European Midday Briefing: Shares Fall Ahead of U.S. Inflation Data

Adam

Summary:

European shares fell before U.S. inflation data, pressured by UK tax concerns, while defense stocks rose. Dollar strengthened, bonds traded cautiously, oil slipped, gas declined, gold steadied, and EU inflation slowed.

MARKET WRAPS

Stocks in Europe fell Friday ahead of the July edition of the Federal Reserve's preferred inflation measure, the personal-consumption expenditures index.

In the U.K. reports of another tax increase to shore up the country's finances were weighing on financial stocks, putting pressure on banking shares .

"The drip feed of potential tax rises to be included in this budget have dominated the papers this month, however, so far, the FTSE 100 has been resilient," XTB said.

Yet, it now seems the Treasury Chief was going after the index's big hitters like banks, it added, which could weigh on the index ahead of the autumn budget.

In contrast, European defense stocks climbed as underlying political risks and structural shifts toward higher defense spending remained compelling for long-term investors, Deutsche Bank said.

Although hopes for a cease-fire in Ukraine dampened enthusiasm for the sector, valuations have moderated slightly from their June high and remained elevated.

"Less U.S. commitment to fund European defense needs, new NATO targets involving European re-armament and ongoing tensions in the Middle East and Eastern Europe should provide sustained demand in the longer term."

Stocks to Watch

AXA' s recent share-price fall was overdone and offers an opportunity, Berenberg said.

"With its strong solvency and broad geographic diversification, it is well-placed to face any challenges."

The risk-reward balance in Schaeffler AG shares seemed attractive going into the company's capital markets day mid-September, Citi said as it raised its recommendation on the stock to buy from neutral and increased the target price to 6.75 euros from 5.00 euros.

Swedbank's consolidation of Entercard was set to lift consensus estimates for net interest income and fees, Citi said separately.

U.S. Markets:

Stock futures edged lower ahead of the release of the PCE index.

In addition, a judge is expected to rule this morning on Fed governor Lisa Cook's bid for a temporary restraining order against Trump.

Cook sued Trump on Thursday, seeking to block him from firing her from the central bank.

Results from Chinese e-commerce giant Alibaba are due this morning.

Forex:

The dollar rose modestly after Fed Governor Christopher Waller said he didn't believe a jumbo rate cut was necessary in September.

Waller said Thursday he would support a 25 basis-point cut but felt that a 50 basis-point move was unwarranted based on current data.

The comments came after U.S. economic growth data were revised higher Thursday.

Meanwhile, U.S. core personal consumption expenditures price data, should remain too elevated to support a larger imminent rate cut, Commerzbank said.

The "downside potential for the dollar is likely to remain limited for the time being."

Bonds:

SEB expected downtrend is expected in Treasury rates, with Fed rate cuts--rather than fiscal concern--to be key for markets in the coming quarters.

"Historical patterns suggest that downside to bond yields may prevail throughout the easing cycle, which may extend until next autumn."

Barclays sees two-sided risks to its year-end target of 2.75% for 10-year Bund yields.

"We feel Bunds are primarily reliant on bullish impulses from abroad, whereas domestic factors continue to create a grind towards higher yields with the European Central Bank's wait-and-see approach."

In the short term, the tug of war between bullish and bearish factors is likely to leave Bunds in their recent range, albeit with a further upward drift, it added.

SEB said the 10-year Bund yield was expected to trade in the 2.60%-2.80% range through the autumn before rising to 3% next year.

Commerzbank recommended tactical longs if the 10-year Bund yield rises above 2.70%.

Dutch pension reform has seen their government bond yield curve steepen more than other eurozone countries year to date, Barclays said.

Energy:

Oil prices slipped but remained on track for a modest weekly gain, as traders balanced concerns over softer demand heading into the fall and risks of disruption to Russian supplies.

Both benchmarks settled higher in the previous session, supported by Ukraine's attacks on Russian energy infrastructure and German Chancellor Friedrich Merz reportedly saying direct talks between Russia's Vladimir Putin and Ukraine's Volodymyr Zelensky wouldn't happen.

"The lack of progress towards a peace deal means risks of sanctions and secondary tariffs continue to hang over the oil market," ING said.

