Stocks in Europe were slightly lower Wednesday morning but had erased early, heavier losses as investors continued to react to data showing US inflation had eased slightly in August but remained elevated.
“There has been a fresh bout of anxiety in financial markets amid concerns that inflation is still proving to be a formidable enemy to take down,” said Hargreaves Lansdown.
Referring to the latest UK CPI figure, Hargreaves Lansdown said the Bank of England “can’t rest” but is not expected to hike interest rates as aggressively as the Federal Reserve.”
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Ocado was downgraded to underperform from neutral by Credit Suisse, with its price target cut 39% to 590 pence from 960 pence.
The “benefits of Ocado’s advanced technologies are not delivering consistent results in retail joint ventures,” Credit Suisse said, adding that Ocado likely has “seized major market opportunities with exclusive agreements in most major developed markets.”
And higher costs in the grocery sector and a slowdown in online grocery deliveries could pose risks to existing partnerships, Credit Suisse said.
ABN Amro has raised its forecast for the European Central Bank’s deposit rate and expects it to settle at 2% by 2023 from its previous forecast of a peak of 1.5%.
“We now expect that the ECB will most likely raise its deposit rate to 2% by the end of this year,” it said.
Following last week’s ECB rate hike of 75 basis points, ABN Amro expects another 75 basis point hike in October, followed by a 50 basis point move in December.
Stock futures rose after major indexes suffered their worst day since June 2020 on Tuesday.
The yield on the benchmark 10-year government bond edged up, with the yield on the two-year bond, which is more sensitive to near-term interest rate expectations, also rising.
The rise in bond yields the day before was another indication that investors expect further upward pressure on rates after the inflation data.
“Hope for a dovish turn on Fed policy is clearly dashed,” Swissquote Bank said.
“Fed fund futures activity is pricing a 100% chance of a rate hike of at least 75 basis points at next week’s FOMC meeting, while 34% chance of a 100 basis point hike next week.”
The dollar eased slightly after rising sharply in reaction to Tuesday’s higher-than-expected US inflation data.
The dollar’s reaction to the data comes as Fed officials have “done quite a bit over the past few weeks to boost their credibility in fighting inflation,” Commerzbank said.
“From a market perspective, stubbornly high levels of inflation increase the likelihood of larger rate hikes by the Fed.”
Room for a rise in the euro will remain limited while the Fed maintains dovish policy and that is unlikely to change given Tuesday’s inflation data, UniCredit Research said.
Evidence that US CPI did not fall sharply in August and that core inflation was rising “thwarted EUR/USD recovery attempts,” UniCredit said.
This highlights that factors hoisting the euro — including European Central Bank officials signaling further rate hikes, positive war developments in Ukraine reducing the dollar’s safe-haven appeal, and an EU debate to address rising energy prices — just helping the community The currency remains resilient rather than triggering a full turnaround, UniCredit said.
Sterling fell after data showed that UK inflation eased slightly in August, although remaining elevated.
Annual inflation fell to 9.9% in August from 10.1% in July, in line with expectations in a WSJ survey of analysts. However, core inflation rose as forecast from 6.2% in July to an annual rate of 6.3% in August.
“The moderation in headline inflation, driven by a cut in fuel prices, eases pressure on the Bank of England to trade ‘stronger’ than August, while core pressures remain… the need to continue raising rates towards hawkish zones said Monex Europe.
ING said the BOE should hike rates by a further 50 basis points at its September 22 meeting following inflation data, but the overall backdrop remains negative for sterling.
“Sterling should become an underperformer due to a large current account deficit and strong representation of the financial sector in the UK economy, slowing growth and weaker equity markets,” ING said.
It added that GBP/USD could retest the 1.1406 low and EUR/GBP could rally to the top of a 0.8650-0.8720 range.
Read: UK inflation easing likely to be short-lived
Citi has raised its forecast for year-end levels for 10-year German Bund yields, calling for a total of 125 basis points of interest rate hikes by the ECB this year before a 2% pause. [for the deposit rate].
“Previously, the final rate forecast was 1%, so this requires a revision of our Bund yield forecasts,” Citi said.
