European Midday Briefing : Weak China Data Dampens Sentiment

MARKET WRAPS

Stocks:

European shares suffered losses on Tuesday, tracking falls in Asia after weak Chinese trade data, which showed both exports and imports dropping by more than expected.

"A worsening export contraction means weaker production, while rapidly deteriorating imports reflects weaker demand within China," Nomura said.

"Markets appear to have become too bullish over the past couple of weeks by overestimating Beijing's policy support and underestimating the downward pressures."

Focus also centers on inflation figures from China and the U.S. this week.

"Earnings season continues to diminish in the pace of figures to be released, leaving the inflation figures the main data to watch for traders," IG said.

The U.S. CPI data will be critical for providing market participants with clues about the Fed's policy trajectory, CMC Markets said.

Stocks to Watch

BioNTech's first-half results made it clear that sustainable profitability isn't a given for the company, although it developed one of the best-selling products ever, Kempen Life Sciences Research said.

The German biotechnology company's guidance on the other hand looks more encouraging, with reiterated sales expectations for the Covid-19 vaccine and lowered expenses, it added.

Although it remains to be seen where the company ends up for the year--given that the vaccine's revenue kick in is in the second half--the expense tightening should help the company steer clear from returning to cash-burning territory, according to Kempen.

U.S. Markets:

Stock futures declined after Moody's Investors Service downgraded its debt ratings on a number of small and midsize banks and said it may downgrade the credit ratings on six major banks.

U.S. Bancorp declined 1.2% and State Street fell 1.2% premarket.

Read Barron's Moody's Raises Alarm on U.S. Banks. It's a Reminder of the Turmoil in March.

Government bond prices climbed, pushing yields down. The benchmark 10-year Treasury yield fell toward 4%, from 4.076% on Monday.

Economic updates set for release include trade balance for June and the June wholesale inventories.

There will also be more Fedspeak from Philadelphia Fed President Harker and Richmond Fed President Barkin.

More Stocks to Watch

International Flavors & Fragrances fell 21% after cutting its sales forecast for the year.

Paramount Global was rising 4% after it agreed to sell book publisher Simon & Schuster to KKR for $1.62 billion in cash.

Follow WSJ markets coverage here

Forex:

The dollar edged higher on safe-haven demand as stocks faltered following weak Chinese trade data.

The currency didn't get much of a lift after the Fed's Michelle Bowman said on Monday that more interest-rate hikes would likely be needed, and Commerzbank said economic data are currently more important for the dollar than Fed comments.

"Only if we know this data, comments like the ones made by Bowman can be relevant for dollar exchange rates," it said.

Thursday's inflation data in particular will be closely watched, Commerzbank added.

Energy:

Oil prices declined after the Chinese economic data.

"China trade numbers for July continued to point to weak economic activity and subdued domestic demand," CMC Markets said.

"With numbers this poor it surely can't be too long before Chinese policymakers take further steps to support their economy."

Metals:

Base metal and gold prices were falling as weak economic data from China continued to signal poor demand for industrial goods.

The drop in exports highlights how "the world's second biggest economy is being dragged lower by weakness in global demand and a domestic slowdown," Deutsche Bank said.

DOW JONES NEWSPLUS

EMEA HEADLINES

Glencore Profit Plunges on Commodity-Price Decline

Glencore reported a drop in first-half profit after the weakening of energy markets, inflationary pressures and limited global economic growth contributed to the material decline of commodity prices in the period.

The Anglo-Swiss commodity mining and trading company on Tuesday reported net profit of $4.57 billion for the six months ended June 30 compared with $12.09 billion a year earlier.

Italian Bank Shares Plunge on Windfall Tax

Shares in Italian banks fell sharply Tuesday, and dragged down European peers, after the Italian government approved a windfall tax on their profits limited to 2023.

At 0803 GMT, shares in Intesa Sanpaolo and UniCredit dropped 6.8% and 5.2%, respectively. Smaller banks Banco BPM, BPER Banca and Banca Monte dei Paschi di Siena all fell more than 6%. Most European banks traded lower, and the Stoxx Europe 600 Banks index was down 1.5%.