However, growing fears of a looming supply glut later this year are clouding the market's outlook, capping price gains despite a higher geopolitical-risk premium. #

Gas

European gas prices were set for a weekly loss of more than 6%, as the region continued to replenish its inventories despite lower Norwegian flows due to maintenance works.

"Europe is heading into the winter better prepared than predicted a few months ago," ANZ said.

"Fuel storage sites are more than 76%, putting them on track to reach 80% within a month, a level they are legally required to meet by November 1."

Prices were also supported by increased availability of LNG cargoes as China scales back its imports amid ample domestic supplies.

Metals:

Gold futures inched lower but were on track to end the week significantly higher on mounting expectations of a September U.S. rate cut.

The medium-term outlook for gold is cautiously positive, though short-term gold prices may fluctuate sharply on economic data,

Aluminum

Aluminum prices rose as producers warn of supply constraints in the base metal.

Beijing has capped aluminum smelting capacity to rein in power consumption and emissions, ANZ said.

EMEA HEADLINES

Inflation Shows No Sign of Accelerating in France, Spain as ECB Mulls Next Steps

Annual inflation showed no signs of picking up pace in two of the eurozone's largest economies, maintaining a slim possibility of a fresh cut to interest rates at next month's European Central Bank policy meeting.

French consumer-price inflation, harmonized to European Union standards, was 0.8% in August, slowing from a 0.9% annual rate in July, figures from France's statistics agency showed Friday. The continued easing in price rises in the eurozone's second-largest economy takes annual inflation further below the 2% level ECB policymakers consider optimal. That represents "a glimmer of hope for ECB doves," Pantheon Macroeconomics' Claus Vistesen wrote.

E.U. to Scrap Duties on U.S. Industrial Goods as It Scrambles to Soften Auto Tariff Blow

The European Union will move to eliminate all tariffs on U.S. industrial imports and expand access for American farm products, part of an effort to shield European automakers from steeper duties on their exports to the U.S.

The proposals follow a joint statement last week in which Brussels and Washington agreed to cut levies on European autos to 15% from a provisional rate of 27.5%. In return, the EU committed to lowering tariffs on a range of U.S. goods.

Europe Moves to Reimpose Sanctions on Iran for Nuclear Work

BERLIN-The U.K., France and Germany moved to reimpose all the international sanctions on Iran that had been lifted under the 2015 nuclear deal, a decision that European governments hope will compel Tehran to resume nuclear negotiations with the Trump administration.

The European countries said they had triggered the so-called sanctions snapback because of Iran's broad breaches of the terms of the 2015 deal. The U.S. left the agreement in 2018 but the three European countries, Iran, Russia and China remained part of it.

GLOBAL NEWS

Trump Leans on National Security to Justify Next Wave of Tariffs

The Trump administration plans to expand national-security tariffs on steel, aluminum and a variety of other industries in coming months in hopes of redirecting production in these sectors to the U.S. and thwarting potential legal threats in the trade war.

Tariffs on steel and aluminum were expanded this month, covering more than 400 new product lines with 50% levies and increasing compliance costs for companies. Those charges will likely be broadened further, along with expansions of existing tariffs on copper and automotive parts.

New Trial Ordered for Three Former Police Officers in Death of Tyre Nichols

A Tennessee judge has ordered a new trial for three former Memphis police officers previously convicted of federal charges in the beating death of Tyre Nichols, after their lawyers argued the judge who handled their trial was biased against them.

U.S. District Judge Sheryl Lipman on Thursday ordered the new trial for Tadarrius Bean, Demetrius Haley and Justin Smith. The former police officers had been found guilty in October 2024 on federal charges connected to the death of Nichols. Two other officers also charged had pleaded guilty before the federal trial.

ICE Eyes Naval Base Outside Chicago as Operations Center

The Trump administration is weighing the use of a naval base north of Chicago as an ICE operations center, border czar Tom Homan said Thursday.

"The planning is still being discussed," Homan told reporters.

Chinese Money Launderers Are Moving Billions Through U.S. Banks

Chinese money launderers appear to have moved some $312 billion in illicit transactions through U.S. banks and other financial institutions in recent years to aid Mexican drug cartels and other criminals, the Treasury Department said.

This growing marketplace connecting dirty cash from Mexico's drug cartels to Chinese expats looking to get their savings out of China is drawing scrutiny from the Trump administration, which wants banks to help crack down.

Source: morningstar

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