construction in the U.S. continued to slow in July, as high inflation and higher mortgage rates make it more expensive to build and buy property.

Housing starts in July fell 9.6% from the month before to a seasonally adjusted annual rate of 1.45 million, the Commerce Department said Tuesday, down from a revised 1.6 million the prior month.


Germany to Keep Last Three Nuclear-Power Plants Running in Policy U-Turn

BERLIN-Germany plans to postpone the closure of the country's last three nuclear power plants as it braces for a possible shortage of energy this winter after Russia throttled gas supplies to the country, said German government officials.

While temporary, the move would mark the first departure from a policy initiated in the early 2000s to phase out nuclear energy in Germany and which had over time become enshrined in political consensus.


U.S. Approves Nearly All Tech Exports to China, Data Shows

A Commerce Department-led process that reviews U.S. tech exports to China approves almost all requests and has overseen an increase in sales of some particularly important technologies, according to an analysis of trade data.

Of the U.S.'s total $125 billion in exports to China in 2020, officials required a license for less than half a percent, Commerce Department data shows. Of that fraction, the agency approved 94%, or 2,652, applications for technology exports to China, the analysis showed.


U.S. to Buy Ukraine Grain, as Ship Traffic Increases

The U.S. Agency for International Development is spending more than $68 million to purchase and ship Ukrainian grain in the largest such export deal since Russia's invasion this year and the start of a July agreement to allow for renewed shipments from Ukraine's Black Sea ports.

USAID is providing the funds to the World Food Program, a United Nations agency that historically gets the biggest part of its grain from Ukraine, to purchase, ship and store up to 150,000 metric tons of wheat, the agency said.


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08-17-22 0046ET