Bayer Hit by Around $2.5 Bln of Impairments at Ailing Crop Business

Bayer booked impairments and charges related to its agricultural business, where lower glyphosate prices weighed, leading to a widened second-quarter loss, it said Tuesday.

The German pharmaceutical and agricultural company said impairment losses of 2.30 billion euros ($2.53 billion) dragged earnings, and posted a net loss for the quarter of EUR1.88 billion. In the same quarter the previous year, the net loss had been EUR298 million.

UK Retail Sales Rose in July Though Volumes Dropped on Poor Weather, BRC Says

Retail sales in the U.K. increased in July, though this masks a drop in volumes as wet weather dampened shopper demand, the latest sales-monitor report from the British Retail Consortium showed on Tuesday.

Total retail sales for the four weeks to July 29 increased 1.5% compared with the prior month, below the three-month average growth of 3.5%, the report said. In July last year, retail sales rose 2.3%.

GLOBAL NEWS

Chinese Exports Fall at Steepest Pace Since February 2020

HONG KONG-China's exports to the rest of the world tumbled in July, adding to the challenges for the world's second-largest economy and offering fresh evidence that a drying up of Western demand is hurting Beijing's attempts to rekindle growth.

After a short-lived rebound in the spring, goods exports from China resumed a long-term slide that dates to October last year, when consumers in Western developed countries began shifting their spending away from buying furniture and electronic gadgets, and instead diverted it toward services such as entertainment and dining out.

New Lending by Mortgage REITs Has Dried Up

Some of the biggest names in commercial real-estate lending have all but turned off the spigot.

Blackstone Mortgage Trust and KKR Real Estate Finance Trust, two of the biggest mortgage real-estate investment trusts, have halted loans to any new borrowers. While these firms continued to provide financing related to existing loans, they didn't originate any new loans during the first half of this year, according to the companies. Starwood Property Trust, another lender in the sector, has greatly decreased its appetite for new lending in recent quarters, securities filings show.

Surprise Stock-Market Rally Bulldozes Bearish Hedge Funds

Betting against U.S. stocks has gone poorly for Wall Street speculators.

July's gains left hedge funds closing out so-called short positions and cutting risk at the fastest pace in years, according to data from Goldman Sachs' prime brokerage unit, which caters to hedge funds. The cumulative dollar amount of short covering by hedge funds in June and July combined was the largest over a two-month period since 2016.

China Reassures Russia on Ukraine After Meeting With Others on How to End the War

SINGAPORE-China's top diplomat assured Russia that Beijing hasn't wavered in its stance on the Ukraine war, right after a Chinese envoy joined a multilateral forum-which excluded Moscow-to discuss ways to end the conflict.

In a Monday call, Chinese Foreign Minister Wang Yi and his Russian counterpart, Sergei Lavrov, affirmed the strong partnership between their governments and promised to keep working together to resist Western efforts to contain their countries' development, according to readouts from both foreign ministries.

Why Democrats Lost Iowa

Just about every Republican presidential candidate plans to attend the Iowa State Fair that begins in Des Moines this week. But don't expect to see President Biden there.

Iowa was once a center of gravity for both political parties during presidential elections and a key swing state. In recent years, it has turned so red that Democrats have little political power in the state and the party's candidates have few reasons to go.

Trump's Lawyers Argue Protective Order Would Violate His Free-Speech Rights

WASHINGTON-Donald Trump's lawyers on Monday clashed with prosecutors over how much evidence the former president should be able to access in the federal case charging him with conspiring to overturn his 2020 election loss, the first of many expected battles over free speech and the integrity of the sprawling probe.

In dueling court filings, Trump's team said prosecutors' request to prevent him from publicly airing any evidence violates his First Amendment rights, while prosecutors accused the defense of trying to let Trump "try this case in the media rather than in the courtroom."

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

(END) Dow Jones Newswires

08-08-23 0620ET