She expects Bund yields to average 1.80% to 1.95% over the coming quarters and surpass 2% by the end of 2023.
Read: Italy’s financing costs are manageable, but caution is advised
Weaker oil demand in China as the economy faces Covid-19 lockdowns is outweighing robust crude demand elsewhere in the world and will weigh on oil demand growth this year, the IEA said on Wednesday.
Read more here.
One challenge to the G-7’s proposed price cap on Russian oil will be getting Asian buyers on board, the Center for Strategic and International Studies said.
India and China enjoy discounted Russian crude and can buy as much as they want when not trading directly with sanctioned companies or individuals. In theory, a cap would mean even lower prices, but the CSIS believes countries could be wary of joining a cumbersome monitoring and enforcement system.
“They will also resent another imposition of Western energy sanctions.” Without full cooperation, the price cap would win a partial victory, avoiding market shortages and price spikes, but not dramatically reducing Russia’s oil revenues.
Weak macroeconomic sentiment continued to weigh on metals prices and investors continued to seek safe haven assets rather than risky commodities.
After Tuesday’s CPI print, “markets were extremely brutal as the only safe asset was the dollar rally,” Marex said.
It added that general optimism on metals has been lost in both Europe and China.
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According to the IEA, global oil demand will be undermined by China lockdowns
Weaker oil demand in China as the economy faces Covid-19 lockdowns is outweighing robust crude demand elsewhere in the world and will weigh on oil demand growth this year, the International Energy Agency said on Wednesday.
In its closely watched oil market report, the IEA cut its forecast for Chinese oil demand this year by 400,000 barrels per day to 15 million barrels per day, down 420,000 barrels per day from last year. For 2023, the Paris-based agency lowered its demand forecasts for China by 300,000 barrels per day but still expects demand to rise to 16 million barrels per day as restrictions related to the Covid-19 pandemic are eased.
UK inflation eased slightly in August due to lower fuel prices
UK inflation eased slightly in August on lower petrol prices, giving households some respite as they face an acute cost of living crisis which has prompted the government to impose a cap on energy prices.
The consumer price index – which measures what people pay for goods and services – rose 9.9% year on year in August, declining from 10.1% in July, the highest rate of inflation in more than four decades, data from the UK Bureaus for National Statistics revealed Wednesday.
Rio Tinto and Baowu agree on joint venture to develop $2 billion Australian iron ore project
Rio Tinto PLC announced that it has agreed to set up a joint venture with China Baowu Steel Group Corp. ltd to develop the $2 billion Western Range iron ore project in the Pilbara region of Australia.
Anglo-Australian mining company and China’s state-owned Baowu, its largest iron ore customer, also intend to sign a Baowu purchase agreement to buy nearly half of the mine’s production over a period of about 13 years. Rio Tinto intends to develop the project to maintain production of the company’s core product, Pilbara Blend, from its existing Paraburdoo mining center.
Zara owner Inditex sees share price rise after a strong start to the third quarter
Shares of Industria de Diseno Textil SA, owner of Zara, known as Inditex, rose on Wednesday after the Spanish fashion giant released better-than-expected sales for the fiscal first half and customers got their hands on fall and winter collections which signaled a strong start to the third quarter.
At 0745 GMT, Inditex shares were up 4.8% at EUR 23.00.
Google is losing most of the appeal of the EU Android decision
BRUSSELS-Alphabet Inc.’s Google lost most of its appeal, a €4.33 billion European Union antitrust decision.
Wednesday’s ruling is a vote of confidence in the European Commission, the bloc’s antitrust authority, which has aggressively targeted major US tech companies over concerns of anticompetitive behavior. The Android case was the largest of three antitrust fines totaling more than $8 billion the commission has imposed on Google since 2017 — and it focused on mobile phones, one of the company’s fastest-growing areas.
Ukraine is seeking more arms and closer ties with the West after gaining ground from Russia
KHARKIV, Ukraine- Attempting to maximize gains from a lightning-fast offensive in the northeastern Kharkiv region, Ukrainian forces made a diplomatic push for more weapons and deeper security ties with western allies.
(FOLLOWING) Dow Jones Newswires